<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998
REGISTRATION NO. 333-51029
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
COLLATERAL THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 33-0661290
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
--------------------------
9360 TOWNE CENTRE DRIVE, SAN DIEGO, CALIFORNIA 92121 (619) 824-6500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JACK W. REICH, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHRISTOPHER J. REINHARD
CHIEF OPERATING AND FINANCIAL OFFICER
COLLATERAL THERAPEUTICS, INC.
9360 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 824-6500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
Faye H. Russell, Esq. Jeffrey E. Cohen, Esq.
Maria P. Sendra, Esq. Carol B. Stubblefield, Esq.
BROBECK, PHLEGER & HARRISON LLP COUDERT BROTHERS
550 West "C" Street, Suite 1300 1114 Avenue of the Americas
San Diego, California 92101 New York, New York 10036
(619) 234-1966 (212) 626-4400
</TABLE>
--------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS 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: / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE 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 SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT
TO SAID SECTION 8(A) MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 3, 1998
PRELIMINARY PROSPECTUS
3,330,000 SHARES
[LOGO]
COMMON STOCK
All of the 3,330,000 shares of Common Stock offered hereby are being sold by
Collateral Therapeutics, Inc. ("Collateral" or the "Company"). Prior to this
offering (the "Offering"), there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $11.00 and $13.00 per share. See "Underwriting" for information
relating to determination of the initial public offering price. The Company has
applied for quotation on the Nasdaq National Market of its Common Stock under
the symbol "CLTX."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act").
(2) Before deducting expenses of the Company estimated at $800,000. See
"Underwriting."
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 499,500 additional shares of Common Stock, on the same terms and
conditions as set forth above, to cover over-allotments, if any. If all such
shares are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ and the total Proceeds to Company will be $ . See
"Underwriting."
------------------------
The shares of Common Stock are offered subject to prior sale, when, as and
if delivered and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made on or about , 1998, at the
office of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
BEAR, STEARNS & CO. INC.
RAYMOND JAMES & ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
The date of this Prospectus is , 1998
<PAGE>
[COLLATERAL THERAPEUTICS LOGO]
[PICTORIAL REPRESENTATION OF THE COMPANY'S NON-SURGICAL
CARDIOVASCULAR GENE THERAPY]
Collateral Therapeutics is seeking to develop non-surgical cardiovascular gene
therapy products focused on (1) angiogenesis as a treatment approach for
coronary artery disease, peripheral vascular disease and congestive heart
failure, (2) myocardial adrenergic signaling as a treatment for congestive heart
failure to enhance the heart's responsiveness to adrenergic stimulation, and (3)
heart muscle regeneration to improve cardiac function for patients who have
suffered a heart attack.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENTS, STABILIZING BIDS AND SHORT COVERING TRANSACTIONS AND THE
IMPLEMENTATION OF PENALTY BIDS. SEE "UNDERWRITING."
Collateral Therapeutics, GENERX, GENEVX, GENVASCOR, GENECOR, CORGENIC,
MYOCOR and the Collateral logo are trademarks of the Company.
Except where otherwise noted, all statistics regarding cardiovascular
diseases come from the American Heart Association, 1998 Heart and Stroke
Statistical Update.
[COLLATERAL THERAPEUTICS LOGO]
MODEL OF POTENTIAL ANGIOGENIC HEALING PROCESS
(1) Blocked artery due to build-up of fatty and plaque deposits inside the
lining of arterial wall (2) Signal of ischemic injury (3) Clinical diagnosis of
myocardial ischemia due to coronary artery disease (4) Collateral Therapeutics'
non-surgical proprietary gene therapy approach (5) & (6) Intra-arterial
administration of gene therapy product through cardiac catheter by an
interventional cardiologist (7) Transfection of angiogenic growth factor genes
into heart cells (8) The growth of collateral circulation following angiogenic
gene therapy (9) Improved blood flow and heart function following angiogenic
gene therapy
[Pictorial representation of each of the nine
phases described above]
[COLLATERAL THERAPEUTICS LOGO]
[MODEL OF POTENTIAL ANGIOGENIC HEALING PROCESS]
[Diagram of human heart surrounded by nine pictures illustrating, in a
counterclockwise direction, the nine phases of the angiogenic healing
process model described in the text of the illustration on the preceding
page.]
The Company's proprietary gene therapy products and proprietary
methods have not been approved by the United States Food and Drug
Administration ("FDA") for sale in the United States. Approval by
the FDA could take several years, and there can be no assurance
that such approval will ever be obtained. In addition, the
Company's gene therapy products and proprietary methods have not
been approved by international regulatory agencies for sale in
international markets. See "Risk Factors--Extensive Government
Regulation; No Assurance of Regulatory Approval."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE,
INCLUDING THE INFORMATION UNDER "RISK FACTORS." EXCEPT AS OTHERWISE NOTED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES (I) THE CONVERSION OF ALL OF THE
COMPANY'S OUTSTANDING SHARES OF SERIES A, SERIES B AND SERIES C PREFERRED STOCK,
PAR VALUE $0.001 PER SHARE (COLLECTIVELY, THE "PREFERRED STOCK"), INTO AN
AGGREGATE OF 2,320,926 SHARES OF THE COMMON STOCK OF THE COMPANY, PAR VALUE
$0.001 PER SHARE (THE "COMMON STOCK"), UPON THE SALE OF COMMON STOCK IN THIS
OFFERING, (II) THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS SIMULTANEOUSLY WITH THE COMPLETION OF THIS OFFERING AND
(III) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THIS PROSPECTUS
MAY CONTAIN, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS AND THE
TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED UNDER "RISK FACTORS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS."
THE COMPANY
Collateral is focused on the discovery, development and commercialization of
non-surgical gene therapy products for the treatment of cardiovascular diseases,
including coronary artery disease, peripheral vascular disease, congestive heart
failure and heart attack. The Company believes that its products under
development hold the potential to revolutionize the treatment of cardiovascular
diseases and become a new standard of care by offering patients simpler, more
cost-effective and lower-risk alternatives to currently available treatments,
such as coronary artery bypass surgery ("Coronary Bypass Surgery") and
angioplasty. The Company's initial gene therapy products are designed to promote
and enhance angiogenesis, a natural biological process which results in the
growth of additional blood vessels, to restore adequate levels of blood flow to
oxygen-deprived tissues. IN VIVO preclinical studies led by the Company's chief
scientist have demonstrated high-yield gene transfer to heart muscle cells and,
for the first time, angiogenesis sufficient to normalize cardiac flow and
function. In addition, these preclinical studies showed no significant side
effects such as inflammation or immune response. The Company's angiogenic
products are administered using proprietary methods of gene therapy based on
non-surgical adenoviral vector delivery of angiogenic genes to the heart. Such
products are intended to be non-surgically administered by an interventional
cardiologist by a one-time intra-coronary injection through a cardiac catheter,
and could be administered at the time of initial angiography, on an out-patient
basis. In addition to the Company's angiogenic products, the Company is also
actively researching gene therapy products designed to increase responsiveness
of the heart to adrenergic stimulation and to stimulate heart muscle
regeneration, and is seeking to broaden its proprietary methods of gene therapy
to include adeno-associated viral ("AAV") gene delivery vectors.
GENERX-TM-, the Company's initial angiogenic product for the treatment of
coronary artery disease, is designed to relieve stable exertional angina. The
Phase I/II clinical trial for GENERX (which uses the FGF-4 gene) began in May
1998 pursuant to a commercial Investigational New Drug application ("IND") filed
with the U.S. Food and Drug Administration ("FDA") in December 1997 by the
Company's strategic partner, Schering AG, Germany ("Schering AG"). Other
non-surgical cardiovascular gene therapy products being developed by the Company
are: (i) GENEVX-TM- (which uses a VEGF gene), also an angiogenic treatment for
coronary artery disease designed to relieve stable exertional angina; (ii)
GENVASCOR-TM- (which uses the FGF-4 gene), an angiogenic treatment for
peripheral vascular disease; (iii) GENECOR-TM-, an angiogenic treatment for
congestive heart failure; (iv) CORGENIC-TM-, a treatment for congestive heart
failure to enhance responsiveness of the heart to adrenergic stimulation; and
(v) MYOCOR-TM-, a treatment for patients who have suffered a heart attack, which
is focused on heart muscle regeneration and improvement of cardiac function.
3
<PAGE>
The Company has assembled a broad portfolio of therapeutic genes which were
exclusively licensed or internally discovered and for which either patents have
been issued or patent applications have been filed for use in the development of
cardiovascular gene therapy products. The Company's portfolio includes 11
proprietary human genes in the Fibroblast Growth Factor ("FGF") and Vascular
Endothelial Growth Factor ("VEGF") gene families to be used in the Company's
angiogenic gene therapy products. In addition, the Company has filed patent
applications with the United States Patent and Trademark Office ("PTO") with
respect to other therapeutic genes for use with the Company's angiogenic gene
therapy technology. The Company has a patent application pending for the use of,
or public domain access to, certain other therapeutic genes that will be
required for its myocardial adrenergic signaling and heart muscle regeneration
products.
The Company intends to focus on research and development of products while
leveraging its technology through the establishment of product development,
manufacturing and marketing collaborations with select pharmaceutical and
biotechnology companies. The Company has a strategic collaboration with Schering
AG covering angiogenic gene therapy products. Under this collaboration, Schering
AG has made equity investments in the Company. In addition, the collaboration
provides for Schering AG, subject to certain conditions, to pay research support
through 2001, to make additional payments upon satisfying certain research,
development and commercialization milestones and to make royalty payments to the
Company based on worldwide net sales of angiogenic gene therapy products
developed under the collaboration. This collaboration was structured to provide
the Company with financial resources and product development support to enable
the Company to determine the safety and efficacy of at least three angiogenic
gene therapy products (GENERX, GENEVX and GENVASCOR). See
"Business--Collaborative and Licensing Arrangements." For other products, the
Company intends to select development and/or commercialization partners after
the Company has completed preclinical research with respect to each such
product. The Company expects that, in the event of successful commercialization
of its products, royalties on worldwide sales of such products would generate
significant revenues in the long-term.
Cardiovascular disease is the leading cause of death in the United States.
In 1998, the American Heart Association reported that an estimated 58 million
patients in the United States had cardiovascular disease. This patient group
included an estimated 13.9 million patients with coronary artery disease,
including approximately 7.2 million patients with angina. Each year, an
estimated 1.1 million patients have a new or recurrent heart attack and 350,000
of these die as a result. The American Heart Association estimates that the U.S.
healthcare system spends approximately $274 billion annually on the care and
treatment of patients with cardiovascular diseases.
The key elements of the Company's strategy are to: (i) develop a new
paradigm for the treatment of cardiovascular diseases; (ii) maintain
technological leadership by focusing resources exclusively on cardiovascular
gene therapy; (iii) continue to expand, enhance and protect its proprietary
technology, including methods of gene therapy and portfolio of therapeutic
genes; and (iv) leverage its technology through the establishment of strategic
collaborations.
The Company was incorporated in California in 1995 and reincorporated in
Delaware in 1998. The Company's executive offices are located at 9360 Towne
Centre Drive, San Diego, California 92121, and its telephone number is (619)
824-6500.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby..................... 3,330,000 shares (1)
Common Stock to be outstanding after the
Offering...................................... 11,622,573 shares (1)(2)
Use of proceeds................................. The Company intends to use the net
proceeds of this Offering as follows: (i)
approximately $4.0 million for capital
expenditures, including construction of
the Company's new preclinical laboratory
facility, and (ii) the remaining amount
for research and development of new
products, acquisition of technology
(including $2.1 million payable under
existing technology license agreements
during the next 24 months) and working
capital and general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol................... CLTX
</TABLE>
- ------------------------
(1) Excludes up to 499,500 shares of Common Stock that may be sold by the
Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based on the number of shares outstanding as of March 31, 1998. Includes
2,320,926 shares of Common Stock issuable upon the automatic conversion of
all outstanding shares of the Preferred Stock, upon completion of this
Offering. Excludes (i) 917,700 shares of Common Stock issuable upon exercise
of outstanding options with a weighted average exercise price of $1.38 per
share, including 209,000 options granted in April 1998 and 123,500 options
granted outside of the Company's stock option plans, (ii) 1,502,635 shares
of Common Stock reserved for issuance upon exercise of options which may be
granted under the Company's 1998 Stock Incentive Plan (the "1998 Plan") and
(iii) 50,000 shares of Common Stock reserved for issuance under the
Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"). See Note
5 of Notes to Financial Statements.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Collateral's financial statements and related notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM YEAR ENDED
APRIL 3, 1995 DECEMBER 31, MARCH 31,
(INCEPTION) THROUGH -------------------- --------------------
DECEMBER 31, 1995 1996 1997 1997 1998
------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Collaborative revenues from related party............ $ -- $ 1,680 $ 5,647 $ 815 $ 989
Costs and expenses:
Research and development........................... 398 1,143 5,059 1,140 1,423
General and administrative......................... 271 951 1,732 388 748
----- --------- --------- --------- ---------
Total operating expenses............................. 669 2,094 6,791 1,528 2,171
----- --------- --------- --------- ---------
Loss from operations................................. (669) (414) (1,144) (713) (1,182)
Interest (expense) income, net....................... (10) 24 167 13 81
----- --------- --------- --------- ---------
Net loss............................................. $ (679) $ (390) $ (977) $ (700) $ (1,101)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Pro forma net loss per share (Basic and Diluted)
(1)................................................ $ (0.16) $ (0.14)
--------- ---------
--------- ---------
Weighted average shares used in computing pro forma
net loss per share (1)............................. 6,301,472 7,634,162
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 5,676 $ 42,039
Working capital......................................................................... 5,663 42,026
Total assets............................................................................ 7,358 43,721
Notes payable to related party.......................................................... 500 500
Accumulated deficit..................................................................... (3,148) (3,148)
Total shareholders' equity ............................................................. 5,796 42,159
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Financial Statements for an explanation of weighted
average shares used in computing pro forma net loss per share.
(2) Adjusted to reflect the sale of 3,330,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $12.00 per share (the
mid-point of the range set forth on the front cover of this Prospectus) and
the application of the estimated net proceeds therefrom after deducting
estimated underwriting discounts and commissions and other estimated
Offering expenses.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.
EARLY STAGE OF PRODUCT DEVELOPMENT AND OF GENE THERAPIES; RISK OF TECHNOLOGICAL
OBSOLESCENCE
The Company was founded in 1995 and, accordingly, has only a limited
operating history upon which an evaluation of the Company's business and
prospects can be based. In addition, the Company's potential products are all in
the early developmental stage and require significant time-consuming and costly
development, testing and regulatory approvals. In December 1997, the Company's
strategic partner, Schering AG, filed an IND with the FDA and, in May 1998,
began the Phase I/II clinical trial to determine the safety and efficacy of
GENERX, the Company's gene therapy for the treatment of coronary artery disease
designed to relieve stable exertional angina. None of the Company's other
products or therapies under development are in clinical trials. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, clinically test, receive regulatory approvals for and market and sell
its products. Any products resulting from the Company's product development
efforts are not expected to be available for sale for a number of years, if at
all. Potential products that appear to be promising at early stages of
development may not reach the market for a number of reasons. There can be no
assurance that the Company independently or through its collaborations will
successfully develop, commercialize, manufacture or market any products. See
"--Uncertainties Related to Clinical Trials," "--Extensive Government
Regulation; No Assurance of Regulatory Approval," "--Uncertainty of Patent
Protection; Dependence on Proprietary Technology" and "--Uncertainty of Market
Acceptance." Moreover, gene therapy is a new and rapidly developing technology
and is expected to undergo significant change in the future. Rapid technological
development could result in the Company's current and future products or methods
of gene therapy becoming obsolete prior to successful commercialization of the
Company's products.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company has experienced operating losses since its inception in 1995. As
of March 31, 1998, the Company had an accumulated deficit of approximately $3.1
million. To date, substantially all of the Company's financial resources have
been derived from funds received from its collaborative arrangement with
Schering AG and through the sale of privately placed equity securities. There is
no assurance that the level of funding made available by Schering AG will not
vary from period to period or that Schering AG will not withdraw funding
altogether from one or more of the Company's products. See "--Reliance on
Collaborative Relationships" and "Business--Collaborative and Licensing
Arrangements." The Company expects to incur additional losses at least for a
number of years and expects losses to increase as the Company's research and
development efforts and clinical trials progress. To date, the Company has not
generated any revenue from the sales of products developed by the Company, nor
does the Company expect to generate any such revenue for a number of years, if
at all. See "--Early Stage of Product Development and of Gene Therapies; Risk of
Technological Obsolescence." There can be no assurance that the Company
independently or through its collaborations will successfully develop,
commercialize, manufacture or market any products or ever achieve or sustain
revenues or profitability from the commercialization of such products. Moreover,
even if profitability is achieved, the level of that profitability cannot be
predicted. Furthermore, the Company expects that operating results will
fluctuate from quarter to quarter as a result of differences in the timing of
expenses incurred and the revenues received from collaborative arrangements and
other sources, and that some of these fluctuations may be significant. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
7
<PAGE>
UNCERTAINTIES RELATED TO CLINICAL TRIALS; UNCERTAINTIES RELATED TO SAFETY AND
EFFICACY
Before obtaining required regulatory approvals for the commercial sale of
each product under development, the Company and its collaborators must
demonstrate through preclinical studies and clinical trials that such product is
safe and efficacious for use in at least one medical indication. The results of
preclinical studies do not necessarily predict safety or efficacy in humans.
Further, the results of preclinical and initial clinical trials are not
necessarily predictive of results that will be obtained from large-scale Phase
III clinical testing. There can be no assurance that clinical trials of any
product under development will demonstrate the safety and efficacy of such
product or will result in a marketable product. Possible side effects of gene
therapy technologies may be serious and life-threatening. For example, possible
serious side effects of viral vector-based gene transfer include viral
infections resulting from contamination with replication-competent viruses and
cardiac inflammation. In addition, the development of cancer in a patient is
theoretically a possible side effect of all methods of gene transfer.
Furthermore, as with most other biopharmaceutical products, there is also a
possibility of toxicity or decreased efficacy associated with an immune response
toward any viral vector used in the Company's treatments. The possibility of
such response may be increased if there is a need to deliver the viral vector
frequently. There can be no assurance that unacceptable side effects will not be
discovered during preclinical and clinical testing of the Company's potential
products or thereafter. Moreover, clinical trials are often conducted with
patients having the most advanced stages of disease. During the course of
treatment, these patients can die or suffer other adverse medical effects for
reasons that may not be related to the proposed product being tested, but which
can nevertheless affect clinical trial results. A number of companies have
suffered significant setbacks in advanced clinical trials, despite promising
results in earlier trials. The failure to demonstrate adequately the safety and
efficacy of a therapeutic drug under development would delay or prevent
regulatory approval of the product and could have a material adverse effect on
the Company. In addition, the FDA may require additional clinical trials, which
could result in increased costs and significant development delays.
The rate of completion of clinical trials of the Company's products is
dependent upon, among other factors, obtaining adequate clinical supplies and
the rate of patient recruitment. Patient recruitment is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites and the eligibility criteria for the trial. Delays in planned
patient enrollment in clinical trials may result in increased costs, program
delays or both, which could have a material adverse effect on the Company. In
addition, Schering AG has certain rights to control the planning and
implementation of product development and clinical programs related to
angiogenic gene therapy products, and there can be no assurance that Schering AG
or any other collaborative partner's rights to control aspects of such or other
programs will not impede the Company's ability to conduct such programs in
accordance with the schedules and in the manner currently contemplated by the
Company for such programs. Further, there can be no assurance that, if clinical
trials are completed, the Company or any collaborative partner will submit a
marketing application or that any such application will be reviewed and approved
by the FDA in a timely manner, if at all. In addition, with respect to foreign
markets, the Company is subject to foreign regulatory requirements governing
clinical trials. See "--Extensive Government Regulation; No Assurance of
Regulatory Approval" and "Business--Government Regulation."
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The manufacturing and marketing of Collateral's products and its ongoing
research and development activities will be subject to regulation by numerous
governmental authorities in the United States and other countries. Prior to
marketing, any therapeutic product developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive regulatory approval
process mandated by the FDA and equivalent foreign authorities. These processes
can take a number of years and require the expenditure of substantial resources.
The time required for completing such testing and obtaining such approvals is
uncertain, and approval itself may not be obtained. The Company may decide to
modify a product in
8
<PAGE>
testing, thus extending the test period. In addition, delays or rejections may
be encountered based upon changes in FDA policy during the period of product
development and FDA review of each submitted New Drug Application ("NDA"),
Product License Application ("PLA") or Establishment License Application
("ELA"). Similar requirements and/or delays may also be encountered in other
countries. There can be no assurance that, even after substantial time and
expenditures, regulatory approval by the FDA or any equivalent foreign
authorities will be obtained for any products developed by the Company.
Moreover, prior to receiving FDA or equivalent foreign authority approval to
market its products, the Company or any collaborative partner may be required to
demonstrate that the Company's products represent improved forms of treatment
over existing therapies. Even if regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which the product
may be marketed. Further, even if such regulatory approval is obtained, a
marketed product, its manufacturer and related manufacturing facilities are
subject to continual review and periodic inspections, and subsequent discovery
of previously unknown problems with a product, manufacturer or facility may
result in restrictions on such product or manufacturer, including withdrawal of
the product from the market. Finally, because gene therapy is relatively new,
and is only beginning to be extensively tested in humans, the regulatory
requirements governing gene therapy may be modified, perhaps extensively, in the
future.
In addition to laws and regulations enforced by the FDA, the Company is also
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local laws and regulations.
For marketing outside the United States, the Company is subject to foreign
regulatory requirements governing clinical trials and marketing approval for
drugs and devices. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary greatly from country to
country. Failure to comply with such regulatory requirements or to obtain such
approvals could impair the Company's ability to develop these markets and have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Government Regulation."
UNCERTAINTY OF PATENT PROTECTION; DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success will depend in part on the ability of the Company and
its licensors to: obtain patent protection with respect to its methods of gene
therapy, therapeutic genes and/or gene-delivery vectors; defend patents once
obtained; maintain trade secrets and operate without infringing upon the patents
and proprietary rights of others; and if needed, obtain appropriate licenses to
patents or proprietary rights held by third parties with respect to its
technology, both in the United States and in foreign countries.
The Company intends to file applications as appropriate for patents covering
its methods of gene therapy, therapeutic genes and gene-delivery vectors. To
date, the Company is an exclusive licensee of rights covered by one issued
patent and has filed or licensed over 10 currently pending patent applications
in the United States relating to the Company's technology, as well as foreign
counterparts of certain of these applications in many countries. Since patent
applications in the United States are maintained in secrecy until patents issue
and patent applications in certain other countries generally are not published
for up to 18 months after they are first filed, and since publication of
discoveries in scientific or patent literature often lags behind actual
discoveries, the Company cannot be certain that it or any licensor was the first
creator of inventions covered by pending patent applications or that it or such
licensor was the first to file patent applications for such inventions. There
can be no assurance that patents will issue from any of these applications or,
with respect to any patents issued to the Company or to licensors of the
Company's technology, that such patents will not be challenged, held
unenforceable, invalidated or circumvented, or that the rights granted
thereunder will provide significant proprietary protection or commercial
advantage to Collateral.
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A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's technologies, applications or patents. Such conflict could limit
the scope of the patents, if any, that the Company may be able to obtain or
result in denial of the Company's or its licensor's patent applications. In
addition, if patents that cover the Company's activities are issued to other
companies, there can be no assurance that the Company would be able to develop
or obtain alternative technology.
In addition, some of the Company's products rely on patented inventions
developed using U.S. government resources. The U.S. government would retain
certain rights, as defined by law, in such patents, and may choose to exercise
such rights.
The patent positions of pharmaceutical and biopharmaceutical firms,
including Collateral, are often uncertain and involve complex legal and
technical questions. Further, the coverage sought in a patent application can be
significantly reduced before or after a patent is issued. In addition, the
extent to which changes in law will affect the operations of Collateral cannot
be ascertained.
The commercial success of the Company will also depend in part on the
Company's not infringing patents issued to competitors and not breaching
technology licenses that cover technology used in the Company's products. As the
biotechnology industry expands and more patents are issued, the risk increases
that the Company's processes and potential products may give rise to claims that
they infringe on the patents of others. It is uncertain whether any third party
patents will require Collateral to develop alternative technologies or to alter
its products, technologies or processes, obtain licenses or cease certain
activities. If any such licenses are required, there can be no assurance that
the Company will be able to obtain such licenses on commercially favorable
terms, if at all. Certain license agreements require the Company to satisfy
various milestone and due diligence requirements and pay certain fees and
expenses in order to maintain such licenses. Costs associated with any licensing
arrangement may be substantial and could include ongoing royalties. There can be
no assurance that the Company will be able to satisfy such milestone and due
diligence requirements or to pay such fees and expenses. Failure by the Company
to obtain a license to any technology that it may require to commercialize its
products could have a material adverse effect on the Company. Litigation, which
could result in substantial cost to the Company, may also be necessary to
enforce any patents issued or licensed to the Company or to determine the scope
and validity of third-party proprietary rights or licenses. Such litigation
could also result in significant diversion of effort by the Company's technical
management personnel. An adverse outcome of any such litigation could have a
material adverse effect on the Company's financial condition and business.
Should any of its competitors have filed patent applications in the United
States which claim technology also invented by the Company, the Company may be
required to participate in interference proceedings declared by the PTO in order
to determine priority of invention and, thus, the right to a patent for the
technology, all of which could result in substantial cost to the Company to
determine its rights, if any.
The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. It is the Company's policy to require its employees,
certain contractors, consultants, members of the Scientific Advisory Board and
parties to collaborative agreements to execute confidentiality agreements upon
the commencement of a business relationship with the Company. There can be no
assurance that these agreements will not be breached, that they will provide
meaningful protection of the Company's trade secrets or know-how or adequate
remedies in the event of unauthorized use or disclosure of such information or
that the Company's trade secrets or know-how will not otherwise become known or
be independently discovered by its competitors. See "Business--Patents and
Proprietary Rights."
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UNCERTAINTY OF MARKET ACCEPTANCE
The Company's success is dependent on acceptance of those gene therapy
products that it successfully develops for the market. The Company believes that
recommendations by physicians and healthcare payors will be essential for market
acceptance of such gene therapy products. In the past, concerns have arisen
regarding the potential safety and efficacy of gene therapy products derived
from pathogenic viruses such as adenoviruses. Since the Company's proposed gene
therapy products utilize adenovirus vectors, there can be no assurance that
physicians and healthcare payors (who can indirectly affect the attractiveness
of the Company's proposed products by regulating the maximum amount of
reimbursement they will provide for such proposed products; see "--Dependence on
Third Party Reimbursement and Healthcare Reform") will conclude that the
technology is safe. Unanticipated side effects or unfavorable publicity
concerning any of the Company's products generally or those of its competitors
could have an adverse effect on whether the Company's products achieve or
maintain acceptance by prescribing physicians, other healthcare providers or
patients. There can be no assurance that the Company's products will achieve or
maintain significant market acceptance among patients, physicians or healthcare
payors, even if necessary regulatory and reimbursement approvals are obtained.
Failure to achieve or maintain significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.
RELIANCE ON COLLABORATIVE RELATIONSHIPS
The Company's strategy for the development, clinical testing, manufacturing
and commercialization of its potential products relies on the Company entering
into collaborations with corporate partners, licensors, licensees and others. To
date, the Company has entered into one such relationship, a research and
development collaboration with Schering AG in the field of angiogenic gene
therapy. The Company's collaborative agreement with Schering AG allows Schering
AG significant discretion in electing to pursue or not to pursue any development
programs and gives Schering AG the right to terminate the agreement at any time
upon a material breach by the Company or on 60 days written notice. In addition,
Schering AG may terminate its agreement with the Company upon 90 days written
notice, without payment of a termination fee, if a third party which is a
competitor of Schering AG or the Company acquires substantially all the assets
of the Company or 49% or more of the voting stock of the Company. There can be
no assurance that the Schering AG collaboration will continue or that the
collaboration will be successful. In addition, if products are approved for
marketing under these programs, any revenues to the Company from these products
will be dependent on the marketing and sales efforts of its collaborators, who
may retain commercialization rights under such agreements. There can be no
assurance that the Company will be able to maintain or expand its existing
collaboration or establish additional collaborations or licensing arrangements
necessary to develop and commercialize non-surgical gene therapy products based
on the Company's technology, that any such collaborations or licensing
arrangements will be on terms favorable to the Company or that the current or
any future collaborations or licensing arrangements ultimately will be
successful. Under the Company's current strategy, and for the foreseeable
future, the Company does not expect to develop or market products on its own. As
a result, the Company will be dependent on collaborators for the funding of
certain preclinical studies and clinical development of products and for
regulatory approval, manufacturing and marketing of its products resulting from
the application of the Company's technology. In addition, the Company's
collaborative agreements may provide potential manufacturers with significant
discretion in electing whether or not to pursue development activities. The
Company cannot control the amount and timing of resources that collaborators
will devote to the Company's programs or potential products.
The Company intends to rely on its collaboration with Schering AG for
significant continued funding in support of its angiogenic gene therapy research
efforts. If such funding were reduced or terminated, the Company would be
required to devote additional internal resources, if and to the extent
available, to
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product development, scale back or terminate certain research and development
programs, seek alternative collaborations or financing sources or sell or
license rights to some of its proprietary technology, including its genes.
In addition, there can be no assurance that Schering AG or any other
collaborator will not pursue alternative technologies, either on their own or in
collaboration with others, as a means for developing products that could compete
with the types of gene therapy products currently being developed in
collaboration with the Company, which may result in the withdrawal of support
for the Company's programs. If the Company's collaborative partners were to
breach or terminate their agreements with the Company or otherwise fail to
conduct their collaborative activities successfully, the development of the
Company's products would be delayed or terminated. The delay or termination of
any of the collaborations could have a material adverse effect on the Company.
There can be no assurance that disputes will not arise in the future with
respect to the ownership of rights to any technology developed with its
collaborators. These and other possible disagreements between collaborators and
the Company could lead to delays in the achievement of milestones or receipt of
payments therefor, adversely affect collaborative research, development and
commercialization of certain potential products or require or result in
litigation or arbitration, which could be time consuming and expensive and could
have a material adverse effect on the Company.
See "Business--Collaborative and Licensing Arrangements."
LACK OF MANUFACTURING CAPABILITY
The Company does not have internal manufacturing capabilities. The Company's
current strategy is to rely on collaborative partners to manufacture its
products. Currently, Schering AG is solely responsible for all activities
related to manufacturing of any gene therapy products developed under its
collaboration with the Company. See "Business--Collaborative and Licensing
Arrangements." In the alternative, the Company will seek to establish
relationships with third parties to manufacture the Company's products for
clinical trials and commercial sales. There can be no assurance that the Company
would be able to establish such relationships on commercially acceptable terms,
if at all. Further, there can be no assurance that the Company's collaborators
or any third party manufacturers will be able to manufacture products in
commercial quantities under good manufacturing practices mandated by the FDA or
under any such practices mandated by any foreign authority on a cost-effective
basis. Further, there can be no assurance that manufacturing or quality control
problems will not arise in connection with the manufacture of the Company's
products or that third party manufacturers will be able to maintain the
necessary governmental licenses and approvals to continue manufacturing the
Company's products. See "Business--Government Regulation." The Company's
dependence on its collaborators or any other third parties for the manufacture
of its products may adversely affect the Company's profit margins and its
ability to develop and commercialize products on a timely and competitive basis.
See "Business--Manufacturing."
LACK OF SALES AND MARKETING CAPABILITY
The Company does not have internal marketing and sales capabilities. The
Company's current strategy is for its collaborative partners to market and sell
any products which it successfully develops for the market. Currently, Schering
AG will be solely responsible for all activities related to marketing and sales
of any gene therapy products developed under its collaboration with the Company.
See "Business-- Collaborative and Licensing Arrangements." Should the Company
have to market and sell its products directly, the Company would need to develop
a marketing and sales force with technical expertise and distribution
capability. The creation of infrastructure to commercialize pharmaceutical
products is an expensive and time-consuming process. Alternatively, the Company
could contract with other pharmaceutical and/or healthcare companies with
distribution systems and direct sales forces. There can be no assurance that the
Company will be able to establish marketing and sales capabilities or be
successful in gaining market acceptance for its products. To the extent that the
Company enters into co-promotion or
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other licensing arrangements, any revenues received by the Company will be
dependent on the efforts of third parties, and there can be no assurance that
any such efforts will be successful. See "Business--Sales and Marketing."
COMPETITION
The Company is aware of a number of companies and institutions that are
developing or considering the development of potential gene therapy, cell
therapy treatments and angiogenic protein infusion therapies, including
early-stage gene therapy companies, fully integrated pharmaceutical companies,
universities, research institutions, governmental agencies and other healthcare
providers. Additionally, there are a number of medical device companies which
are developing innovative surgical procedures including (i) laser-based systems
to perform transmyocardial revascularization to stimulate coronary angiogenesis
and (ii) surgical devices and systems to perform minimally invasive
cardiothoracic surgery to simplify traditional mechanical revascularization
techniques such as Coronary Bypass Surgery and less invasive procedures such as
catheter-based treatments, including balloon angioplasty, atherectomy and
coronary stenting. In addition, the Company's potential products will be
required to compete with existing pharmaceutical products, or products developed
in the future, that are based on new or established technologies.
Many of the Company's competitors have substantially more financial and
other resources, larger research and development staffs and more experience and
capability in researching, developing and testing products in clinical trials,
in obtaining FDA and other regulatory approvals and in manufacturing, marketing
and distribution than the Company. In addition, the competitive positions of
other early-stage companies may be enhanced significantly through their
collaborative arrangements with large pharmaceutical companies, biotechnology
companies or academic institutions. The Company's competitors may succeed in
developing, obtaining patent protection for, receiving FDA and other regulatory
approvals for, or commercializing products more rapidly than the Company. If the
Company is successful in commercializing its products, it may be required to
compete with respect to manufacturing efficiency and marketing capabilities,
areas in which it has no experience.
The Company also competes with others in acquiring products or technology
from research institutions or universities. The Company's competitors may
develop or acquire new technologies and products that are available for sale
prior to the Company's potential products or that are more effective than the
Company's potential products. In addition, competitive products may be
manufactured and marketed more successfully than the Company's potential
products. Such developments could render the Company's potential products less
competitive or obsolete, and could have a material adverse effect on the
Company.
See "Business--Competition."
DEPENDENCE ON THIRD PARTY REIMBURSEMENT AND HEALTHCARE REFORM
Collateral's commercial success will be heavily dependent upon the
reimbursability of the use of any products developed by the Company. There can
be no assurance that Medicare and third-party payors will authorize or otherwise
budget reimbursement for the Company's products and services. Additionally,
third-party payors, including Medicare, are increasingly challenging the prices
charged for medical products and services and may require substantial
cost-benefit analysis data from the Company in order to demonstrate the
cost-effectiveness of its products. There can be no assurance that the Company
will be able to provide such data in order to gain market acceptance of its
products with respect to pricing and reimbursement.
The future revenues and profitability of, and availability of capital for,
biotechnology companies may be materially and adversely affected by the
continuing efforts of governmental and third-party payors to contain or reduce
the costs of healthcare through various means. In certain foreign markets,
pricing or profitability of medical products and services is subject to
government control. In the United States, the Company expects that there will
continue to be a number of federal and state proposals to implement
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government control of pricing and profitability. In addition, increasing
emphasis on managed healthcare may continue to put pressure on such pricing.
Cost control initiatives could decrease the price that the Company or any of its
collaborative partners or other licensees receives for any products it may
discover or develop in the future and, by preventing the recovery of development
costs, which could be substantial, and minimizing profit margins, could also
have a material adverse effect on the Company. Further, to the extent that cost
control initiatives have a material adverse effect on the Company's
collaborative partners, in light of the Company's strategy to rely on
collaborations, the Company's ability to commercialize its products and to
realize royalties may be adversely affected. Furthermore, federal and state
regulations govern or influence the reimbursement to healthcare providers of
fees and capital equipment costs in connection with medical treatment of certain
patients. There can be no assurance that action taken by federal and/or state
governments, if any, with regard to healthcare reform will not have a material
adverse effect on the Company. If any actions are taken by federal and/or state
governments, such actions could adversely affect the prospects for sales of the
Company's products. See "Business--Government Regulation."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Based on the Company's business strategy, the development of products will
require the commitment of substantial additional resources by the Company to
conduct research, preclinical and clinical trials and to augment quality
control, regulatory and administrative capabilities. The future capital
requirements of the Company will depend on many factors, including the pace of
scientific progress in its research and development programs, the magnitude of
these programs, the scope and results of preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments, the ability to
establish additional collaborations, changes in existing collaborations, the
Company's dependence on third parties for activities related to the development
and commercialization of its potential products, the cost of third-party
manufacturing arrangements and the effectiveness of the Company's
commercialization activities. The Company believes that its available cash and
existing sources of funding, including Schering AG, together with the net
proceeds of this Offering, will be adequate to satisfy its anticipated capital
requirements at least through the next 24 months. The Company expects that it
will seek any additional capital needed to fund its operations through new
collaborations, the extension of existing collaborations or through public or
private equity or debt financings. There can be no assurance that additional
financing will be available on acceptable terms or at all. Any inability to
obtain additional financing could have a material adverse effect on the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BROAD DISCRETION AS TO USE OF PROCEEDS
The Company intends to use the net proceeds of this Offering as follows: (i)
approximately $4.0 million for capital expenditures, including construction of
the Company's new preclinical laboratory facility, and (ii) the remaining amount
for research and development of new products, acquisition of technology
(including $2.1 million payable under existing technology license agreements
during the next 24 months) and working capital and general corporate purposes.
As of the date of this Prospectus, the Company cannot specify with certainty the
particular uses for the net proceeds to be added to its working capital.
Management will have broad discretion to allocate the proceeds of the Offering,
including the possible acquisition of businesses complementary to the Company's
business. There are, however, no present arrangements or agreements for any such
acquisitions. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PRODUCT LIABILITY
The testing, manufacture and sale of human healthcare products entail the
inherent risk of liability claims or product recalls and associated adverse
publicity. The Company has obtained clinical trial product
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liability insurance for its Phase I/II human clinical trial for GENERX and
intends to obtain insurance for future clinical trials of other potential
products under development and for potential product liability associated with
the manufacture and commercial sale of the Company's potential products. Such
insurance is expensive, and there can be no assurance that it will continue to
be available in sufficient amounts and on acceptable terms, if at all. An
inability to obtain product liability insurance at acceptable costs or to
otherwise protect against product liability claims could prevent or inhibit the
commercialization of products developed by the Company. The Company's business
could be materially and adversely affected if it were required to pay material
damages, or to incur significant defense costs, in connection with a lawsuit or
other action for which it does not have adequate insurance coverage. In
addition, a product liability claim or recall could have a material adverse
effect on the business and financial condition of the Company. Even if the
Company receives the required regulatory approvals for any of its products under
development, there can be no assurance that additional liability insurance
coverage for commercialized products will be available in the future on
acceptable terms, or at all.
DEPENDENCE ON KEY PERSONNEL AND ADVISORS
Collateral is highly dependent on the principal members of its scientific
and management staff, the loss of whose services might impede the achievement of
development objectives. The Company does not have employment agreements with any
member of its scientific or management staff, although certain key members of
the Company's scientific staff have entered into Scientific Advisory Consulting
Agreements with the Company. Such agreements, however, may be terminated at any
time by either party. See "Management--Director Compensation." Recruiting and
retaining additional qualified management, operations and scientific personnel
to perform research and development work in the future will also be critical to
Collateral's success. In order to pursue its research and development programs,
the Company will need to hire additional qualified scientific and management
persons in 1998 and 1999. Although the Company believes it will be successful in
attracting and retaining skilled and experienced management, operational and
scientific personnel, there can be no assurance that it will be able to attract
and retain such personnel on acceptable terms given the competition among
numerous pharmaceutical and biotechnology companies, universities and other
research institutions for such personnel. In addition, the Company relies on the
members of its Scientific Advisory Board to assist the Company in formulating
its research and development strategy. All of the scientific advisors are
employed by employers other than the Company and may have commitments to, or
consulting contracts with, other entities that may limit their availability to
the Company. Although generally each scientific advisor has agreed not to
perform services for another entity that would create a conflict of interest
with the scientific advisor's services for the Company, there can be no
assurance that such a conflict will not arise. See "Business--Human Resources"
and "Management."
HAZARDOUS MATERIALS
Collateral's research and development involves the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its current safety procedures for handling
and disposing of such materials comply with the standards prescribed by local,
state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of any
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. The Company may also
incur substantial costs to comply with current or future environmental
regulations.
CONCENTRATION OF STOCK OWNERSHIP; CONTROL BY MANAGEMENT AND EXISTING
STOCKHOLDERS
Upon completion of the Offering, the present directors, executive officers
and principal stockholders of the Company and their affiliates will beneficially
own approximately 67.9% of the outstanding Common Stock (approximately 65.2%, in
the aggregate, if the Underwriters' over-allotment option is exercised in full).
As a result, if all or certain of such stockholders were to act together, they
would be able to exercise
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significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
Such concentration of ownership may also have the effect of delaying or
preventing a change in control of the Company that may be favored by other
stockholders. See "Management" and "Principal Stockholders."
NO PRIOR MARKET FOR COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained after the Offering or that investors will be able to resell the Common
Stock at prices equal to or greater than the initial offering price, or at all.
The initial public offering price was determined by negotiations between the
Company and the representatives of the Underwriters and may not be indicative of
the prices that may prevail in the public market following completion of the
Offering. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.
VOLATILITY OF STOCK PRICE
The market prices and trading volumes for securities of emerging companies,
like Collateral, have historically been highly volatile and have experienced
significant fluctuations unrelated to the operating performance of such
companies. Future announcements concerning the Company or its competitors may
have a significant impact on the market price of the Common Stock. Such
announcements might include the results of research, development testing,
technological innovations, new commercial products, government regulation,
developments concerning proprietary rights, litigation or public concern as to
the safety of the products.
ABSENCE OF DIVIDENDS
No cash dividends have been paid on the Common Stock to date, and Collateral
does not anticipate paying cash dividends in the foreseeable future. See
"Dividend Policy."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Collateral's Second Restated Certificate of Incorporation (the "Certificate
of Incorporation"), which will be effective simultaneously with the completion
of this Offering, requires that any action required or permitted to be taken by
stockholders of the Company must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing. The
Restated Bylaws, which will be effective simultaneously with the completion of
this Offering, will not permit stockholders of the Company to call a special
meeting of stockholders. Under the Restated Bylaws, special meetings may only be
called by the Company's Chief Executive Officer, President, or Chairman of the
Board, and shall be called by the President or Secretary at the written request
of a majority of the Board. The Restated Bylaws will also require that
stockholders give advance notice to the Company's secretary of any nominations
for director or other business to be brought by stockholders at any
stockholders' meeting and will require a supermajority vote of members of the
Board and/or stockholders to amend certain Restated Bylaw provisions. These
provisions and other charter and bylaw provisions may have the effect of
discouraging, delaying or preventing certain types of transactions involving an
actual or potential change in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
the then current market prices, and may limit the ability of the stockholders to
consider transactions that they may deem to be in their best interests. Such
provisions may also have the effect of preventing changes in the management of
the Company. In addition, the Board of Directors has the authority to fix the
rights and preferences of and issue shares of preferred stock without action by
the stockholders, which, if issued, may have the effect of delaying or
preventing a change in control of the Company. See "Description of Capital
Stock--Preferred Stock" and "Description of Capital Stock-- Antitakeover Effects
of Provisions of Second Restated Certificate of Incorporation, Restated Bylaws
and Delaware Law."
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POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Common Stock in the public
market following the Offering could adversely affect the market price of the
Common Stock. Upon completion of the Offering, there will be approximately
11,622,573 shares of Common Stock outstanding. Of those shares, approximately
3,352,800, including the 3,330,000 shares offered hereby, but excluding shares
subject to contractual restrictions discussed below or held by affiliates of the
Company, will be immediately eligible for resale in the public market without
restriction. In addition, approximately 2,320,926 shares are subject to
registration rights that will be exercisable six months after the effective date
of this Offering. The holders of approximately 8,144,806 shares of Common Stock
which will be outstanding after the Offering (and holders of approximately
144,400 shares of Common Stock issuable upon exercise of outstanding options),
including shares held by all executive officers and directors and certain other
stockholders and option holders of the Company, have agreed not to offer for
sale, contract to sell, sell, pledge, hypothecate, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock, without the prior written consent of
Bear, Stearns & Co. Inc., on behalf of the Underwriters (as hereinafter
defined), for a period of 180 days after the effective date of the registration
statement of which this Prospectus is a part. See "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock in the Offering will suffer immediate and
substantial dilution of $8.37 per share in the net tangible book value of the
Common Stock from the assumed initial public offering price of $12.00 per share
(the mid-point of the range set forth on the front cover of this Prospectus). To
the extent that outstanding options to purchase the Common Stock are exercised,
there will be further dilution. See "Dilution."
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 hardware and software issues. The Company
intends to confirm its compliance regarding Year 2000 issues for both internal
and external information systems by the end of 1998. This process will entail
communicating with significant suppliers, financial institutions, insurance
companies and other parties that provide significant services to the Company.
Expenditures required to make the Company Year 2000 compliant will be expensed
as incurred and are not expected to be material to the Company's consolidated
financial position or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Year 2000 Compliance."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Collateral is a development stage company with products in the early stages
of development. As a result, a substantial number of statements contained in
this Prospectus, including without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar import, may constitute
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Collateral, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those discussed under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business," as well as elsewhere in this Prospectus.
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,330,000 shares of
Common Stock offered hereby are estimated to be approximately $36.4 million
($41.9 million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $12.00 per share (the mid-point of
the range set forth on the front cover of this Prospectus) and after deducting
the estimated underwriting discounts and commissions and other estimated
Offering expenses.
The Company intends to use the net proceeds of this Offering as follows: (i)
approximately $4.0 million for capital expenditures, including construction of
the Company's new preclinical laboratory facility, and (ii) the remaining amount
for research and development of new products, acquisition of technology
(including $2.1 million payable under existing technology license agreements
during the next 24 months) and working capital and general corporate purposes.
Management will have broad discretion to allocate the proceeds of the Offering,
including the possible acquisition of businesses complementary to the Company's
business. There are, however, no present arrangements or agreements for any such
acquisitions.
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the number and timing of additional
collaborative agreements, the progress of the Company's research and development
activities and continuing assessment of the commercial potential of the
Company's products and those of the Company's competitors. The Company believes
that its available cash and existing sources of funding, including Schering AG,
together with the net proceeds of this Offering, will be adequate to satisfy its
anticipated capital requirements at least through the next 24 months. Pending
application of the net proceeds as described above, the Company intends to
invest the net proceeds of this Offering in investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock. The
Company does not anticipate paying dividends in the foreseeable future. Payments
of future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, operating results, current and anticipated cash needs and
plans for expansion. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
18
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998 (i) the actual
capitalization of the Company, after giving effect to the Company's
reincorporation in Delaware and the 1.9-for-one split of the Common Stock, (ii)
the pro forma capitalization of the Company, after giving effect to the
conversion of all outstanding shares of Preferred Stock into Common upon the
sale of Common Stock in this Offering and the amendment and restatement of the
Company's Certificate of Incorporation and Bylaws simultaneously with the
completion of this Offering, and (iii) such pro forma capitalization as adjusted
to give effect to the sale by the Company of the 3,330,000 shares of Common
Stock offered hereby, at an assumed initial public offering price of $12.00 per
share (the mid-point of the range set forth on the front cover of this
Prospectus), less estimated underwriting discounts and commissions and other
estimated Offering expenses. This table should be read in conjunction with the
Company's financial statements, including the notes thereto, included elsewhere
herein.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
--------- ----------- ---------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Notes payable to related party................................................... $ 500 $ 500 $ 500
Shareholders' equity:
Preferred Stock, par value $.001; 5,000,000 shares authorized, no shares issued
and outstanding pro forma and as adjusted.................................... -- -- --
Series A Convertible Preferred Stock, par value $.001; 374,532 shares, issued
and outstanding actual; no shares authorized, issued and outstanding pro
forma and as adjusted........................................................ -- -- --
Series B Convertible Preferred Stock, par value $.001; 374,532 shares, issued
and outstanding actual; no shares authorized, issued and outstanding pro
forma and as adjusted........................................................ -- -- --
Series C Convertible Preferred Stock, par value $.001; 472,476 shares, issued
and outstanding actual; no shares authorized, issued and outstanding pro
forma and as adjusted........................................................ -- -- --
Common Stock, par value $.001; 19,000,000 shares authorized actual; 5,971,647
shares issued and outstanding actual; 40,000,000 shares authorized pro forma
and as adjusted; 8,292,573 and 11,622,573 shares issued and outstanding pro
forma and as adjusted, respectively(1)....................................... 6 8 12
Additional paid-in capital..................................................... 9,720 9,718 46,077
Deferred compensation.......................................................... (632) (632) (632)
Note receivable secured by common stock........................................ (150) (150) (150)
Accumulated deficit............................................................ (3,148) (3,148) (3,148)
--------- ----------- ---------
Total shareholders' equity................................................... 5,796 5,796 42,159
--------- ----------- ---------
Total capitalization..................................................... $ 6,296 $ 6,296 $ 42,659
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
- ------------------------
(1) Excludes (i) 917,700 shares of Common Stock issuable upon exercise of
outstanding options with a weighted average exercise price of $1.38 per
share, including 209,000 options granted in April 1998 and 123,500 options
granted outside of the Company's stock option plans, (ii) 1,502,635 shares
of Common Stock reserved for issuance upon exercise of options which may be
granted under the 1998 Plan and (iii) 50,000 shares of Common Stock reserved
for issuance under the Purchase Plan. See Note 5 of Notes to Financial
Statements.
19
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1998 was $5,795,663
or $0.70 per share. Net tangible book value per share represents the amount of
total tangible assets of the Company less total liabilities divided by the
number of shares of Common Stock outstanding, after giving effect to the
conversion of the outstanding shares of Preferred Stock into 2,320,926 shares of
Common Stock upon the sale of Common Stock in this Offering. After giving effect
to the sale by the Company of the 3,330,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $12.00 per share (the
mid-point of the range set forth on the front cover of this Prospectus), less
estimated underwriting discounts and commissions and other estimated expenses of
this Offering, the Company's pro forma net tangible book value as of March 31,
1998 would have been approximately $42,159,000, or approximately $3.63 per
share. This represents an immediate increase in pro forma net tangible book
value per share of $2.93 to existing holders and immediate dilution in pro forma
net tangible book value of $8.37 per share to new investors purchasing Common
Stock in the Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 12.00
Net tangible book value per share of Common Stock as of March 31, 1998..... $ 0.70
Increase per share attributable to new investors........................... 2.93
---------
Pro forma net tangible book value per share of Common Stock after this
Offering................................................................... 3.63
---------
Dilution per share to new investors(1)....................................... $ 8.37
---------
---------
</TABLE>
- ------------------------
(1) If the Underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $8.06.
The following table summarizes, as of March 31, 1998, the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and by new investors
purchasing shares in this Offering (after giving effect to the conversion of the
outstanding shares of Preferred Stock into shares of Common Stock and before
deduction of estimated underwriting discounts and commissions and other
estimated expenses of the Offering):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 8,292,573 71.3% $ 8,827,112 18.1% $ 1.06
New investors...................................... 3,330,000 28.7% 39,960,000 81.9% $ 12.00
------------ ----- ------------- -----
Total.............................................. 11,622,573 100.0% $ 48,787,112 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
Excludes as of March 31, 1998: (i) 917,700 shares of Common Stock issuable
upon exercise of outstanding options with a weighted average exercise price of
$1.38 per share, including 209,000 options granted in April 1998 and 123,500
options granted outside of the Company's stock option plans, (ii) 1,502,635
shares of Common Stock reserved for issuance upon exercise of options which may
be granted under the 1998 Plan, and (iii) 50,000 shares of Common Stock
available for issuance under the Purchase Plan. See "Management." To the extent
these options become vested and are exercised, there will be further dilution to
new investors.
20
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below with respect to the Company's
statement of operations data for the period from April 3, 1995 (inception)
through December 31, 1995 and for the years ended December 31, 1996 and 1997,
and with respect to the balance sheet data at December 31, 1996 and 1997, are
derived from the audited financial statements that have been examined by Ernst &
Young LLP, independent auditors, which are included elsewhere in this Prospectus
and are qualified by reference to such financial statements. The unaudited
statement of operations data for the three months ended March 31, 1997 and 1998
and the unaudited balance sheet data at March 31, 1998 have been derived from
unaudited financial statements also appearing herein which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the financial position and
results of operations for the unaudited interim periods. The operating results
for the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the full fiscal year ending December 31, 1998
or for any subsequent period. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements and related
notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM YEAR ENDED DECEMBER
APRIL 3, 1995 31, MARCH 31,
(INCEPTION) THROUGH -------------------- --------------------
DECEMBER 31, 1995 1996 1997 1997 1998
------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Collaborative revenues from related party............... $ -- $ 1,680 $ 5,647 $ 815 $ 989
Costs and expenses:
Research and development.............................. 398 1,143 5,059 1,140 1,423
General and administrative............................ 271 951 1,732 388 748
------ --------- --------- --------- ---------
Total operating expenses............................ 669 2,094 6,791 1,528 2,171
------ --------- --------- --------- ---------
Loss from operations.................................... (669) (414) (1,144) (713) (1,182)
Interest (expense) income, net.......................... (10) 24 167 13 81
------ --------- --------- --------- ---------
Net loss................................................ $ (679) $ (390) $ (977) $ (700) $ (1,101)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Pro forma net loss per share (Basic and Diluted) (1).... $ (0.16) $ (0.14)
Weighted average shares used in computing pro forma net
loss per share (1).................................... 6,301,472 7,634,162
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................ $ 2,430 $ 5,605 $ 5,676
Working capital.................................................................. 1,867 6,938 5,663
Milestone receivable from related party.......................................... -- 2,000 --
Total assets..................................................................... 2,616 8,070 7,358
Notes payable to related party................................................... 500 500 500
Accumulated deficit.............................................................. (1,069) (2,047) (3,148)
Total shareholders' equity....................................................... 1,459 6,732 5,796
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Financial Statements for an explanation of weighted
average shares used in computing pro forma net loss per share.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS MAY CONTAIN CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS
AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH
STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS
FACTORS IDENTIFIED IN THIS PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER THE
CAPTION "RISK FACTORS," WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
OVERVIEW
Collateral is focused on the discovery, development and commercialization of
non-surgical gene therapy products for the treatment of cardiovascular diseases,
including coronary artery disease, peripheral vascular disease, congestive heart
failure and heart attack. The Company believes that its products under
development hold the potential to revolutionize the treatment of cardiovascular
diseases and become a new standard of care by offering patients simpler, more
cost-effective and lower-risk alternatives to currently available treatments,
such as Coronary Bypass Surgery and angioplasty. The Company's initial gene
therapy products are designed to promote and enhance angiogenesis, a natural
biological process which results in the growth of additional blood vessels, to
restore adequate levels of blood flow to oxygen-deprived tissues.
The Company has a strategic collaboration with Schering AG for angiogenic
gene therapy products. Under this collaboration, Schering AG has made equity
investments and provided loans to the Company. In addition, the collaboration
provides for Schering AG, subject to certain conditions, to pay research support
through April 2001, to make additional payments upon satisfying certain
research, development and commercialization milestones and, when and if
angiogenic gene therapy products developed under the collaboration are
commercialized, to make royalty payments to the Company based on worldwide net
sales of such products. This collaboration was structured to provide the Company
with financial resources and product development support to enable the Company
to determine the safety and efficacy of at least three angiogenic gene therapy
products (GENERX, GENEVX and GENVASCOR). However, the timing and amounts of such
payments cannot be predicted with certainty and may not occur if product
development events are not achieved. See "Business--Collaborative and Licensing
Arrangements."
The Company's revenue to date is primarily attributable to its collaboration
with Schering AG entered into in May 1996. Under this collaboration, the Company
has received aggregate research funding of $8.6 million through March 31, 1998,
of which $316,000 was deferred; this funding included $2.0 million for the
achievement of a milestone. From 1995 through 1997, collaboration revenue and
related operating expenses have trended upward due to accelerated research and
development efforts. Since inception, the Company has conducted research that is
not funded by its collaboration with Schering AG; accordingly, the Company's
operating expenses have exceeded revenues each year since inception. Losses have
resulted principally from costs incurred in research and development activities
related to the Company's efforts to develop its technologies and from
administrative costs required to support such efforts to the extent such costs
were not covered by the Schering AG collaboration. The Company's losses have
been primarily funded by the Company raising $9.3 million through private sales
of equity securities and receipt of loans, including $5.7 million in equity
investments and $500,000 in loans from Schering AG and $3.1 million in equity
provided by other private investors. The Company's ability to achieve
profitability is dependent on its ability to successfully develop its products
and thereafter successfully market such products through current or future
collaborative partners. There can be no assurance that the Company will be able
to achieve profitability at all, or on a sustained basis.
22
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The Company's collaborative revenue was $989,000 and $815,000 for the three
months ended March 31, 1998 and 1997, respectively. Revenue for the three-month
periods in 1998 and 1997 was derived from the Company's research and development
agreement with Schering AG, and increased in the three months ended March 31,
1998 due to increased costs reimbursable to the Company under such agreement
associated with accelerated research and development activities. Research and
development expenses for the three months ended March 31, 1998 increased to $1.4
million compared to $1.1 million for the three months ended March 31, 1997; the
increase resulted from increased expenses associated with additional personnel
and increased use of outside research institutions and consultants, partially
offset by reduced license fees incurred by the Company. General and
administrative costs increased to $749,000 for the three months ended March 31,
1998 compared to $388,000 for the three months ended March 31, 1997; the
increase resulted from increased market research and educational materials, and
increased expenses for personnel to support expanded research efforts.
YEARS ENDED DECEMBER 31, 1997 AND 1996
The Company's collaborative revenue was $5.6 million for 1997 compared to
$1.7 million for 1996. Revenue in 1997 and 1996 was derived from the Company's
research and development agreement with Schering AG, which was entered into in
May 1996. Such revenue increased in 1997 compared to 1996 due to (i) $2.0
million earned by the Company upon the achievement of a milestone, (ii)
increased costs reimbursable to the Company resulting from substantially
accelerating research and development activities and (iii) the reimbursement of
costs under the Schering AG agreement for a full 12 months. For 1997, research
and development expenses increased to $5.1 million from $1.1 million in 1996.
The increase was due to greater amounts due under license agreements, increased
use of outside research institutions and consultants, and additions of research
and development personnel to support expanded research and development programs.
General and administrative expenses increased to $1.7 million in 1997 from $1.0
million in 1996. The increase was primarily attributable to additions to
personnel and related expenses to support expanded research and development
programs. Interest income increased to $167,000 in 1997 from $24,000 in 1996 due
to higher average cash balances.
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM APRIL 3, 1995 (INCEPTION) TO
DECEMBER 31, 1995
The Company's collaborative revenue was $1.7 million for 1996 compared to no
revenue for 1995. Revenue in 1996 was derived from the Company's research and
development agreement with Schering AG, which was entered into in May 1996.
Research and development expenses increased to $1.1 million in 1996 from
$398,000 for the period from April 3, 1995 to December 31, 1995. The increase
was primarily due to additions of research and development personnel, expansion
of the Company's research and development programs, and 1996 includes a full
year of operations compared to nine months in 1995. General and administrative
expenses increased to $1.0 million in 1996 from $271,000 in 1995. The increase
was primarily attributable to personnel additions and related expenses to
support expansion of the Company's research and development programs and 1996
included a full year of operations compared to nine months in 1995.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations primarily through private
offerings of its equity securities, from collaborative research revenues and
loans from Schering AG and from interest income. From inception through March
31, 1998, the Company raised an aggregate of $9.3 million through private sales
of equity securities and receipt of loans, including $5.7 million in equity
investments and $500,000 in loans from Schering AG and $3.1 million in equity
provided by other private investors. The $500,000 in
23
<PAGE>
loans from Schering AG consist of two promissory notes issued in 1995 to fund
operations. The notes bear interest at 1% below the prime rate; at March 31,
1998, the notes bore interest at 7.5%. Such notes are secured by the assets of
the Company (with the exception of certain equipment purchased from February 15,
1998 through November 15, 1998 which is pledged on a first priority basis under
the Company's $400,000 bank loan referred to below). Principal and interest on
the notes are due and payable upon demand on or after June 30, 1999.
At March 31, 1998, cash and cash equivalents increased to $5.7 million from
$5.6 million at December 31, 1997, in large part as a result of the collection
from Schering AG of $2.0 million earned by the Company in 1997 upon the
achievement of a milestone, partially offset by the loss for the period, an
increase in restricted cash, and capital expenditures and deposits for capital
equipment. The restricted cash includes a $600,000 standby letter of credit to
ensure the completion of tenant improvements at the Company's new preclinical
research center. The landlord is the beneficiary of such standby letter of
credit but the Company does not foresee the standby letter of credit being drawn
upon. The Company generally invests its excess cash in high credit quality debt
instruments of corporations and financial institutions and in U.S. government
securities. Working capital decreased to $5.7 million as of March 31, 1998, from
$6.9 million at the end of 1997 primarily due to the loss for the period and
capital expenditures for the construction of the Company's new preclinical
laboratory facility.
The Company has entered into certain strategic license agreements in
addition to the agreement with Schering AG related to the Company's technology
portfolio. To retain certain licensing rights under these cancelable agreements,
the Company anticipates that it may be required to make aggregate payments of
approximately $2.1 million over the next two years. See "Use of Proceeds."
Additionally, the Company is required to make aggregate payments of
approximately $552,000 over the next five years under non-cancelable research
and development contracts.
Through March 31, 1998, the Company had acquired an aggregate of $752,000 in
laboratory and office equipment and tenant improvements, substantially all of
which has been purchased with cash. The Company will make substantial increases
in purchases of property and equipment in 1998 compared to 1997 and prior years.
In the second quarter of 1998, the Company began to occupy a new preclinical
research center. In the fourth quarter of 1998, following completion of
construction and leasehold improvements, the Company intends to occupy a larger
administrative facility to support expanded research and development efforts. In
connection with these new facilities, the Company expects to incur property and
equipment costs of approximately $4.0 million through the first quarter of 1999,
of which up to $400,000 is expected to be financed through a bank loan that was
entered into in April 1998. See "Use of Proceeds." Rent expense for the
Company's research and administrative facilities is expected to increase
substantially compared to 1997 and prior years. The new preclinical research
center is leased for a five-year term with two five-year renewal options. Rent
expense over the initial term is expected to average $275,000 per year. The new
administrative facility is leased for a six-year term with one five-year renewal
option. Rent expense is expected to average approximately $450,000 per year over
the initial term.
To date, substantially all revenue received by the Company has been from its
collaboration with Schering AG, and the Company expects that substantially all
revenue for the next several years will continue to come from the Schering AG
and other future collaborations. There can be no assurance that the Company will
be able to establish additional collaborations on acceptable terms, if at all,
or that current or future collaborations will be successful and provide adequate
funding to meet the Company's needs. Schering AG currently reimburses the
Company for its research and development expenses in the angiogenic gene therapy
field and for certain related administrative expenses. The Company expects to
incur substantial increases in operating expenses over at least the next 24
months as it accelerates its research and development activities in the field of
cardiovascular gene therapy. Increases in operating expenses will include, but
are not limited to, increased personnel costs, rent, supplies and other costs
which will result from operating its new facilities. To the extent such costs
are not reimbursed, the Company intends to use proceeds from the Offering to
cover such expenses. See "Use of Proceeds."
24
<PAGE>
Based on the Company's business strategy, the development of products will
require the continued commitment of substantial resources by the Company to
conduct research, preclinical and clinical trials, and to augment quality
control, regulatory and administrative capabilities. The future capital
requirements of the Company will depend on many factors, including the pace of
scientific progress in its research and development programs, the magnitude of
these programs, the scope and results of preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments, the Company's
dependence on third parties for activities related to the development and
commercialization of its potential products (including the ability to establish
additional collaborations and changes to its existing collaboration with
Schering AG), the cost of third-party manufacturing arrangements and the
effectiveness of the Company's commercialization activities. The Company
believes that its available cash and existing sources of funding, including
Schering AG, together with the net proceeds of this Offering, will be adequate
to satisfy its anticipated capital requirements at least through the next 24
months. The Company expects that it will seek any additional capital needed to
fund its operations through new collaborations, the extension of its existing
collaboration or through public or private equity or debt financings. There can
be no assurance that additional financing will be available on acceptable terms
or at all. Any inability to obtain additional financing could have a material
adverse effect on the Company. In addition, so long as the $400,000 bank loan
entered into in April 1998 remains outstanding, the Company must obtain the
lender's consent for certain additional indebtedness of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") and will adopt
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" ("SFAS 130") and No. 131 "Segment Information" ("SFAS 131") in 1998.
SFAS 128 establishes and simplifies the standard for computing earnings per
share ("EPS") from previous EPS guidance. SFAS 130 requires that all components
of comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. The Company does not
believe that comprehensive income or loss will be materially different than net
income or loss. SFAS 131 amends the requirements for public enterprises to
report financial and descriptive information about its reportable operating
segments. Operating segments, as defined in SFAS 131, are components of an
enterprise for which separate financial information is available and is
evaluated regularly by the Company in deciding how to allocate resources and in
assessing performance. The financial information is required to be reported on
the basis that is used internally for evaluating the segment performance. The
Company believes it operates in one business and operating segment and does not
believe adoption of SFAS 131 will have a material impact on the Company's
financial statements.
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 hardware and software issues. The Company
intends to confirm its compliance regarding Year 2000 issues for both internal
and external information systems by the end of 1998. This process will entail
communicating with significant suppliers, financial institutions, insurance
companies and other parties that provide significant services to the Company.
Expenditures required to make the Company Year 2000 compliant will be expensed
as incurred and are not expected to be material to the Company's consolidated
financial position or results of operations.
25
<PAGE>
BUSINESS
OVERVIEW
Collateral is focused on the discovery, development and commercialization of
non-surgical gene therapy products for the treatment of cardiovascular diseases,
including coronary artery disease, peripheral vascular disease, congestive heart
failure and heart attack. The Company believes that its products under
development hold the potential to revolutionize the treatment of cardiovascular
diseases and become a new standard of care by offering patients simpler, more
cost-effective and lower-risk alternatives to currently available treatments,
such as Coronary Bypass Surgery and angioplasty. The Company's initial gene
therapy products are designed to promote and enhance angiogenesis, a natural
biological process which results in the growth of additional blood vessels, to
restore adequate levels of blood flow to oxygen-deprived tissues. IN VIVO
preclinical studies led by the Company's chief scientist have demonstrated high-
yield gene transfer to heart muscle cells and, for the first time, angiogenesis
sufficient to normalize cardiac flow and function. In addition, these
preclinical studies showed no significant side effects such as inflammation or
immune response. The Company's angiogenic products are administered using
proprietary methods of gene therapy based on non-surgical adenoviral vector
delivery of angiogenic genes to the heart. Such products are intended to be
non-surgically administered by an interventional cardiologist by a one-time
intra-coronary injection through a cardiac catheter, and could be administered
at the time of initial angiography, on an out-patient basis. In addition to the
Company's angiogenic products, the Company is also actively researching gene
therapy products designed to stimulate heart muscle regeneration and to enhance
responsiveness to myocardial adrenergic signaling and is seeking to broaden its
proprietary methods of gene therapy to include AAV gene delivery vectors.
GENERX, the Company's initial angiogenic product for the treatment of
coronary artery disease, is designed to relieve stable exertional angina. Phase
I/II clinical trials for GENERX (which uses the FGF-4 gene) began in May 1998
pursuant to a commercial IND filed with the FDA in December 1997 by the
Company's strategic partner, Schering AG. Among the other non-surgical
cardiovascular gene therapy products being developed by the Company are: (i)
GENEVX (which uses a VEGF gene), also an angiogenic treatment for coronary
artery disease designed to relieve stable exertional angina; (ii) GENVASCOR
(which uses the FGF-4 gene), an angiogenic treatment for peripheral vascular
disease; (iii) GENECOR, an angiogenic treatment for congestive heart failure;
(iv) CORGENIC, a treatment for congestive heart failure to enhance
responsiveness of the heart to adrenergic stimulation; and (v) MYOCOR, a
treatment for patients who have suffered a heart attack, which is focused on
heart muscle regeneration and improvement of cardiac function.
The Company has assembled a broad portfolio of therapeutic genes which were
internally discovered or exclusively licensed and for which either patents have
been issued or patent applications have been filed worldwide for use in the
development of cardiovascular gene therapy products. The Company's portfolio
includes 11 proprietary human genes in the FGF and VEGF gene families to be used
in the Company's angiogenic gene therapy products. In addition, the Company has
filed a patent application with the PTO with respect to other therapeutic genes
for use with the Company's angiogenic gene therapy technology. The Company has a
patent application pending for the use of, or public domain access to, certain
other therapeutic genes that will be required for its myocardial adrenergic
signaling and heart muscle regeneration products.
The Company intends to focus on research and development of products while
leveraging its technology through the establishment of product development,
manufacturing and marketing collaborations with select pharmaceutical and
biotechnology companies. The Company has a strategic collaboration with Schering
AG covering angiogenic gene therapy products. Under this collaboration, Schering
AG has made equity investments in the Company. In addition, the collaboration
provides for Schering AG, subject to certain conditions, to pay research support
through 2001, to make additional payments upon satisfying certain research,
development and commercialization milestones and to make royalty payments to the
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Company based on worldwide net sales of angiogenic gene therapy products
developed under the collaboration. This collaboration was structured to provide
the Company with financial resources and product development support to enable
the Company to determine the safety and efficacy of at least three angiogenic
gene therapy products (GENERX, GENEVX and GENVASCOR). See "--Collaborative and
Licensing Arrangements." For other products, the Company intends to select
development and/or commercialization partners after the Company has completed
preclinical research with respect to each such product. The Company expects
that, in the event of successful commercialization of its products, royalties on
worldwide sales of such products would generate significant revenues in the
long-term.
The Company was incorporated in California in 1995 and reincorporated in
Delaware in 1998.
CARDIOVASCULAR DISEASE AND CURRENT TREATMENTS
Cardiovascular disease is the leading cause of death in the United States.
In 1998, the American Heart Association reported that an estimated 58 million
patients in the United States had cardiovascular disease. The American Heart
Association estimates that the U.S. healthcare system spends approximately $274
billion annually on the care and treatment of patients with cardiovascular
diseases.
CORONARY ARTERY DISEASE. The coronary arteries supply blood to the heart
muscle. When insufficient oxygen reaches the heart muscle as a result of
restricted blood flow, an injury (myocardial ischemia) occurs that may result in
a heart attack or death. Brief episodes of ischemia often result in chest pain
or angina. Nearly all ischemic heart disease is due to atherosclerotic disease
of the coronary arteries. Atherosclerosis is a general term for the build-up of
fatty and cholesterol plaque deposits on the inside lining of arterial walls
thereby restricting blood flow. Restoring blood flow is the most effective
method to relieve painful ischemic symptoms and to reduce the long-term risk of
a heart attack. When blood flow through coronary arteries is insufficient,
cardiac ischemia occurs and ischemic injury signals are generated. In response
to these signals, the body's natural healing process is initiated and the heart
may develop limited collateral circulation in an effort to restore blood flow.
Research has shown that the extent of natural collateral vessel formation in the
heart is often inadequate to provide full restoration of blood flow. The
American Heart Association reported in 1998 that an estimated 13.9 million
patients in the United States had coronary artery disease, including
approximately 7.2 million patients with angina. Current treatments for coronary
artery disease include drug therapy, Coronary Bypass Surgery and catheter-based
treatments, including angioplasty, atherectomy and coronary stenting.
Cardiovascular drug therapy represents the largest component of the worldwide
pharmaceutical market; however, this therapy, in many cases, only treats
symptoms, does not represent a cure for coronary artery disease, requires
long-term administration, has adverse side effects and involves significant
long-term costs. Coronary Bypass Surgery is highly invasive and traumatic to the
patient, but is often considered the most effective and long-lasting treatment
currently available for severe coronary artery disease. While current
catheter-based treatments such as angioplasty and coronary stents are less
invasive, they are limited by restenosis, a renarrowing of the treated coronary
artery, which generally requires reintervention. The American Heart Association
has estimated that in 1995 the number of surgical procedures in the United
States for the treatment of coronary artery disease totaled 1.0 million, which
included approximately 570,000 Coronary Bypass Surgeries and approximately
434,000 angioplasty procedures.
PERIPHERAL VASCULAR DISEASE. Peripheral vascular disease results from
decreased blood flow in patients with atherosclerosis, usually in the lower
limb. Leg pain due to peripheral ischemia (claudication) brought on by exertion
is a condition analogous to angina due to myocardial ischemia. Based on an IMS
Health marketing report prepared for the Company, there are currently an
estimated 726,000 patients in the United States suffering from peripheral
vascular disease, of whom over 100,000 will be required to undergo a limb
amputation. Current treatments for patients with peripheral vascular disease
include drug therapy in the initial stages of the disease and surgery if the
disease has progressed or is incapacitating. If drug therapy is selected, agents
designed to improve blood flow by decreasing blood viscosity and low dose
aspirin are therapies of choice. When these agents are used in combination with
a program of daily walking
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and smoking cessation, improved function may be obtained and the need for
invasive surgical therapies may be postponed or eliminated. However, research
indicates that at the present time there is no efficacious drug therapy for
advanced forms of peripheral vascular disease. Surgical intervention includes
arterial grafting, surgical removal of the fatty plaque deposits and,
increasingly, endovascular surgical treatments such as angioplasty.
CONGESTIVE HEART FAILURE. Congestive heart failure is caused when the heart
is unable to contract adequately to pump blood throughout the body. Myocardial
adrenergic signaling (the normal physiological stimulation of heart function) is
generated when chemical transmitters known as catecholamines bind with certain
receptors on the surfaces of heart cells, triggering a series of events which
results in increased heart rate and force of contraction of the heart. In
congestive heart failure, the heart is unable to respond adequately to
catecholamines. According to the American Heart Association, there are currently
an estimated 4.9 million patients in the United States who have congestive heart
failure. Congestive heart failure is the single most frequent cause of
hospitalization for people 65 and older. According to the American Heart
Association, approximately 50% of patients with congestive heart failure die
within five years of diagnosis. Current treatments for congestive heart failure
are drug therapy, heart transplants and the use of medical devices, including
left ventricular assist devices, as a transition for patients awaiting heart
transplants. According to the American Heart Association, only approximately
2,300 heart transplants occur in the United States each year. Currently
available drug treatments only address symptoms and in general have only a
marginal impact on the rapid degenerative progression of this condition.
HEART ATTACK. A heart attack occurs when a blockage in the coronary artery
severely restricts or completely occludes blood flow to the heart. When blood
supply is greatly reduced or occluded for more than a short time, heart muscle
cells die. Heart muscle cells do not have the biological capacity to multiply to
replace the dead cells. In the healing phase, after a heart attack, white blood
cells migrate into the area and remove the dead heart muscle cells, and
fibroblasts proliferate and form a collagen scar in the affected region of the
heart. Collagen is the fibrous, non-living material found in scar tissue.
Following a heart attack, the heart's ability to maintain normal function will
depend on the location of the damage and the amount of damaged tissue. The
American Heart Association estimates that each year approximately 1.1 million
patients will have a heart attack and an estimated 350,000 patients will die as
a direct result of a heart attack. Current therapeutic treatments for heart
attack focus on acute care upon the onset of a heart attack and on long-term
care to limit the development of heart failure and recurrent heart attack. A
form of drug therapy may be used to dissolve a blood clot immediately following
a heart attack. After a heart attack, patients generally are required to make
certain lifestyle changes, such as diet, cessation of smoking and exercise, and
to commence drug therapy to treat symptomatic conditions.
GENE THERAPY
Gene therapy is an approach to the treatment and prevention of genetic and
acquired diseases that involves the insertion of genetic information into target
cells (also called "transfection") to produce specific proteins needed to
correct or modulate disease conditions. Proteins are fundamental components of
all living cells and are essential for cellular structure, growth and function.
Proteins are produced by cells from a set of genetic instructions encoded in
DNA, which contains all the information necessary to control cellular biological
processes. DNA is organized into segments called genes, with each gene
containing the information required to express, or produce, a specific protein.
By directing the cells to produce proteins, gene therapy offers the opportunity
to correct defects or diseases at the molecular level.
A key factor in the progress of gene therapy is the development of safe and
efficient methods of transferring genes into cells. In one method for transfer
into cells, the gene is incorporated into a delivery system called a vector.
Vectors may be derived from either viral or non-viral systems. The most common
gene delivery approach to date relies on viral gene transfer, whereby modified
viruses are used to transfer the desired genetic material into host cells. The
process of gene transfer can be accomplished EX VIVO, in
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which cells are removed from the patient, genetically modified and then
reinfused into the patient, or IN VIVO, in which vectors are introduced directly
into the patient's body.
The use of viruses takes advantage of their natural ability to introduce
genes into host cells and to use the host's metabolic machinery to produce
proteins essential for the survival and function of the virus. Viruses used as
vectors are genetically modified to remove the DNA necessary for the virus to
reproduce and to contain the desired genes. Successful application of viral gene
transfer to indications requiring long-term gene expression entails a number of
essential technical requirements, including the ability of the viral vector to
carry desired segments of genes, to transfer genes into a sufficient number of
target cells and to enable genes contained in the viral vector to persist in the
host cell. A number of different viral vectors, including adenovirus and
retroviral vectors, are being used for potential gene therapy applications.
COLLATERAL'S THERAPEUTIC APPROACH
Collateral's non-surgical cardiovascular gene therapy approach is primarily
focused on angiogenesis, myocardial adrenergic signaling and heart muscle
regeneration utilizing proprietary technology, which includes methods of gene
therapy, therapeutic genes and gene delivery vectors.
ANGIOGENESIS. The Company is developing non-surgical angiogenic gene
therapy treatments for coronary artery disease, peripheral vascular disease and
congestive heart failure. IN VIVO preclinical studies led by the Company's chief
scientist demonstrated that gene therapy with human angiogenic growth factor
genes resulted in high-yield gene transfer limited to the heart and, for the
first time, fully restored regional blood flow and heart function in an ischemic
region of the heart in a preclinical model. The results were achieved within two
weeks of a one-time treatment and the effects persisted over the study period of
12 weeks following the administration of gene therapy, without any significant
side effects such as inflammation or immune response. The Company's proprietary
methods of gene therapy utilize a catheter-based intracoronary delivery of an
angiogenic gene to effect the transfer of genetic information into the heart
cells to produce a specific protein to stimulate site-specific angiogenesis. The
Company's angiogenic products are administered using proprietary methods of gene
therapy based on non-surgical adenoviral vector delivery of angiogenic genes to
the heart. Such products are intended to be non-surgically administered by an
interventional cardiologist by a one-time intra-coronary injection through a
cardiac catheter and could be administered at the time of initial angiography,
on an out-patient basis. Gene transfer is accomplished using, as a vector, a
human adenovirus (common cold virus) which has been rendered
replication-incompetent.
MYOCARDIAL ADRENERGIC SIGNALING. The Company is also developing methods of
gene therapy to enhance myocardial adrenergic signaling in patients with
advanced congestive heart failure by increasing the heart's ability to contract
in response to catecholamine stimulation. In heart failure, the ability of the
heart to respond to catecholamine stimulation is markedly impaired. In the
Company's preclinical research, investigators demonstrated that gene therapy can
be used to produce the enzyme adenylylcyclase in heart muscle cells. Production
of this enzyme caused an increase in the response to catecholamine stimulation
which in turn enhanced the heart's ability to contract.
HEART MUSCLE REGENERATION. Collateral is also developing methods of gene
therapy for the treatment of heart attack (myocardial infarction). The Company's
research on the treatment of heart attack is focused on the regeneration of
heart muscle to mitigate the effect of muscle necrosis and possibly improve
heart performance following a heart attack. Preclinical research has shown that
myofibroblasts, the type of fibroblast seen during the healing phase after heart
attack, can be altered with gene therapy to convert into skeletal muscle cells.
However, skeletal muscle is not an adequate replacement for cardiac muscle. The
Company is now sponsoring preclinical research to identify certain genes which
may have the capacity to transform potential scar tissue cells into functioning
heart muscle cells. If these genes are confirmed to have the capacity to
transform myofibroblasts into heart muscle cells, the Company plans to develop a
non-
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surgical gene therapy product that could be delivered by intracoronary
administration following heart attack.
BUSINESS STRATEGY
The Company's objective is to become the leader in the development and
commercialization of non-surgical cardiovascular gene therapy products for sale
to worldwide markets. The key elements of the Company's strategy are as follows:
DEVELOP A NEW PARADIGM FOR THE TREATMENT OF CARDIOVASCULAR DISEASES. The
American Heart Association estimates that the U.S. healthcare system spends
approximately $274 billion annually on the care and treatment of patients
with cardiovascular diseases. The Company believes that its products under
development hold the potential to revolutionize the treatment of
cardiovascular diseases and become a new standard of care, by offering
patients simpler, more cost-effective and lower-risk alternatives to
currently available treatments.
MAINTAIN LEADERSHIP IN CARDIOVASCULAR GENE THERAPY. The Company believes
that it has established a leadership position in the field of cardiovascular
gene therapy, based on: (i) the depth and breadth of its technology
portfolio; (ii) the first successful demonstration of angiogenic gene
therapy in controlled preclinical studies; and (iii) the filing of a
commercial IND and initiation of Phase I/II clinical trials with respect to
the Company's first angiogenic gene therapy product. In addition, the
Company has five other gene therapy products in various stages of
development that focus on cardiovascular diseases. The Company intends to
continue to focus its resources exclusively on the field of cardiovascular
gene therapy in order to maintain its leadership position.
EXPAND, ENHANCE AND PROTECT PROPRIETARY POSITIONS. The Company has
developed proprietary non-surgical methods of gene therapy which enable
site-specific, high-yield delivery of genes to the heart. The Company has
assembled a broad portfolio of proprietary angiogenic genes consisting of
several FGF, VEGF and other human genes for use with its methods of
cardiovascular gene therapy. The Company and its scientific collaborators
have developed significant expertise with respect to design and delivery of
adenovirus vectors in gene therapy. The Company is seeking to refine and
enhance its proprietary methods of gene therapy to include AAV gene delivery
vectors, and to broaden the application of such methods to the treatment of
other cardiovascular diseases. The Company intends to continue to pursue a
strategy of internal development and in-licensing of technologies and genes
to broaden its product development programs and accelerate the biotechnology
product development cycle. The Company intends to vigorously protect its
intellectual property position.
ESTABLISH STRATEGIC COLLABORATIONS TO ENHANCE PRODUCT DEVELOPMENT AND
COMMERCIALIZATION. The Company intends to focus on research and development
of products while leveraging its technology through the establishment of
collaborations with select pharmaceutical and biotechnology companies
primarily in the areas of product development, manufacturing and marketing.
The Company has an exclusive arrangement with Schering AG covering
angiogenic gene therapy products. For other products, the Company intends to
select potential development and/or commercialization partners only after it
has completely evaluated preclinical research data. The Company believes
that this will allow it to: (i) assess the potential commercial value of its
products; (ii) select a collaborative partner on more favorable terms than
would otherwise be available at earlier stages; and (iii) minimize the
financial burden on the Company to fund development programs by obtaining
up-front and milestone payments, technology access fees and development
funding. The Company expects that in the event of successful
commercialization of its products, royalties on worldwide sales of such
products would generate significant revenues in the long-term.
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COLLATERAL'S CORE TECHNOLOGIES
The Company's core technologies are focused on the development of gene
therapies that promote angiogenesis, myocardial adrenergic signaling and heart
muscle regeneration. As an integral part of the Company's therapeutic approach
to cardiovascular diseases, the Company has developed proprietary methods of
gene therapy and has assembled a portfolio of therapeutic genes.
METHODS OF GENE THERAPY. Collateral's expertise lies in delivering
therapeutic genes to the heart without affecting other organs. The therapeutic
genes will be administered to a patient through the use of non-surgical,
intracoronary delivery into major arteries through a catheter by an
interventional cardiologist. This technology can be used to provide a means to
increase production of a specific protein in living cells and thereby alter cell
function as a therapy to treat a disease condition. Preclinical studies led by
the Company's chief scientist have demonstrated that its proprietary methods of
gene therapy allow the injection of therapeutic genes directly into the arteries
of the heart with 98.5% of the gene-carrying vector being taken up by the heart.
No detectable transfection was observed in preclinical models in skeletal
muscle, eye, liver or any organs other than the heart. See, however, "Risk
Factors--Uncertainties Related to Clinical Trials; Uncertainties Related to
Safety and Efficacy."
PORTFOLIO OF THERAPEUTIC GENES. Genes which regulate biological activity in
the cardiovascular system are key enabling components of the Company's core
technology. Collateral has developed a portfolio of 11 proprietary human genes
in the FGF and VEGF gene families to be used in the commercialization of
products centered around the Company's angiogenesis technology. The Company's
gene portfolio includes genes that have been invented by the Company for
application in the field of cardiovascular gene therapy and genes that have been
discovered by the Company for which patent applications have been filed with the
PTO. The Company's portfolio of genes includes: FGF-4, FGF-4f, VEGF-B(112),
VEGF-B(166), VEGF-B(167), VEGF-B(173), VEGF-B(186), VEGF-145, VEGF-145-I,
VEGF-145-II, VEGF-145-III, VEGF-138, and others. In addition, pursuant to a
pending patent application filed by the Company with the PTO entitled "Truncated
VEGF-Related Proteins," the Company believes that it has a proprietary position
with respect to other invented genes that code for other potentially angiogenic
proteins. These genes include: (des 1-7) VEGF-B, (des 1-12) VEGF-B, (des 1-15)
VEGF-B, (des 1-17) VEGF-B, (des 1-20) VEGF-B, (des 1-22) VEGF-B; (des 1-7)
VRF-2, (des 1-12) VRF-2, (des 1-20) VRF-2, (des 22) VRF-2; (des 1-7) VEGF-3,
(des 1-12) VEGF-3, (des 1-17) VEGF-3, (des 22) VEGF-3; (des 1-92) VEGF-C, (des
1-97) VEGF-C, (des 1-102) VEGF-C, (des 1-107) VEGF-C, (des 1-17) pVORF1, (des
1-22) pVORF1, (des-1-27) pVORF1, (des 1-32) pVORF1; (des 1-27) pVORF2, (des
1-32) pVORF2, (des 1-37) pVORF2, and (des 1-42) pVORF2. In addition, the Company
has a patent application pending for the use of, or public domain access to,
certain other therapeutic genes that will be required for its myocardial
adrenergic signaling and heart muscle regeneration technologies. See, however,
"Risk Factors--Uncertainty of Patent Protection; Dependence on Proprietary
Technology."
GENE DELIVERY VECTORS. Collateral is using the human adenovirus gene
delivery vector, rendered replication-incompetent by deleting some of its DNA
and replacing it with a particular therapeutic gene. The Company believes that
certain features of adenovirus vectors make them particularly well-suited for
the treatment of a number of human diseases: (i) naturally occurring
adenoviruses have no side effects other than mild self-limited viral illness;
(ii) adenoviruses can be rendered replication-incompetent; (iii) unlike some
other types of viral systems, adenovirus vectors can introduce genes into
non-dividing cells, such as heart muscle cells, or slowly dividing cells; (iv)
adenovirus vectors may persist in the host muscle cells for up to six months;
and (v) adenovirus vectors can be purified and concentrated, and thereby may
allow for more efficient manufacturing. The Company is attempting to build a
proprietary position in gene delivery vectors through the development or
acquisition of exclusive rights to inventions that provide important
enhancements to adenovirus vectors. The Company is seeking to refine and enhance
its proprietary methods of gene therapy to include, for example, AAV gene
delivery vectors, and to broaden the application of its methods of gene therapy.
See "Risk Factors--Uncertainties Related to Clinical Trials;
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Uncertainties Related to Safety and Efficacy" and "Risk Factors--Uncertainty of
Patent Protection; Dependence on Proprietary Technology."
COLLATERAL'S PRODUCT DEVELOPMENT PROGRAMS
<TABLE>
<CAPTION>
PRODUCT TECHNOLOGY MEDICAL DEVELOPMENT DEVELOPMENT
CANDIDATE (DESIGNATED GENE) INDICATION STATUS(1) PARTNER
<S> <C> <C> <C> <C>
GENERX-TM- Angiogenesis Stable Exertional Phase I/II Schering AG
(FGF-4) Angina due to
Coronary Artery
Disease
GENEVX-TM- Angiogenesis Stable Exertional Preclinical Schering AG
(VEGF) Angina due to
Coronary Artery
Disease
GENVASCOR-TM- Angiogenesis Peripheral Preclinical Schering AG
(FGF-4) Vascular Disease
GENECOR-TM- Angiogenesis Congestive Heart Preclinical (2)
Failure
CORGENIC-TM- Myocardial Congestive Heart Research --
Adrenergic Failure
Signaling
MYOCOR-TM- Heart Muscle Heart Attack Research --
Regeneration
</TABLE>
- ------------------------
(1) "Research" indicates studies conducted in animal models or biochemical or
cell culture systems in order to identify a product candidate. "Preclinical"
indicates potency, pharmacology and/or toxicology testing of a gene therapy
product candidate in animal models or biochemical or cell culture systems.
"Phase I/II" indicates that a gene therapy product candidate is being tested
at an early stage in humans for safety, pharmacologic profile and
preliminary indications of efficacy in a limited patient population. See
"Business--Government Regulation."
(2) Through May 2003, Schering AG has certain rights to enter into research and
development agreements with the Company for new product opportunities that
the Company may identify within the field of gene therapy to promote
angiogenesis. See "Business--Collaborative and Licensing Arrangements."
GENERX (which uses the FGF-4 gene in an adenovirus vector), the Company's
initial angiogenic product for the treatment of coronary artery disease, is
designed to relieve stable exertional angina. The Company believes that this
product has the potential to stimulate the growth of collateral blood vessels
which will increase blood flow and function in a previously ischemic region of
the heart. IN VIVO preclinical studies led by the Company's chief scientist
demonstrated that gene therapy with human angiogenic growth factor genes
resulted in high-yield gene transfer limited to the heart and restored heart
function and regional blood flow in an ischemic region of the heart in a
preclinical model. The results were achieved within two weeks of a one-time
treatment and the effects persisted over the study period of 12 weeks following
the administration of gene therapy, without any significant side effects such as
inflammation or immune response. A commercial IND was filed with the FDA in
December 1997 by the Company's strategic partner, Schering AG. A Phase I/II
clinical trial for GENERX was initiated in May 1998 by Berlex Laboratories,
Inc., a subsidiary of Schering AG, in collaboration with Collateral. The trial,
which is placebo-controlled and double-blind, will enroll approximately 100
patients and is being conducted in 10 major cardiovascular centers in the U.S.
This trial will evaluate safety and efficacy at six different dose levels of
GENERX in patients with chronic stable exertional angina due to atherosclerosis.
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GENEVX (which uses a VEGF gene in an adenovirus vector), the Company's
second angiogenic product for the treatment of coronary artery disease, is also
designed to relieve stable exertional angina. The Company is currently
conducting preclinical studies in order to support an IND filing for this
product in collaboration with Schering AG. The Company believes that this
product, like GENERX, has the potential to stimulate the growth of collateral
blood vessels which will increase blood flow and function in a previously
ischemic region of the heart.
GENVASCOR (which uses the FGF-4 gene in an adenovirus vector) is the
Company's first angiogenic product for the treatment of peripheral vascular
disease. The Company is currently conducting preclinical studies in order to
support an IND filing for this product in collaboration with Schering AG. The
Company believes that this product has the potential to stimulate the growth of
collateral blood vessels which will increase blood flow and function in a
previously ischemic region of the lower limbs.
The Company is developing two products for the treatment of congestive heart
failure. GENECOR is based on the Company's angiogenesis technology, and CORGENIC
is based on the Company's myocardial adrenergic signaling technology. The
Company is seeking to leverage its scientific knowledge and understanding by
developing therapeutic approaches to stimulate the growth of collateral blood
vessels to augment arterial blood flow for the treatment of certain types of
congestive heart failure. In addition, the Company is conducting discovery and
preclinical research to develop the first gene therapy product to enhance
myocardial adrenergic signaling.
MYOCOR, the Company's product in development for the treatment of heart
attack, is focused on the regeneration of muscle tissue to mitigate the effect
of muscle necrosis and improve cardiac function following a heart attack.
COLLABORATIVE AND LICENSING ARRANGEMENTS
The Company's business strategy includes the establishment of early-stage
research collaborations with major pharmaceutical and biotechnology companies to
support and supplement the Company's discovery, preclinical and Phase I/II
clinical research and development phases of the product commercialization cycle,
as well as the implementation of long-term strategic partnerships with major
pharmaceutical and biotechnology companies to support Phase II and Phase III
clinical trials and product commercialization activities, including product
manufacturing, marketing and distribution. To date, the Company has established
one such relationship with Schering AG. See "Risk Factors--Reliance on
Collaborative Relationships."
SCHERING AG COLLABORATION, LICENSE AND ROYALTY AGREEMENT
In May 1996, the Company entered into a collaboration, license and royalty
agreement (the "Schering Agreement") with Schering AG which established a
strategic alliance covering the development and commercialization of gene
therapy products to promote angiogenesis. Under the Schering Agreement, the
Company agreed to conduct research and development in the field of gene therapy
to promote angiogenesis solely with Schering AG during the term of the Schering
Agreement. The Company granted Schering AG an exclusive worldwide license to all
rights to Collateral's technology in the field of angiogenic gene therapy and to
certain other rights to technology developed by the Company with funding support
from Schering AG during the five-year research and development program under the
Schering Agreement. Schering AG has the right to sublicense its rights to
Schering AG affiliates without the consent of the Company and to third parties
who are not affiliates of Schering AG with the consent of the Company, which
shall not be unreasonably withheld. In exchange for such rights, Schering AG
agreed to: (i) purchase up to $5.0 million of the Company's equity; (ii) provide
research and development funding and support totaling up to $5.0 million
annually to support the Company's research and development pursuant to the
Schering Agreement; (iii) pay the Company milestone payments totaling up to
$20.5 million for each Initial Product and for each New Product (each as defined
therein) based on the
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Company's achievement of milestones pertaining to certain regulatory filings and
the development and commercialization of products under the Schering Agreement;
and (iv) pay the Company a royalty rate based on worldwide net sales of each
product and to pay an additional supplemental royalty based on worldwide net
sales of each product and the product's cost of goods, up to a maximum specified
royalty rate. Schering AG and the Company are performing research and
development, with Schering AG responsible for the preparation and filing of all
regulatory applications and approvals and all activities relating to the
manufacture, marketing and sale of products described in the research and
development plan under the Schering Agreement.
In addition, under the Schering Agreement, through May 2003 Schering AG has
the right of first refusal to enter into exclusive research and development
agreements with the Company for new product opportunities that the Company may
identify within the field of gene therapy to promote angiogenesis. If Schering
AG and the Company are unable to reach agreement on terms and conditions
regarding such research and development agreements for new product
opportunities, then the Company may develop such products on its own or with
third parties, provided that the Company or its licensees pay Schering AG a
royalty on worldwide net sales of such new products, and subject to Schering
AG's right to enter into an agreement on the same terms as are offered to such
third party. If Schering AG and the Company are able to reach agreement on the
terms and conditions of such an agreement, Schering AG would have the same
exclusive worldwide rights under the Company's technology to the new product as
for the initial products. In addition, through May 2003 Schering AG has a right
of first negotiation to enter into an agreement to license on an exclusive basis
from the Company new products outside the field of gene therapy to promote
angiogenesis. From May 2003 through May 2006, Schering AG also has a right of
first offer to enter into a license agreement with the Company covering
potential new products in the field of gene therapy to promote angiogenesis,
products outside of the field of gene therapy to promote angiogenesis and
certain other technology and know-how.
Schering AG has the unilateral right to terminate the Schering Agreement on
60 days prior written notice to the Company. Upon such notice, Schering AG is
required to pay the Company a termination fee and would be required to provide
the Company with copies of and the right to reference all IND applications or
any other such submissions that had been filed by Schering AG with all
regulatory health authorities with respect to products covered under the
Schering Agreement. In the event that Schering AG exercises such unilateral
right to termination, Schering AG retains a paid-up, irrevocable, royalty-free,
nonexclusive, worldwide license, with the right to sublicense, to any new
inventions made during and pursuant to the Schering Agreement. In addition,
Schering AG may terminate the Schering Agreement upon 90 days written notice,
without payment of a termination fee, if a third party which is a competitor of
Schering AG or the Company acquires substantially all the assets of the Company
or 49% or more of the voting stock of the Company. Upon such termination,
Schering AG would retain any license granted by the Company to Schering AG,
while any licenses granted by Schering to the Company would terminate.
In 1995, Schering AG provided $500,000 in loans to fund operations.
Principal and interest on the notes evidencing the loans are due and payable
upon demand on or after June 30, 1999. In May 1996, pursuant to the Schering
Agreement, an affiliate of Schering AG made an equity investment of $2.5 million
in the Company. Following the Company's securing certain rights to develop a
gene, in June 1997, the same affiliate of Schering AG made an additional equity
investment of $2.5 million in the Company. Finally, in June 1997, such affiliate
of Schering AG made an additional equity investment of $679,808 in the Company.
As of March 31, 1998, said affiliate of Schering AG owned 19.1% of all
outstanding capital stock of the Company (without giving effect to shares to be
issued in the Offering). As of March 31, 1998, Schering AG had paid the Company
an aggregate of $8.6 million in research and development support and milestone
payments.
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UNIVERSITY OF CALIFORNIA LICENSE AGREEMENTS
ANGIOGENESIS GENE THERAPY. In September 1995, the Company entered into an
agreement with the Regents of the University of California (the "Regents")
pursuant to which the Regents granted to the Company an exclusive license
agreement (with the right to sublicense) in the U.S. and in foreign countries
where the respective patent rights exist to certain technology relating to
angiogenic gene therapy, based on scientific discovery research conducted at the
laboratory of Dr. H. Kirk Hammond, a co-founder and principal stockholder of the
Company ("Dr. Hammond").
GENE THERAPY FOR CONGESTIVE HEART FAILURE. In January 1997, the Company and
the Regents entered into an exclusive license agreement (with the right to
sublicense) in the U.S. and in foreign countries where the respective patent
rights exist for certain technology relating to a gene therapy approach for
congestive heart failure based on myocardial adrenergic responsiveness, based on
scientific discovery research conducted at the laboratory of Dr. Hammond.
ANGIOGENIC GENE THERAPY FOR CONGESTIVE HEART FAILURE. In June 1997, the
Company and the Regents entered into an exclusive license agreement (with the
right to sublicense) in the U.S. and in foreign countries where the respective
patent rights exist for certain technology relating to angiogenic gene therapy
for congestive heart failure, based on scientific discovery research conducted
at the laboratory of Dr. Hammond.
Each of these agreements provides the Company with exclusive rights (subject
to any license rights of the U.S. Government) to develop and commercialize
technology covered by patent applications that have been filed for in the United
States and in foreign countries. Pursuant to each agreement, the Company has
agreed to pay the Regents a license fee payable in installments, an annual
royalty fee based on net sales of products covered by the relevant patents and
certain minimum annual royalty fees. Under the terms of these agreements, the
Company is required to satisfy certain due diligence provisions with respect to
the timely development and commercialization of products covered by patents
thereunder. If the Company fails to meet the due diligence deadlines, the
Regents may terminate the agreement or reduce the exclusive licenses to
nonexclusive licenses. The Company is entitled to a one-time extension of the
due diligence deadlines upon payment of certain fees. In the event of a material
breach of any of these agreements by the Company, which material breach remains
uncured for 60 days, the agreement that was breached may be terminated by the
Regents.
UNIVERSITY OF CALIFORNIA RESEARCH AGREEMENT
In February 1998, the Company entered into an agreement with the Regents to
conduct research into the study of angiogenesis in the failing heart. The
Company agreed to support the research project with a grant. All rights to
inventions and discoveries arising from the research project conducted under
said agreement shall be owned by the Regents. The Company has a right of first
negotiation, within 60 days of disclosure by the Regents of any invention to the
Company, to enter into an agreement with the Regents to exclusively license any
patentable inventions that might arise from the research project. The term of
this agreement is through June 30, 1998. The Company is currently considering
the possible extension of this agreement for an additional six-month period.
This agreement may be terminated by the Company for any reason, or by the
Regents for non-payment, upon 30 days prior written notice to the other party.
NEW YORK UNIVERSITY RESEARCH AND LICENSE AGREEMENT
In March 1997, the Company entered into an agreement with New York
University ("NYU") pursuant to which NYU granted to the Company an exclusive
worldwide license (with the right to sublicense) to certain technology covering
development, manufacture, use and sale of gene therapy products based on FGF-4
for the treatment of coronary artery disease, peripheral vascular disease and
congestive heart failure. This agreement provides the Company with exclusive
rights in such fields to develop and commercialize technology covered by an
issued patent and patent applications that have been
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filed in the United States and in foreign countries. Pursuant to such agreement,
the Company has agreed to pay NYU license fees, milestone payments for each
licensed product and a minimum annual royalty fee based on net sales of products
covered by such patents. The Company is also funding a three-year
Company-directed research program using the technology covered by the patents
and applications. Under the terms of this agreement, the Company is required to
satisfy certain due diligence provisions with respect to the timely development
and commercialization of products covered by patents thereunder. Failure to meet
any due diligence requirements could result in the termination of the agreement
unless the Company and NYU mutually agree otherwise or the Company pays NYU an
additional fee to extend the due diligence deadline. NYU may terminate the
agreement upon a failure to pay any amounts due thereunder which remains uncured
for 30 days or upon any other material breach of the agreement by the Company
which remains uncured for 60 days. On April 28, 1998, the Company and NYU
amended this agreement to expand the scope of the research conducted under this
agreement and to provide for the payment of additional funds by the Company to
NYU in connection therewith.
AMRAD DEVELOPMENT PTY LTD. AND LUDWIG INSTITUTE FOR CANCER RESEARCH LICENSE
AGREEMENT
In March 1997, the Company entered into an agreement with AMRAD Development
Pty Ltd. and Ludwig Institute for Cancer Research ("AMRAD/Ludwig") pursuant to
which AMRAD/Ludwig granted to the Company an exclusive worldwide license to
certain technology relating to the Company's use of certain VEGF genes for gene
therapy products developed and commercialized by the Company, or its licensees,
for the treatment of cardiovascular diseases, including coronary artery disease,
peripheral vascular disease and congestive heart failure. This agreement
provides the Company with exclusive rights to develop and commercialize
technology covered by patents that have been filed for by AMRAD/Ludwig in the
United States and in foreign countries. Pursuant to such agreement, the Company
has agreed to pay AMRAD/Ludwig license fees and milestone payments based on the
Company's successful achievement of certain product development benchmarks for
commercialized products using the licensed technology for an initial medical
indication, a milestone payment for commercialized products and a one-time
license fee for using the licensed technology for each additional medical
indication, an annual royalty fee based on net sales of products commercialized
by the Company using the licensed technology covered by the patents issued
thereunder and certain minimum annual royalty fees which may be offset against
annual royalty fees based on net sales of products. In addition, on the earlier
of either September 25, 1998 or 30 days after the completion of any initial
public offering for the purchase of shares of the Company being listed on any
stock exchange in the United States, the Company will pay AMRAD/Ludwig $1.0
million. If the Company fails to make this payment within 10 days of the date
due, this agreement will be deemed terminated. The Company has the right to
sublicense any of the rights granted under this agreement to Schering AG or its
affiliates and may sublicense rights to any other third party only with
AMRAD/Ludwig's prior written consent. Pursuant to the terms of this agreement,
the Company is required to satisfy certain due diligence provisions with respect
to the achievement of certain benchmarks. If the Company fails to achieve
certain of the benchmarks, the agreement may be deemed terminated. In respect to
some of the selected benchmarks the Company may pay additional fees to extend
the benchmark deadlines by two three-month extensions. AMRAD/Ludwig may
terminate the agreement in the event of a material breach of the agreement by
the Company which remains uncured for 30 days. At its option, the Company may
terminate the agreement upon 30 days notice.
DIMOTECH LTD. AND TECHNION RESEARCH & DEVELOPMENT FOUNDATION LICENSE
AGREEMENT
In October 1996, the Company entered into an agreement with Dimotech Ltd., a
wholly-owned subsidiary of Technion Research and Development Foundation, located
at the Gurtwith Science Based Industrial Center in Haifa, Israel and the
inventor of the licensed technology who is employed by Technion Research and
Development Foundation (collectively, "Technion") pursuant to which Technion
granted to the Company an exclusive worldwide license (with the right to
sublicense) to make, use and sell products for the treatment of cardiovascular
diseases, including coronary artery disease, peripheral vascular disease
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and congestive heart failure which would fall within any patents that may issue
which claim VEGF-145, a vector comprising VEGF-145 or the use of VEGF-145. This
agreement provides the Company with exclusive rights to develop and
commercialize technology covered by patents that have been filed for in the
United States and in foreign countries. To date, no such patents have issued.
Pursuant to such agreement, the Company has agreed to pay Technion a one-time
license fee, certain milestone payments based on the Company's successful
achievement of certain product development benchmarks and an annual royalty fee
based on net sales of products covered by any patents that may issue which would
be offset against certain minimum annual royalty fees paid by the Company. Under
the terms of this agreement, the Company is required to satisfy certain due
diligence provisions with respect to the timely development and
commercialization of products covered by any patents thereunder. If the due
diligence deadlines are not met, the Company may extend the due diligence
deadline for 12 months upon payment of an additional fee. Technion may terminate
the agreement in the event of a material breach of the agreement by the Company
which remains uncured for 60 days. At its option, the Company may terminate the
agreement upon 60 days written notice and payment of a termination fee.
VETERANS MEDICAL RESEARCH FOUNDATION RESEARCH AGREEMENTS
Since 1995, the Company has contracted with the Veterans Medical Research
Foundation (the "Medical Research Foundation") located in San Diego, California
and operating at the Veterans' Affairs Medical Center to conduct certain
research activities. In March 1998 the Company entered into another one year
term agreement with the Medical Research Foundation. Under the terms and
conditions of this agreement, Dr. Hammond, who serves as the investigator for
such studies, and the Medical Research Foundation agree to utilize their best
efforts to conduct studies in the field of cardiovascular disease. In
consideration for such services, the Company has agreed to pay the Medical
Research Foundation monthly fees based on the overall level of expenditures for
research and development, plus certain administrative overhead charges. Dr.
Hammond and the Medical Research Foundation agree that all ideas, developments
and inventions, whether or not patentable, conceived or reduced to practice by
Dr. Hammond or the Medical Research Foundation as a result of the studies
conducted under this agreement shall be the property of the Company. Dr. Hammond
and the Medical Research Foundation agree to assign to the Company the entire
right, title and interest, both in the United States and abroad, to such ideas,
developments and inventions. All parties to said agreement acknowledge that
insofar as U.S. government resources are utilized in connection with the work
done therein, the U.S. government may have certain rights as defined by U.S. law
and may choose to exercise those rights.
In August 1997, the Company entered into an agreement with the Medical
Research Foundation relating to experiments to determine whether the adenovirus
vector can transfect brain cells. Under the terms and conditions of this
agreement, Dr. Patrick D. Lyden, who serves as the investigator for such
studies, and the Medical Research Foundation agree to utilize their best efforts
to conduct such experiments. The term of this agreement is through August 1998.
In consideration for such services, the Company has agreed to pay the Medical
Research Foundation certain fees based on the overall level of expenditures for
research and development, plus certain administrative overhead charges. Dr.
Lyden and the Medical Research Foundation agree that all ideas, developments and
inventions, whether or not patentable, conceived or reduced to practice by Dr.
Lyden or the Medical Research Foundation as a result of the studies conducted
under this agreement shall be the property of the Company. Dr. Lyden and the
Medical Research Foundation agree to assign to the Company the entire right,
title and interest, both in the United States and abroad, to such ideas,
developments and inventions. All parties to said agreement acknowledge that
insofar as U.S. government resources are utilized in connection with the work
done therein, the U.S. government may have certain rights as defined by U.S. law
and may choose to exercise those rights.
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UNIVERSITY OF WASHINGTON RESEARCH AGREEMENT
In April 1997, the Company entered into an agreement with the University of
Washington, Seattle, School of Medicine, Department of Pathology ("University of
Washington") to conduct Company-directed discovery research into the study of
repair of damage resulting from a heart attack using therapeutic genes to
initiate and control regeneration of heart muscle tissue. Under this agreement,
the Company has a right of first negotiation to enter into an agreement with the
University of Washington to exclusively license all technology that may result
from such research. The term of this agreement ended on April 30, 1998 and is
currently being considered for a one-year extension. Either party may terminate
this agreement at any time upon 30 days prior written notice.
UNIVERSITY OF MISSOURI SPONSORED RESEARCH CONTRACT
In October 1997, the Company entered into an agreement with the Curators of
the University of Missouri--Columbia ("University of Missouri") pursuant to
which the University of Missouri would conduct Company-directed discovery
research into the study of collateral blood flow. Pursuant to the terms of this
agreement, the Company has agreed to provide the University of Missouri with
research funding for Company-directed research done in accordance with the
statement of work under the agreement. Under this agreement, the Company has a
six month option from the date of notice by University of Missouri to
exclusively license all technology that may result from such research. The term
of this agreement is through July 15, 1998. Either party may terminate this
agreement at any time upon 30 days prior written notice.
TARGETED GENETICS CORPORATION BIOLOGICAL MATERIALS AGREEMENT
In January 1998, the Company entered into a biological materials transfer
agreement with Targeted Genetics Corporation ("Targeted Genetics") for purposes
of evaluating Targeted Genetics' recombinant adeno-associated viral ("rAAV")
vector for application in the field of cardiovascular gene therapy. Under the
terms of said agreement, the Company and Targeted Genetics each have the option
to collaborate further to use Targeted Genetics' rAAV vector to treat congestive
heart failure, whereby Targeted Genetics would be responsible for constructing
and manufacturing the vector and the Company would be responsible for, among
other things, funding the costs of the future collaboration. Either party may
terminate said agreement at any time upon 30 days prior written notice.
PATENTS AND PROPRIETARY RIGHTS
Genes which regulate biological activity in the cardiovascular system are
key enabling components of the Company's core technology. Collateral has
developed a portfolio of 11 proprietary human genes in the FGF and VEGF gene
families to be used in the commercialization of products centered around the
Company's angiogenesis technology. The Company's gene portfolio includes genes
that have been exclusively licensed by the Company for application in the field
of cardiovascular gene therapy and genes that have been invented by the Company
for which patent applications have been filed with the PTO. The Company's
portfolio of genes includes: FGF-4, FGF-4f, VEGF-B(112), VEGF-B(166),
VEGF-B(167), VEGF-B(173), VEGF-B(186), VEGF-145, VEGF-145-I, VEGF-145-II,
VEGF-145-III, VEGF-138, and others. In addition, pursuant to a pending patent
application filed by the Company with the PTO entitled "Truncated VEGF-Related
Proteins," the Company believes that it has a proprietary position with respect
to other invented genes that code for other potentially angiogenic proteins.
These genes include: (des 1-7) VEGF-B, (des 1-12) VEGF-B, (des 1-15) VEGF-B,
(des 1-17) VEGF-B, (des 1-20) VEGF-B, (des 1-22) VEGF-B; (des 1-7) VRF-2, (des
1-12) VRF-2, (des 1-20) VRF-2, (des 22) VRF-2; (des 1-7) VEGF-3, (des 1-12)
VEGF-3, (des 1-17) VEGF-3, (des 22) VEGF-3; (des 1-92) VEGF-C, (des 1-97)
VEGF-C, (des 1-102) VEGF-C, (des 1-107) VEGF-C, (des 1-17) pVORF1, (des 1-22)
pVORF1, (des 1-27) pVORF1, (des 1-32) pVORF1; (des 1-27) pVORF2, (des 1-32)
pVORF2, (des 1-37) pVORF2 and (des 1-42) pVORF2. In addition, the Company has a
patent application pending for the use of, or public domain
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access to, certain other therapeutic genes that will be required for its
myocardial adrenergic signaling and heart muscle regeneration technologies.
Collateral is using the human adenovirus gene delivery vector, rendered
replication-incompetent by deleting some of its DNA and replacing it with a
particular therapeutic gene. The Company is attempting to build a proprietary
position in gene-delivery vectors through the development or acquisition of
exclusive rights to inventions that may provide important enhancements to the
Company's methods of gene therapy.
The Company's success will depend on the ability of the Company and its
licensors to obtain patent protection with respect to its technology, to defend
patents once obtained, to maintain trade secrets and operate without infringing
upon the patents and proprietary rights of others and to obtain appropriate
licenses to patents or proprietary rights held by third parties, if any, that
may relate to its technology, both in the United States and in foreign
countries. As of March 1, 1998, the Company had licenses covering one issued
patent and rights to technology covered by over 10 patent applications which are
pending in the PTO and certain corresponding foreign applications. The Company's
policy is to file patent applications to protect technology, inventions and
improvements to inventions that are considered important to the development of
its business. The Company also relies on trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position.
The patent positions of pharmaceutical and biotechnology firms, including
the Company, are often uncertain and involve complex legal and factual
questions. In addition, the coverage claimed in a patent application can be
significantly reduced before a patent is issued. Consequently, the Company does
not know whether any patent applications will result in the issuance of patents
or, if any patents are issued, whether the patents will be subjected to further
proceedings limiting their scope, whether they will provide significant
proprietary protection or will be held unenforceable, circumvented or
invalidated. Since patent applications in the United States are maintained in
secrecy until patents issue and patent applications in certain other countries
generally are not published until up to 18 months after they are first filed,
and since publication of discoveries in scientific or patent literature often
lags behind actual discoveries, the Company cannot be certain that it or any
licensor was the first creator of inventions covered by pending patent
applications or that it or such licensor was the first to file patent
applications for such inventions.
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's technologies or patent applications. Such conflict could limit the
scope of the patents, if any, that the Company may be able to obtain or result
in denial of the Company's or its licensor's patent applications. In addition,
if patents that cover the Company's activities are issued to other companies,
there can be no assurance that the Company would be able to develop or obtain
alternative technology.
Furthermore, as the biotechnology industry expands and more patents are
issued, the risk increases that the Company's processes and potential products
may give rise to claims that they infringe on the patents of others. Such other
persons could bring legal actions against the Company claiming damages and
seeking to enjoin clinical testing, manufacturing and marketing of the affected
product or use of the affected process. Litigation may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company or to determine the enforceability, scope and validity of proprietary
rights of others. If the Company becomes involved in such litigation, it could
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. If there were an adverse
outcome of any such litigation, the Company's business could be materially
adversely affected. In addition to any potential liability for significant
damages, the Company could be required to obtain a license to continue to
manufacture or market the affected product or use the affected process. Costs
associated with any licensing arrangement may be substantial and could include
ongoing royalties. There can be no assurance that any license required under any
such patent would be made available to the Company on acceptable terms, if at
all.
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In addition to patent protection, the Company also relies upon trade secret
protection for its confidential and proprietary information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets or disclose such technology. To protect its trade secrets, the
Company requires its employees, consultants, scientific advisors and parties to
collaborative agreements to execute confidentiality agreements upon the
commencement of employment, the consulting relationship or the collaboration
with the Company. In the case of employees, the agreements also provide that all
inventions resulting from work performed by them while in the employ of the
Company will be the exclusive property of the Company. There can be no
assurance, however, that these agreements will provide meaningful protection of
the Company's trade secrets or adequate remedies in the event of unauthorized
use or disclosure of such information.
See "Risk Factors--Uncertainty of Patent Protection; Dependence on
Proprietary Technology."
GOVERNMENT REGULATION
All of the Company's potential products will require regulatory approval by
U.S. and foreign governmental agencies prior to commercialization in such
countries. Human therapeutic products are subject to rigorous preclinical and
clinical testing and other premarket approval procedures administered by the FDA
and similar authorities in foreign countries. The FDA exercises regulatory
authority over the development, testing, formulation, manufacture, labeling,
storage, record keeping, reporting, quality control, advertising, promotion,
export and sale of the Company's potential products. Similar requirements are
imposed by government agencies in foreign countries. In some cases, local and
state requirements also apply.
Gene therapy and cell therapy are relatively new technologies and have not
been extensively tested in humans. The regulatory requirements governing gene
and cell therapy products and related clinical procedures are uncertain and are
subject to change. Obtaining approval from the FDA and other regulatory
authorities for a new therapeutic product is likely to take several years, if it
is ever obtained, and is likely to involve substantial expenditures. Moreover,
ongoing compliance with applicable requirements can entail the continued
expenditure of substantial resources. Difficulties or unanticipated costs may be
encountered by the Company in its efforts to secure necessary governmental
approvals, which could delay or preclude the Company from marketing its
products.
The activities required before a new therapeutic agent may be marketed in
the United States begin with preclinical pharmacology and toxicology testing.
Preclinical testing includes laboratory evaluation and requires animal studies
to assess the product's potential safety and efficacy. Animal safety studies
must be conducted in accordance with the FDA's Good Laboratory Practice
regulations. The results of these studies must be submitted to the FDA as part
of an IND, which must be reviewed and cleared by the FDA before proposed
clinical testing can begin. Clinical trials must be conducted in accordance with
Good Clinical Practices under protocols that detail the objectives of the trial,
the parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each clinical protocol must be submitted to the FDA as part of the
IND. The FDA's review or approval of a study protocol does not necessarily mean
that, if the trial is successful, it will constitute proof of efficacy or
safety. Further, each clinical trial must be approved by and conducted under the
auspices of an independent Institutional Review Board ("IRB") at the institution
at which the trial will be conducted. The IRB will consider, among other things,
ethical factors, the safety of human subjects and the possible liability of the
institution. The IRB is also responsible for continuing oversight of the
approved protocols in active trials. An IRB may require changes in a protocol,
and there can be no assurance that an IRB will permit any given trial to be
initiated or completed.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. In Phase I, gene therapy clinical trials generally are
conducted with a small number of patients, who may or
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may not be afflicted with a specific disease, to determine the preliminary
safety profile. In Phase II, clinical trials are conducted with larger groups of
patients afflicted with a specific disease in order to determine preliminary
efficacy and optimal dosages and to obtain expanded evidence of safety. In Phase
III, large-scale, multicenter, comparative clinical trials are conducted with
patients afflicted with a target disease in order to provide enough data for the
statistical proof of efficacy and safety required by the FDA and others for
market approval. The FDA receives reports on the progress of each phase of
clinical testing, and it may require the modification, suspension or termination
of clinical trials if an unwarranted risk is presented to patients. Because gene
therapy products are a new category of therapeutics, there can be no assurance
as to the length of the clinical trial period or the number of patients the FDA
will require to be enrolled in the clinical trials in order to establish the
safety and efficacy of such products.
FDA marketing approval must be obtained after completion of clinical trials
of a new product. The Company expects that its products will be regulated as
biological products. According to the FDA's 1993 notice outlining its regulatory
approach to somatic and gene therapy products, these products are also subject
to the drug provisions of the Federal Food, Drug, and Cosmetic Act. This notice
also stated, however, that the FDA's regulatory approach may evolve as
scientific knowledge increases in the area of somatic and gene therapy. Current
regulations relating to biologic drugs will require the Company to submit to the
FDA both a PLA and an ELA, which must be approved by the FDA before commercial
marketing is permitted. The PLA/ELA must include results of product development
activities, preclinical studies and clinical trials, in addition to detailed
manufacturing information. FDA approval of PLA/ELAs generally takes at least one
year. The process may take substantially longer if the FDA has questions or
concerns about a product. The FDA may also request additional data relating to
safety and efficacy. Notwithstanding the submission of relevant data, the FDA
may ultimately decide that a PLA/ELA does not satisfy its regulatory criteria
for approval. The FDA may modify the scope of the desired claims or require the
addition of warnings or other safety-related information and require additional
clinical tests following approval based upon product safety data and,
accordingly, the product remains subject to continual review, and later
discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restrictions on marketing a
product or in withdrawal of the product from the market, as well as possible
civil or criminal sanctions.
The FDA recently amended its regulations to eliminate the ELA requirement
for therapeutic DNA plasmid products, therapeutic synthetic peptide products of
40 or fewer amino acids, monoclonal antibody products for IN VIVO use, and
therapeutic recombinant DNA-related products. Manufacturers of these products,
including the Company's collaborators and any third party manufacturers
contracted by the Company, will instead be required to submit a biologics
license application, which will include, among other information, nonclinical
and clinical data demonstrating that the manufactured product meets prescribed
standards for safety, purity and potency and information pertaining to
manufacturing methods. It is unclear whether any of the Company's products will
fall within the category of products for which the ELA requirement has been
eliminated, or what effect such elimination may have on product development for
FDA review.
The FDA requires that manufacturers of a product comply with current Good
Manufacturing Practices ("cGMP") regulations, both as a condition for performing
clinical studies and for product approval. In complying with cGMP requirements,
manufacturers must expend time, money and effort on a continuing basis in
production, record keeping and quality control. Manufacturing facilities are
subject to periodic inspections by the FDA to ensure compliance. Failure to pass
such inspections may subject the manufacturer to possible FDA action such as the
suspension of manufacturing, seizure of the product, withdrawal of approval or
other regulatory sanctions. The FDA may also require the manufacturer to recall
a product.
In addition to regulations enforced by the FDA, the Company is also subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act,
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the Resource Conservation and Recovery Act and other federal, state and local
regulations. The Company's research and development activities involve the
controlled use of hazardous materials, chemicals, biological materials and
radioactive compounds. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by local, state and federal laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any resulting damages, and any such liability could exceed the Company's
resources.
See "Risk Factors--Extensive Government Regulation; No Assurance of
Regulatory Approval," "Risk Factors--Lack of Manufacturing Capability," "Risk
Factors--Hazardous Materials" and "--Manufacturing."
COMPETITION
The Company is aware of a number of companies and institutions that are
developing or considering the development of potential gene therapy, cell
therapy treatments and angiogenic protein infusion therapies, including
early-stage gene therapy companies, fully integrated pharmaceutical companies,
universities, research institutions, governmental agencies and other healthcare
providers. Additionally, there are a number of medical device companies which
are developing innovative surgical procedures including: (i) laser-based systems
to perform transmyocardial revascularization to stimulate coronary angiogenesis
and (ii) surgical devices and systems to perform minimally invasive
cardiothoracic surgery to simplify traditional mechanical revascularization
techniques, such as Coronary Bypass Surgery and less invasive procedures such as
catheter-based treatments, including balloon angioplasty, atherectomy and
coronary stenting. In addition, the Company's potential products will be
required to compete with existing pharmaceutical products, or products developed
in the future, that are based on new or established technologies.
Many of the Company's competitors have substantially more financial and
other resources, larger research and development staffs and more experience and
capability in researching, developing and testing products in clinical trials,
in obtaining FDA and other regulatory approvals and in manufacturing, marketing
and distribution than the Company. In addition, the competitive positions of
other early-stage companies may be enhanced significantly through their
collaborative arrangements with large pharmaceutical companies, biotechnology
companies or academic institutions. The Company's competitors may succeed in
developing, obtaining patent protection for, receiving FDA and other regulatory
approvals for, or commercializing products more rapidly than the Company. If the
Company is successful in commercializing its products, it will be required to
compete with respect to manufacturing efficiency and marketing capabilities,
areas in which it has no experience.
The Company also competes with others in acquiring products or technology
from research institutions or universities. The Company's competitors may
develop or acquire new technologies and products that are available for sale
prior to the Company's potential products or that are more effective than the
Company's potential products. In addition, competitive products may be
manufactured and marketed more successfully than the Company's potential
products. Such developments could render the Company's potential products less
competitive or obsolete, and could have a material adverse effect on the
Company.
See "Risk Factors--Early Stage of Product Development and of Gene Therapies;
Risk of Technological Obsolescence" and "Risk Factors--Competition."
MANUFACTURING
The Company does not have manufacturing capacity and currently plans to seek
to establish relationships with third party manufacturers for the manufacture of
clinical trial material and the commercial production of any products it may
successfully develop. Schering AG is responsible for all activities relating to
the manufacture of products developed under the Schering Agreement. There can be
no assurance that the Company will be able to establish relationships with third
party manufacturers on
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commercially acceptable terms or that third party manufacturers will be able to
manufacture products in commercial quantities under good manufacturing practices
as mandated by the FDA on a cost-effective basis. The Company's dependence on
third parties for the manufacture of its products may adversely affect the
Company's profit margins and its ability to develop and commercialize products
on a timely and competitive basis. Further, there can be no assurance that
manufacturing or quality control problems will not arise in connection with the
manufacture of the Company's products or that third party manufacturers will be
able to maintain the necessary governmental licenses and approvals to continue
manufacturing the Company's products. Any failure to establish relationships
with third parties for its manufacturing requirements on commercially acceptable
terms would have a material adverse effect on the Company. See "Risk
Factors--Lack of Manufacturing Capability."
SALES AND MARKETING
The Company does not plan to develop its own sales and marketing capability
for products developed by the Company. The Company plans to rely solely upon its
strategic partners to market and sell such products. Schering AG is responsible
for all activities relating to the marketing and sale of products developed
under the Schering Agreement. See "Risk Factors--Reliance on Collaborative
Relationships," "Risk Factors--Lack of Manufacturing Capability" and "Risk
Factors--Lack of Sales and Marketing Capability."
HUMAN RESOURCES
As of March 31, 1998, the Company had 27 full-time employees, including 14
in research and development and 13 in finance and administration. Of these
employees, 12 hold advanced degrees, of which seven are M.D.s or Ph.D.s. The
Company's success will depend in large part on its ability to attract and retain
key employees and scientific advisors. Competition among biotechnology and
pharmaceutical companies for highly skilled scientific and management personnel
is intense. There can be no assurance that the Company will be successful in
retaining its existing personnel or advisors, or in attracting qualified
employees. See "Risk Factors--Dependence on Key Personnel and Advisors."
FACILITIES
Collateral currently occupies approximately 7,000 square feet of
administrative space in San Diego, California. The lease covering these
administrative offices will expire on December 31, 1998. The Company has entered
into a real estate lease for approximately 17,000 square feet of administrative
office space in San Diego, California and expects to occupy this space in
December 1998. This lease has a six-year term with one five-year renewal option.
In addition, the Company is completing construction of a new 11,000 square foot
preclinical research center in San Diego, California. The Company has begun to
occupy this new preclinical research center and expects to commence research
activities in this new facility in the second quarter of 1998. This lease has an
initial five-year term and has two five-year renewal options. The Company
believes its facilities, including the administrative and research facilities it
is occupying over the course of 1998, will be adequate to meet its near-term
space requirements. The Company believes that suitable additional space will be
available to it, when needed, on commercially reasonable terms.
LEGAL PROCEEDINGS
As of the date of this Prospectus, the Company is not a party to any legal
proceedings.
43
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The executive officers, directors and key employees of the Company as of
March 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Jack W. Reich, Ph.D. (1)............................. 49 Director, President and Chief Executive Officer and
Co-Founder
Christopher J. Reinhard (2).......................... 44 Director, Chief Operating and Chief Financial Officer
and Co-Founder
Craig S. Andrews (1)................................. 45 Director, Secretary and Co-Founder
Robert L. Engler, M.D................................ 53 Director, Vice President, Medical Director and
Co-Founder
H. Kirk Hammond, M.D................................. 48 Director, Vice President, Research and Co-Founder
Kathleen E. Rooney................................... 49 Vice President, Administration
Ruth Wikberg-Leonardi................................ 57 Vice President, Regulatory Affairs and Quality
Assurance
George Chuppe, II.................................... 40 Controller
David F. Hale (2).................................... 49 Director
David E. Robinson (1)................................ 49 Director
Elise G. Klein....................................... 43 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
JACK W. REICH, PH.D. is a co-founder of the Company and has served as a
director and as President and Chief Executive Officer of the Company since April
1995. In May 1995, Dr. Reich co-founded MyoTech, Inc., a newly established
venture based upon a novel clinical service model and drug therapy to treat
chronic muscle injury, which was sold in November 1996. From October 1994 to
January 1995, Dr. Reich was Senior Vice President of Enterprise Partners, a
Southern California-based venture capital firm that has played a key role in
developing biotechnology and medical technology companies. From September 1987
to October 1994, Dr. Reich was Vice President, Regulatory Affairs and Quality
Operations of Gensia, Inc. (now Gensia Sicor, Inc.) ("Gensia"), a
biopharmaceutical company formed to discover, develop, manufacture and market
novel pharmaceutical products for the diagnosis and treatment of human disease.
Dr. Reich received a B.A. in Biology from Washington and Jefferson College, a
B.S. in Pharmacy from Creighton University, an M.S. in Hospital Pharmacy
Administration from Temple University and a Ph.D. in
Pharmaceuticals-International Pharmaceutical Administration from Temple
University.
CHRISTOPHER J. REINHARD is a co-founder of the Company and has served as a
director of the Company and as Chief Financial Officer since April 1995 and as
Chief Operating Officer since July 1997. From 1990 to 1995, Mr. Reinhard was
President of the Colony Group Inc., a business and corporate development
company, and Reinhard Associates, an investor relations consulting company. From
1986 to 1990, Mr. Reinhard served as Vice President and Managing Director of the
Henley Group, a diversified industrial and manufacturing group, and as Vice
President of various public and private companies created by the Henley Group,
including Fisher Scientific Group, a leading international distributor of
laboratory
44
<PAGE>
equipment and test apparatus for the scientific community, Instrumentations
Laboratory, IMED Corporation, a medical device company, Wheelabrator
Technologies, an energy and environmental services company, and Henley
Properties Inc., a real estate company. From 1980 to 1985, prior to the
formation of the Henley Group, Mr. Reinhard was Assistant Treasurer of the
Signal Companies Inc., which in 1986 was merged with Allied Corporation to form
Allied-Signal, a diversified manufacturing company. Mr. Reinhard is a director
of Water Management Services, Inc., a private engineering services company which
was formerly an operating unit of American Standard, and Advanced Access Inc.,
an information technology company. Mr. Reinhard received a B.S. in Finance and
an M.B.A. from Babson College.
CRAIG S. ANDREWS, J.D. is a co-founder of the Company and has served as a
director of the Company since April 1995 and Secretary since July 1997. Since
March 1987, Mr. Andrews has been a partner in the law firm of Brobeck, Phleger &
Harrison LLP and has specialized in representing emerging growth companies. Mr.
Andrews has broad experience in founding companies and in financing transactions
as well as general business and corporate law. Mr. Andrews has played an
important role in the formation and development of numerous start-up
biotechnology companies. Mr. Andrews is a director of Encad, Inc, a public
company that designs and manufactures wide-format color inkjet printers. Mr.
Andrews received a B.A. from the University of California at Los Angeles and a
J.D. from the University of Michigan.
ROBERT L. ENGLER, M.D. is a co-founder of the Company and has served as a
director of the Company and as Vice President, Medical Director since April
1995. Dr. Engler has been Professor of Medicine at the University of California
at San Diego ("UCSD") since 1988, Associate Chief of Staff for Research and
Development at the Veterans' Affairs Medical Center since 1989, and a faculty
member of the Institute for Biomedical Engineering, UCSD since 1991. Dr. Engler
is a clinical cardiologist practicing at the San Diego Veterans' Affairs
Healthcare System. From its founding in 1985 to 1997, Dr. Engler was a
Scientific Advisor to Gensia. Dr. Engler received a B.A. in Physics from the
University of North Carolina and an M.D. from Georgetown University.
H. KIRK HAMMOND, M.D., the Company's chief scientist, is a co-founder of the
Company and has served as a director of the Company since April 1995 and as Vice
President, Research since April 1995. Since 1994, Dr. Hammond has been Associate
Professor of Medicine at UCSD. Since 1983, Dr. Hammond has been an active basic
research scientist and cardiologist at the San Diego Veterans' Affairs
Healthcare System. Dr. Hammond's laboratory at UCSD has recently focused on the
development of gene therapy to treat cardiovascular disease and Dr. Hammond was
the primary co-inventor of the technology that served as the basis for the
formation of Collateral. Dr. Hammond received an M.D. from Indiana University in
1980 and is board certified in internal medicine (1983) and cardiovascular
diseases (1987).
KATHLEEN E. ROONEY has served as Vice President, Administration since August
1996. From November 1995 to August 1996, Ms. Rooney was Director of Project
Planning at Sequana Therapeutics Inc., a genomics company focused on positional
cloning and functional assessment of human genes. From October 1987 to November
1995, Ms. Rooney was Director of Project Planning and Administration at Gensia
coordinating the discovery, development and manufacturing of several novel drug
candidates from preclinical research through to the submission of NDAs with the
FDA. From 1975 to 1987, Ms. Rooney held various positions at the Scripps Clinic
and Research Foundation including Chief Medical Technologist, Administrative
Director of Pathology Services and Ancillary Services Administrator. Ms. Rooney
received a B.S. in Medical Technology from the University of Wisconsin and an
M.B.A. from San Diego State University.
RUTH WIKBERG-LEONARDI has served as Vice President, Regulatory Affairs and
Quality Assurance since May 1996. From March 1991 to May 1995, Ms.
Wikberg-Leonardi was Director of Regulatory Affairs at Gensia. Ms.
Wikberg-Leonardi has 30 years of experience in the pharmaceutical industry,
including 15 years at Kabi, a Swedish pharmaceutical company, with
responsibilities in pharmaceutical drug development and pilot plant production
of tablets, small volume parenterals and oral liquids. Ms. Wikberg-Leonardi's
regulatory affairs responsibilities in Sweden included work with conventional
biologics and
45
<PAGE>
drugs such as plasma products, growth factors and thrombolytics, subsequently
working with recombinant DNA products such as monoclonal antibodies and growth
hormone. In the United States, Ms. Wikberg-Leonardi has spent more than 10 years
working in the regulatory area with recombinant proteins and conventional drugs,
obtaining approvals for products both in Europe and the United States through
filing of Marketing Applications, PLAs and NDAs. Ms. Wikberg-Leonardi received a
B.S. in Pharmacy from Royal Pharmaceutical Institute, Stockholm.
GEORGE CHUPPE, II has served as Controller of the Company since October
1997. Mr. Chuppe was Director of Finance at Alliance Pharmaceutical Corp. from
March 1994 to September 1997. From August 1989 to February 1994 Mr. Chuppe held
various positions at General Instrument Corporation, VideoCipher Division,
including Manager of Accounting. Mr. Chuppe was a Senior Auditor at Ernst &
Young from January 1987 to July 1989. Mr. Chuppe is a Certified Public
Accountant and received a B.A. in Business--Economics from the University of
California at Santa Barbara and an M.S. in Accountancy from San Diego State
University.
DAVID F. HALE has served as a director of the Company since August 1995. Mr.
Hale is currently President and CEO of Women First HealthCare. Prior to that,
Mr. Hale served as President and CEO of Gensia from June 1987 to December 1997
and President of Hybritech Incorporated from 1982 to 1987. Mr. Hale was Vice
President and General Manager of BBL Microbiology Systems, a division of Becton
Dickinson & Company from 1980 to 1982 and held a number of positions with
Johnson & Johnson from 1971 to 1980. He serves as a Director of Dura
Pharmaceuticals, Inc., a respiratory pharmaceutical company, Gensia, the
California Healthcare Institute, Biocom San Diego, the VESO Foundation and
several private healthcare companies.
DAVID E. ROBINSON has served as a Director of the Company since December
1995. Mr. Robinson has served as President and Chief Executive Officer of Ligand
Pharmaceuticals Inc. since 1991 and as Chairman of the Board since 1996. Mr.
Robinson is a Director of the Cancer Center Foundation of the University of
California at San Diego, the California Healthcare Institute, the Biotechnology
Industry Organization, Neurocrine Biosciences Inc., a public biotechnology
company, as well as several private healthcare companies. Mr. Robinson received
a B.A. in political science and history from MacQuaire University and an M.B.A.
from the University of South Wales, Australia.
ELISE G. KLEIN has served as a Director of the Company since November 1997.
Ms. Klein has served as Vice President of Sales and Corporate Development of
Berlex Laboratories Inc. since June 1997 and as Vice President and General
Manager, Diagnostic Imaging since July 1993. Ms. Klein has over 20 years of
experience in the pharmaceutical industry with Berlex Laboratories Inc., a
subsidiary of Schering AG of Berlin, Germany. Ms. Klein received a B.A. in
sociology from Franklin and Marshall College and an M.S. in zoology from Rutgers
University.
Members of the Board currently hold office and serve until the next annual
meeting of the stockholders of the Company or until their respective successors
have been elected and qualified. The Board is currently comprised of eight
directors. All executive officers are elected annually by and serve at the
discretion of the Board. All of the Company's executive officers are employed by
the Company at will.
Pursuant to the 1998 Plan, to be effective on the date that the Underwriting
Agreement for the Offering is executed (the "Underwriting Date"), directors who
are not officers or employees of the Company are eligible to receive periodic
option grants under an Automatic Option Grant Program. See "--Director
Compensation" and "--Benefit Plans--1998 Stock Incentive Plan."
COMMITTEES OF THE BOARD OF DIRECTORS
On March 11, 1996, the Board established a Compensation Committee and, on
July 15, 1997, the Board established an Audit Committee. The Compensation
Committee, currently consisting of Messrs.
46
<PAGE>
Andrews and Robinson and Dr. Reich, is responsible for recommending salaries and
incentive compensation for executive officers and key personnel, including stock
options. Mr. Robinson is Chairman of the Compensation Committee. The Audit
Committee, currently consisting of Messrs. Hale and Reinhard, is responsible for
recommending the Company's independent auditors and reviewing the results and
scope of audit and other services provided by such auditors. Prior to March 11,
1996, the functions of the Compensation Committee were performed by the entire
Board and, prior to July 15, 1997, the functions of the Audit Committee were
performed by the entire Board. Dr. Reich, a director and the Company's President
and Chief Executive Officer, and Mr. Reinhard, a director and the Company's
Chief Operating and Chief Financial Officer, both participated in the
deliberations of the Board regarding executive compensation since April 1995,
but neither participated in the deliberations regarding his own compensation.
Upon the effectiveness of this registration statement, Dr. Reich will no longer
be on the Compensation Committee.
SCIENTIFIC ADVISORY BOARD
The Company has retained a group of scientific advisors to serve on its
Scientific Advisory Board. The Scientific Advisory Board provides Collateral
with specific expertise in the areas of molecular biology, immunology, cell
biology and clinical medicine relevant to the product and technology development
efforts now underway at the Company. The Scientific Advisory Board meets
periodically with the Company's scientific personnel and management to discuss
the Company's present research and development activities and long-term
strategies. The following individuals are currently members of the Scientific
Advisory Board:
<TABLE>
<S> <C>
Andrew Baird, Ph.D. ....... Vice President, Research and Development, Ciblex
Corporation
Claudio Basilico, M.D. .... Professor and Chairman, New York University School of
Medicine
Peter Bohlen, Ph.D. ....... Vice President, Research, ImClone Systems Incorporated
Paul Insel, M.D. .......... Professor of Medicine and Pharmacology, UCSD
Eric Olson, Ph.D. ......... Professor and Chairman, University of Texas,
Southwestern Medical Center
</TABLE>
Each member of the Scientific Advisory Board has entered into a scientific
advisor consulting agreement, or similar consulting agreement, with the Company
in the fields of interest to the Company, whereby the member agrees to provide
advice and occasional scientific counsel to the Company. Each member receives
cash compensation for attending the Scientific Advisory Board meetings. In
addition, most of the Scientific Advisory Board members were granted options to
purchase shares of Common Stock at exercise prices between approximately $0.05
and $0.28 per share that in general are subject to four-year vesting schedules.
The scientific advisors are also employed by employers other than the Company
and may have commitments to, or consulting contracts with, other entities that
may limit their availability to the Company. Although generally each scientific
advisor has agreed not to perform services for another entity that would create
a conflict of interest with the scientific advisor's services for the Company,
there can be no assurance that such a conflict will not arise. Inventions or
processes discovered by a scientific advisor while serving in the capacity as a
member of the Scientific Advisory Board will become the property of the Company;
however, any inventions or processes discovered by a scientific advisor at any
other time will not become the property of the Company. The scientific advisor
and consulting agreements contain confidentiality and non-use provisions.
47
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the aggregate
compensation paid by the Company to the Company's Chief Executive Officer and
each of the other four most highly compensated executive officers whose salary
and bonus for 1997 exceeded $100,000 (the "Named Executive Officers") for
services rendered in all capacities to the Company for the fiscal year ended
December 31, 1997:
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ----------------------------------
--------------------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($) COMPENSATION($)(3) AWARD(S)($) SARS(#)
- ---------------------------- --------- ----------- ----------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jack W. Reich, Ph.D......... 1997 $ 298,712 $ 70,000 -- -- --
President, Chief Executive
Officer and Director
Christopher J. Reinhard..... 1997 $ 213,713 $ 70,000 -- -- --
Chief Operating Officer,
Chief Financial Officer
and Director
Robert L. Engler, M.D....... 1997 $ 100,000 $ 35,000 $ 140,000(4) -- --
Vice President, Medical
Director and Director
H. Kirk Hammond, M.D........ 1997 $ 145,936 $ 35,000 -- -- --
Vice President, Research
and Director
Ruth Wikberg-Leonardi....... 1997 $ 127,744 $ 25,000 -- -- --
Vice President, Regulatory
Affairs and Quality
Assurance
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION($)
- ---------------------------- -----------------
<S> <C>
Jack W. Reich, Ph.D......... $ 6,532
President, Chief Executive
Officer and Director
Christopher J. Reinhard..... $ 4,003
Chief Operating Officer,
Chief Financial Officer
and Director
Robert L. Engler, M.D....... --
Vice President, Medical
Director and Director
H. Kirk Hammond, M.D........ --
Vice President, Research
and Director
Ruth Wikberg-Leonardi....... --
Vice President, Regulatory
Affairs and Quality
Assurance
</TABLE>
- ------------------------
(1) Pursuant to Instruction to Item 402(b) of Regulation S-K promulgated by the
Securities and Exchange Commission (the "Commission"), information with
respect to fiscal years prior to 1997 have not been included as the Company
was not a reporting company pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
information has not been previously reported to the Commission in response
to a filing requirement.
(2) Includes amounts deferred pursuant to the Company's 401(k) Plan.
(3) The aggregate amount of perquisites and other personal benefits, if any, did
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for each Named Executive Officer and has therefore been omitted.
(4) Amount paid to Dr. Engler during 1997 as a special allowance in connection
with his full-time employment with the Company during his 18-month
sabbatical leave from the San Diego Veterans' Affairs Healthcare System.
STOCK OPTIONS
The Company granted no stock options or stock appreciation rights ("SARs")
during the Company's prior fiscal year to the Named Executive Officers. On April
17, 1998, the Company granted incentive stock options to Ms. Wikberg-Leonardi, a
Named Executive Officer and the Company's Vice President, Regulatory Affairs and
Quality Assurance, to purchase 17,100 shares of the Common Stock. The exercise
price per share in effect under such options is $4.92, the fair value per share
of the Common Stock on the grant date. Such options are subject to vesting in
equal monthly installments over a four-year period
48
<PAGE>
measured from the vesting commencement date of April 17, 1998 and are
exercisable for a 10-year term from the date of grant.
OPTION EXERCISES AND HOLDINGS
There were no option exercises by the Named Executive Officers during the
1997 fiscal year. No SARs were exercised during the 1997 fiscal year or were
outstanding as of March 31, 1998.
COMPENSATION COMMITTEE INTERLOCKS
During the year ended December 31, 1997, the Compensation Committee of the
Company's Board established the levels of compensation for the Company's
executive officers. The current members of the Company's Compensation Committee
are Messrs. Andrews and Robinson and Dr. Reich. Dr. Reich did not participate in
deliberations regarding his own compensation. Upon the effectiveness of this
registration statement, Dr. Reich will no longer be on the Compensation
Committee.
EMPLOYMENT ARRANGEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company does not have employment agreements with any of its Named
Executive Officers although certain key members of the Company's scientific
staff, including Drs. Engler and Hammond, have entered into Scientific Advisory
Consulting Agreements with the Company. Such agreements may be terminated at any
time by either party, with or without cause. See "--Director Compensation."
DIRECTOR COMPENSATION
The Company reimburses its Directors for all reasonable and necessary travel
and other incidental expenses incurred in connection with their attendance at
meetings of the Board. Directors are not currently compensated for serving on
the Board. Pursuant to the 1998 Plan, to be effective upon the effectiveness of
this Offering, directors who are not officers or employees of the Company will
receive periodic option grants under the Automatic Option Grant Program. The
Automatic Option Grant Program will become effective on the Underwriting Date.
Under the Automatic Option Grant Program, each individual who first becomes a
non-employee Board member at any time after the Underwriting Date will
automatically receive an option grant for 15,000 shares of Common Stock on the
date such individual joins the Board, provided such individual has not been in
the prior employ of the Company. In addition, on the date of each Annual
Stockholders Meeting held after the Underwriting Date, each non-employee Board
member who is to continue to serve as a non-employee Board member will
automatically be granted an option to purchase 5,000 shares of Common Stock,
provided such individual has served on the Board for at least six months.
Each automatic grant for the non-employee Board members will have a term of
10 years, subject to earlier termination following the optionee's cessation of
Board service. Each automatic option will be immediately exercisable for all of
the option shares; however, any unvested shares purchased under the option will
be subject to repurchase by the Company, at the exercise price paid per share,
should the optionee cease Board service prior to vesting in those shares. The
shares subject to each initial 15,000-share automatic option grant will vest in
successive equal annual installments upon the individual's completion of each
year of Board service over the three-year period measured from the option grant
date. Each 5,000-share automatic option grant will vest in equal monthly
installments over a one-year period measured from the option grant date.
However, the shares subject to each automatic grant will immediately vest in
full upon certain changes in control or ownership of the Company or upon the
optionee's death or disability while a Board member. See "--Benefit Plans--1998
Stock Incentive Plan."
In 1995, the Company sold 942,020 shares of the Company's Common Stock at an
aggregate purchase price of $495.80 to Dr. Engler pursuant to a certain
Restricted Stock Issuance Agreement (the "Engler Restricted Stock Issuance
Agreement"). The shares issued under the Engler Restricted Stock Issuance
49
<PAGE>
Agreement are subject to a right of repurchase which lapses in a series of
installments upon completion of services by Dr. Engler in accordance with the
terms of a Scientific Advisor Consulting Agreement. Such Scientific Advisor
Consulting Agreement was entered into by the Company with Dr. Engler, a Company
Director, Vice President, and Medical Director in October 1995. This Scientific
Advisor Consulting Agreement may be terminated by either party at any time, with
or without cause.
In 1995, the Company sold 1,768,520 shares of the Company's Common Stock at
an aggregate purchase price of $930.80 to Dr. Hammond pursuant to a certain
Restricted Stock Issuance Agreement (the "Hammond Restricted Stock Issuance
Agreement"). The shares issued under the Hammond Restricted Stock Issuance
Agreement are subject to a right of repurchase which lapses in a series of
installments upon completion of services by Dr. Hammond in accordance with the
terms of a Scientific Advisor Consulting Agreement. Such Scientific Advisor
Consulting Agreement was entered into by the Company with Dr. Hammond, a Company
Director and the Company's Vice President, Research in October 1995. This
Scientific Advisor Consulting Agreement may be terminated by either party at any
time, with or without cause.
In 1995, the Company sold 248,520, 247,760, 343,520, 190,000 and 1,322,020
shares of its Common Stock to Messrs. Andrews, Hale, Reinhard and Robinson and
Dr. Reich, respectively, at an aggregate purchase price of $130.80, $130.40,
$180.80, $100.00 and $695.80, respectively (together with the shares sold to
Drs. Engler and Hammond pursuant to the Engler Restricted Stock Issuance
Agreement and the Hammond Restricted Stock Issuance Agreement, the "Restricted
Shares") pursuant to certain Restricted Stock Issuance Agreements (along with
the Engler Restricted Stock Issuance Agreement and the Hammond Restricted Stock
Issuance Agreement, collectively, the "Founder Restricted Stock Issuance
Agreements").
The Founder Restricted Stock Issuance Agreements provide that one-half of
the Restricted Shares sold pursuant to such agreements shall be immediately
vested and the Company shall have no repurchase right with respect to such
shares. The remaining one half of the Restricted Shares shall vest, and the
Company's repurchase right shall lapse, in a series of successive equal monthly
installments over the 36 month period following August 9, 1995. That portion of
the Restricted Shares subject to the Company's repurchase right are also subject
to certain restrictions which prohibit the transfer, assignment, encumbrance or
other disposition of such shares.
In March 1996, the Company sold 22,585, 20,685, 22,587, 20,685, 20,687,
20,687 and 20,687 shares of Common Stock to Messrs. Andrews, Hale, Reinhard and
Robinson and Drs. Reich, Hammond and Engler at an aggregate purchase price of
$118.87, $108.87, $118.88, $108.87, $108.88, $108.88 and $108.88, respectively,
per share (collectively, the "Nonrestricted Shares") pursuant to certain Stock
Issuance Agreements (collectively, the "Director Stock Issuance Agreements").
The Nonrestricted Shares are fully vested.
On December 15, 1997, Ms. Klein, who has been a director of the Company
since November 1997, received options to purchase 19,000 shares of Common Stock
at an exercise price of $0.74 per share. Such options are subject to vesting in
equal monthly installments over a four-year period, provided that no shares
shall vest until Ms. Klein completes one year of service to the Company, as
measured from her vesting commencement date of November 4, 1997.
On April 17, 1998, the Company granted stock options to certain directors
and executive officers of the Company. These include options granted to Mr.
Reinhard to purchase an aggregate of 82,650 shares of Common Stock. The latter
options include non-qualified options to purchase 62,325 shares of Common Stock
and to the extent they qualify as such, incentive stock options to purchase
20,325 shares of Common Stock. All of the options granted to Mr. Reinhard have
an exercise price of $4.92, the fair value per share of the Common Stock on the
grant date, and are exercisable for a 10-year term following the grant date. The
Company also granted to each of Drs. Reich, Hammond and Engler options to
purchase 2,850 shares of Common Stock. The options granted to Dr. Reich are
intended as incentive stock options to the extent
50
<PAGE>
they qualify as such. The exercise price per share under each such option is
$5.41, 110% of the fair value per share of the Common Stock on the grant date
and the respective options are exercisable for a five-year term following the
date of grant. The options granted to Drs. Hammond and Engler are non-qualified
options. The exercise price per share under such options is $4.92, the fair
value per share of the Common Stock on the grant date and the respective options
are exercisable for a 10-year term following the date of grant. All of the above
options are subject to vesting in equal monthly installments over a four-year
period measured from the vesting commencement date of April 17, 1998.
BENEFIT PLANS
1998 STOCK INCENTIVE PLAN
The Company's 1998 Stock Incentive Plan is intended to serve as the
successor equity incentive program to the Company's 1995 Stock Option Plan, as
amended (the "Predecessor Plan"). The 1998 Plan was adopted by the Board on
April 20, 1998 and the shareholders on April 22, 1998. The Discretionary Option
Grant and Stock Issuance Programs under the 1998 Plan shall be effective as of
the Board's adoption of the Plan (the "Plan Effective Date"). The Automatic
Option Grant Program will become effective on the Underwriting Date.
A total of 2,296,835 shares of Common Stock have been authorized for
issuance under the 1998 Plan. Such share reserve consists of (i) the number of
shares available for issuance under the Predecessor Plan on the Plan Effective
Date, including the shares subject to outstanding options, and (ii) an
additional increase of approximately 1,500,000 shares. To the extent any
unvested shares of Common Stock issued under the Predecessor Plan are
repurchased by the Company after the Underwriting Date, at the exercise price
paid per share, in connection with the holder's termination of service, those
repurchased shares will be added to the reserve of Common Stock available for
issuance under the 1998 Plan, but in no event will more than 437,100 shares be
added to the reserve from such repurchases. In no event, however, may any one
participant in the 1998 Plan receive option grants, separately exercisable stock
appreciation rights and direct stock issuances for more than 250,000 shares of
Common Stock in the aggregate per calendar year.
On the Underwriting Date, outstanding options and unvested shares issued
under the Predecessor Plan will be incorporated into the 1998 Plan, and no
further option grants will be made under the Predecessor Plan. The incorporated
options will continue to be governed by their existing terms, unless the Plan
Administrator elects to extend one or more features of the 1998 Plan to those
options. Except as otherwise noted below, the incorporated options have
substantially the same terms as will be in effect for grants made under the
Discretionary Option Grant Program of the 1998 Plan.
The 1998 Plan is divided into five separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
their fair market value on the grant date, (ii) the Stock Issuance Program under
which such individuals may, in the Plan Administrator's discretion, be issued
shares of Common Stock directly, through the purchase of such shares at a price
not less than their fair market value at the time of issuance or as a bonus tied
to the performance of services, (iii) the Salary Investment Option Grant Program
which may, in the Plan Administrator's sole discretion, be activated for one or
more calendar years and, if so activated, will allow executive officers and
other highly compensated employees the opportunity to apply a portion of their
base salary to the acquisition of special below-market stock option grants, (iv)
the Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible non-employee Board members to purchase
shares of Common Stock at an exercise price equal to their fair market value on
the grant date and (v) the Director Fee Option Grant Program which may, in the
Plan Administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow non-employee Board members the
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<PAGE>
opportunity to apply a portion of any annual retainer fee otherwise payable to
them in cash each year to the acquisition of special below-market option grants.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to be
made, the number of shares subject to each such grant or issuance, the status of
any granted option as either an incentive stock option or a non-statutory stock
option under the federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. The Compensation Committee will also have the
exclusive authority to select the executive officers and other highly
compensated employees who may participate in the Salary Investment Option Grant
Program in the event that program is activated for one or more calendar years,
but neither the Compensation Committee nor the Board will exercise any
administrative discretion with respect to option grants made under the Salary
Investment Option Grant Program or under the Automatic Option Grant or Director
Fee Option Grant Program for the non-employee Board members. All grants under
those three latter programs will be made in strict compliance with the express
provisions of each such program.
The exercise price for the shares of Common Stock subject to option grants
made under the 1998 Plan may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. The option may also be exercised
through a same-day sale program without any cash outlay by the optionee. In
addition, the Plan Administrator may provide financial assistance to one or more
optionees in the exercise of their outstanding options or the purchase of their
unvested shares by allowing such individuals to deliver a full-recourse,
interest-bearing promissory note in payment of the exercise price and any
associated withholding taxes incurred in connection with such exercise or
purchase.
The Plan Administrator will have the authority to effect, with the consent
of the affected option holders, the cancellation of outstanding options under
the Discretionary Option Grant Program (including options incorporated from the
Predecessor Plan) in return for the grant of new options for the same or
different number of option shares with an exercise price per share based upon
the fair market value of the Common Stock on the new grant date.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock. None of the incorporated options from the
Predecessor Plan contain any stock appreciation rights.
In the event that the Company is acquired by merger or sale of substantially
all of its assets or securities possessing more than 50% of the total combined
voting power of the Company's outstanding securities, each outstanding option
under the Discretionary Option Grant Program which is not to be assumed by the
successor corporation or otherwise continued in effect will automatically
accelerate in full, and all unvested shares under the Discretionary Option Grant
and Stock Issuance Programs will immediately vest, except to the extent the
Company's repurchase rights with respect to those shares are assigned to the
successor corporation or otherwise continued in effect. The Plan Administrator
will have complete discretion to grant one or more options under the
Discretionary Option Grant Program which will become exercisable on an
accelerated basis for all of the option shares upon (i) an acquisition or other
change in control of the Company, whether or not those options are assumed or
continued in effect, or (ii) the termination of the optionee's service within a
designated period following an acquisition or other change in control in which
those options are assumed or continued in effect. The vesting of outstanding
shares under the Stock Issuance Program may be accelerated upon similar terms
and conditions. The Plan Administrator is also authorized under the
Discretionary Option Grant and Stock Issuance Programs to grant options
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<PAGE>
and to structure repurchase rights so that the shares subject to those options
or repurchase rights will immediately vest in connection with a change in the
majority of the Board by reason of one or more contested elections for Board
membership, with such vesting to occur either at the time of such change in
control or upon the subsequent termination of the individual's service within a
designated period following such change in control. The options incorporated
from the Predecessor Plan will also vest on an accelerated basis upon an
acquisition of the Company by merger or asset sale, unless those options are
assumed by the successor entity. The Plan Administrator will have the discretion
to extend one or more of the other acceleration provisions of the 1998 Plan to
those options.
In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer and
other highly compensated employee of the Company selected for participation may
elect, prior to the start of the calendar year, to reduce his or her base salary
for that calendar year by a specified dollar amount not less than $10,000 nor
more than $50,000. If such election is approved by the Plan Administrator, the
individual will automatically be granted, on the first trading day in January of
the calendar year for which that salary reduction is to be in effect, a non-
statutory option to purchase that number of shares of Common Stock determined by
dividing the salary reduction amount by two-thirds of the fair market value per
share of Common Stock on the grant date. The option will be exercisable at a
price per share equal to one-third of the fair market value of the option shares
on the grant date. As a result, the total spread on the option shares at the
time of grant (the fair market value of the option shares on the grant date less
the aggregate exercise price payable for those shares) will be equal to the
amount of salary invested in that option. The option will become exercisable for
the option shares in a series of 12 equal monthly installments over the calendar
year for which the salary reduction is to be in effect and will be subject to
full and immediate vesting upon certain changes in the ownership or control of
the Company.
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member at any time after the Underwriting Date will
automatically receive an option grant for 15,000 shares of Common Stock on the
date such individual joins the Board, provided such individual has not been in
the prior employ of the Company. In addition, on the date of each Annual
Stockholders Meeting held after the Underwriting Date, each non-employee Board
member who is to continue to serve as a non-employee Board member (including
individuals who joined the Board prior to the Underwriting Date, if any) will
automatically be granted an option to purchase 5,000 shares of Common Stock,
provided such individual has served on the Board for at least six months.
Each automatic grant for the non-employee Board members will have a term of
10 years, subject to earlier termination following the optionee's cessation of
Board service. Each automatic option will be immediately exercisable for all of
the option shares; however, any unvested shares purchased under the option will
be subject to repurchase by the Company, at the exercise price paid per share,
should the optionee cease Board service prior to vesting in those shares. The
shares subject to each initial 15,000-share automatic option grant will vest in
successive equal annual installments upon the individual's completion of each
year of Board service over the three-year period measured from the option grant
date. Each 5,000-share automatic option grant will vest in equal monthly
installments over a one-year period measured from the option grant date.
However, the shares subject to each automatic grant will immediately vest in
full upon certain changes in control or ownership of the Company or upon the
optionee's death or disability while a Board member.
Should the Director Fee Option Grant Program be activated in the future,
each non-employee Board member will have the opportunity to apply all or a
portion of any annual retainer fee otherwise payable in cash to the acquisition
of a below-market option grant. The option grant will automatically be made on
the first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of
53
<PAGE>
Common Stock on the grant date. As a result, the total spread on the option (the
fair market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will be equal to the portion of the
retainer fee invested in that option. The option will become exercisable for the
option shares in a series of 12 equal monthly installments over the calendar
year for which the election is to be in effect. However, the option will become
immediately exercisable for all the option shares upon (i) certain changes in
the ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board member.
The shares subject to each option under the Salary Investment Option Grant,
Automatic Option Grant and Director Fee Option Grant Programs will immediately
vest upon (i) an acquisition of the Company by merger or asset sale, (ii) the
successful completion of a tender offer for more than 50% of the Company's
outstanding voting stock or (iii) a change in the majority of the Board effected
through one or more contested elections for Board membership.
Limited stock appreciation rights will automatically be included as part of
each grant made under the Automatic Option Grant, Salary Investment Option Grant
and Director Fee Option Grant Programs and may be granted to one or more
officers of the Company as part of their option grants under the Discretionary
Option Grant Program. Options with such a limited stock appreciation right may
be surrendered to the Company upon the successful completion of a hostile tender
offer for more than 50% of the Company's outstanding voting stock. In return for
the surrendered option, the optionee will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the excess
of (i) the highest price per share of Common Stock paid in connection with the
tender offer over (ii) the exercise price payable for such share.
The Board may amend or modify the 1998 Plan at any time, subject to any
required stockholder approval. The 1998 Plan will terminate on the earliest of
(i) April 20, 2008, (ii) the date on which all shares available for issuance
under the 1998 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1998 Employee Stock Purchase Plan was adopted by the Board on
April 20, 1998 and the shareholders on April 22, 1998. The Purchase Plan will
become effective immediately upon the Underwriting Date. The Purchase Plan is
designed to allow eligible employees of the Company and participating
subsidiaries to purchase shares of Common Stock, at semi-annual intervals,
through their periodic payroll deductions under the Purchase Plan, and a reserve
of 50,000 shares of Common Stock has been established for this purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration for 24 months. However, the initial
offering period will begin on the Underwriting Date and will end on the last
business day in July 2000. The next offering period will commence on the first
business day in August 2000, and subsequent offering periods will commence as
designated by the Plan Administrator.
Individuals who are eligible employees (scheduled to work more than 20 hours
per week for more than five calendar months per year) on the start date of any
offering period may enter the Purchase Plan on that start date or on any
subsequent semi-annual entry date (the first business day of February or August
each year). Individuals who become eligible employees after the start date of
the offering period may join the Purchase Plan on any subsequent semi-annual
entry date within that offering period.
Payroll deductions may not exceed 10% of base salary, and the accumulated
payroll deductions of each participant will be applied to the purchase of shares
on his or her behalf on each semi-annual purchase date (the last business day in
January and July each year) at a purchase price per share equal to 85% of the
lower of (i) the fair market value of the Common Stock on the participant's
entry date into the
54
<PAGE>
offering period or (ii) the fair market value on the semi-annual purchase date.
In no event, however, may any one participant purchase more than 1,000 shares,
nor may all participants in the aggregate purchase more than 12,500 shares on
any one semi-annual purchase date.
Should the fair market value per share of Common Stock on any purchase date
be less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day, with all
participants in the terminated offering to be automatically transferred to the
new offering period.
In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the lower of (i) the fair market value per share of Common Stock on the
participant's entry date into the offering period in which such acquisition
occurs or (ii) the fair market value per share of Common Stock immediately prior
to such acquisition.
The Purchase Plan will terminate on the earlier of (i) the last business day
of July 2008, (ii) the date on which all shares available for issuance under the
Purchase Plan shall have been sold pursuant to purchase rights exercised
thereunder or (iii) the date on which all purchase rights are exercised in
connection with an acquisition of the Company by merger or asset sale.
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, certain amendments to the Purchase Plan may require stockholder
approval.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation eliminates, subject to certain
exceptions, directors' personal liability to the Company or its stockholders for
monetary damages for breaches of fiduciary duties. The Certificate of
Incorporation does not, however, eliminate or limit the personal liability of a
director for (i) any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (iv) for any transaction from
which the director derived an improper personal benefit.
The Company's Restated Bylaws provide that the Company shall indemnify its
directors, officers, employees and agents to the fullest extent permitted under
the General Corporation Law of Delaware. In addition, the Company has entered or
will enter into indemnification agreements with its directors and officers that
provide for indemnification in addition to the indemnification provided in the
Company's Restated Bylaws. The indemnification agreements contain provisions
that may require the Company, among other things, to indemnify its directors and
executive officers against certain liabilities (other than liabilities arising
from intentional or knowing and culpable violations of law) that may arise by
reason of their status or service as directors or executive officers of the
Company or other entities to which they provide service at the request of the
Company and to advance expenses they may incur as a result of any proceeding
against them as to which they could be indemnified. The Company believes that
these provisions and agreements are necessary to attract and retain qualified
directors and officers. The Company has obtained an insurance policy covering
directors and officers for claims that such directors and officers may otherwise
be required to pay or for which the Company is required to indemnify them,
subject to certain exclusions.
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<PAGE>
CERTAIN TRANSACTIONS
Since its inception in April 1995, the Company has issued, in private
placement transactions, shares of its Preferred Stock as follows: 374,532 shares
of Series A Preferred Stock at a price of $6.675 per share; 374,532 shares of
Series B Preferred Stock at a price of $6.675 per share; and 472,476 shares of
Series C Preferred Stock at a price of $8.00 per share. The purchasers of
Preferred Stock include, among others, the following executive officers,
directors and holders of more than 5% of the Company's outstanding stock and
their respective affiliates (all shares of Preferred Stock will be convertible
into Common Stock on a 1.9-for-one basis at the time of the Offering):
<TABLE>
<CAPTION>
PREFERRED STOCK
------------------------------- TOTAL
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS SERIES A SERIES B SERIES C CONSIDERATION
- ------------------------------------------------------------------ --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Schering Berlin Venture Corp...................................... 374,532 374,532 84,976 $ 5,679,810
The Wellcome Trust................................................ -- -- 375,000 $ 3,000,000
</TABLE>
Holders of Preferred Stock are entitled to certain registration rights with
respect to the Common Stock issued or issuable upon conversion thereof. See
"Description of Capital Stock--Registration Rights."
The Company issued two Secured Promissory Notes dated August 12, 1995 and
October 12, 1995 (collectively, the "Notes") in the aggregate amount of $500,000
to Schering Berlin Venture Corp., a holder of more than 5% of the Company's
securities. Both the Notes were amended and restated on May 16, 1996
(collectively, the "Amended Notes"). The Amended Notes bear interest at 1% below
the prime rate; at March 31, 1998, the Amended Notes bore interest at 7.5%. Such
notes are secured by the assets of the Company (with the exception of certain
equipment purchased from February 15, 1998 through November 15, 1998 which is
pledged on a first priority basis under the Company's $400,000 bank loan).
Principal and interest on the notes are due and payable upon demand on or after
June 30, 1999. See "Business-- Collaborative and Licensing Arrangements."
Mr. Andrews, a Director, Secretary and Co-founder of the Company, is a
partner in the law firm of Brobeck, Phleger & Harrison LLP, which will provide
legal services to the Company in its current year and has provided legal
services in connection with corporate matters to the Company since the Company's
inception in April 1995.
There are no formal employment arrangements between the Company and any of
its officers, all of whom are employed by the Company at will. The Company has
entered into specific consulting agreements with Dr. Hammond and Dr. Engler, two
of the Company's Named Executive Officers. Such agreements may be terminated at
any time by either party. The Company has also entered or will enter into
indemnification agreements with each of its directors and officers. See
"Management--Employment Arrangements and Change of Control Provisions,"
"Management--Director Compensation," and "Management--Limitations on Liability
and Indemnification Matters."
In 1997, the Company paid Dr. Engler $140,000 as a special allowance in
connection with his full-time employment with the Company during his 18-month
sabbatical leave from the San Diego Veterans Affairs Medical Center. See
"Management--Executive Compensation."
On April 17, 1998, the Company granted to each of Ms. Wikberg-Leonardi, Vice
President, Regulatory Affairs and Quality Assurance, and Ms. Rooney, Vice
President, Administration, options to purchase 17,100 shares of Common Stock.
These options are intended as incentive stock options to the extent they qualify
as such. The exercise price per share in effect under each such option is $4.92,
the fair value per share of the Common Stock on the grant date, and the
respective options are exercisable for a 10-year term following the date of
grant.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors and principal stockholders and their affiliates will be
approved in accordance with the Delaware General Corporation Law by a majority
of the Board, including a majority of the independent and disinterested
directors of the Board, and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998, as adjusted to
reflect the sale of the shares of Common Stock offered in the Offering, by (i)
each person known to the Company to beneficially own more than 5% of the Common
Stock, (ii) each of the Company's directors, (iii) each of the Named Executive
Officers and (iv) all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED(2)
NUMBER OF ------------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER (1) OWNED SHARES (1) OFFERING OFFERING
- -------------------------------------------------------------------------- ---------------- ----------- -----------
<S> <C> <C> <C>
Schering Berlin Venture Corp.............................................. 1,584,676 19.1% 13.6%
110 East Hanover Avenue
Cedar Knolls, New Jersey 07929
The Wellcome Trust........................................................ 712,500 8.6% 6.1%
183 Euston Road
London, England NW1 2BE
Jack W. Reich(3).......................................................... 1,339,857 16.2% 11.5%
Christopher J. Reinhard(4)................................................ 602,657 7.2% 5.2%
Craig S. Andrews(5)....................................................... 238,045 2.9% 2.0%
Robert L. Engler(6)....................................................... 965,557 11.6% 8.3%
H. Kirk Hammond(7)........................................................ 1,792,057 21.6% 15.4%
Ruth Wikberg-Leonardi(8).................................................. 131,100 1.6% 1.1%
David F. Hale............................................................. 265,785 3.2% 2.3%
David E. Robinson......................................................... 210,685 2.5% 1.8%
Elise G. Klein(9)......................................................... 19,000 * *
All directors and executive officers as a group
(10 persons)(3)--(9).................................................... 5,695,845 67.5% 48.4%
</TABLE>
- ------------------------
* Less than 1%
(1) Except as otherwise indicated, (i) the stockholders named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws,
where applicable and (ii) the address of all stockholders listed in the
table is 9360 Towne Center Drive, Suite 110, San Diego, California 92121.
Share ownership in each case includes shares issuable upon exercise of
certain outstanding options as described in the footnotes below.
(2) Percentage of ownership is based on 8,292,573 shares of Common Stock
outstanding on March 31, 1998, and is calculated pursuant to Rule
13d-3(d)(1) under the Exchange Act.
(3) Includes 76,000 shares beneficially owned by the Jordon A. Reich Trust dated
1/31/92, Mary P. Reich, Trustee and 76,000 shares beneficially owned by the
Jason D. Reich Trust dated 1/31/92, Mary P. Reich, Trustee. Dr. Reich
disclaims beneficial ownership of these shares. Also includes 2,850 shares
issuable upon exercise of options exercisable within 60 days of March 31,
1998.
(4) Includes 38,000 shares beneficially owned by Griffin J. Reinhard, a minor
son of Mr. Reinhard. Also includes 82,650 shares issuable upon exercise of
options exercisable within 60 days of March 31, 1998.
(5) Includes 28,500 shares and 28,500 shares of Common Stock beneficially owned
by two family trusts for the benefit of Lisa C. Andrews and Daniel C.
Andrews, respectively. Mr. Andrews exercises shared voting and investment
power with respect to all such shares. Mr. Andrews disclaims beneficial
ownership of these shares.
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<PAGE>
(6) Includes 867,707 shares beneficially owned by the Robert L. Engler Separate
Property Trust. Also includes 47,500 shares beneficially owned by Mathew
Lawrence Engler and 47,500 shares beneficially owned by Eric Hershel Engler.
Dr. Engler disclaims beneficial ownership of these shares. Also includes
2,850 shares issuable upon exercise of options exercisable within 60 days of
March 31, 1998.
(7) Includes 72,200 shares of Common Stock held in a family trust for the
benefit of Dr. Hammond's children, 142,500 shares of Common Stock held in a
trust for the benefit of Talisin T. Hammond and 142,500 shares of Common
Stock held in a trust for the benefit of Shura X. Hammond. Dr. Hammond
exercises shared voting and investment power with respect to all such
shares. Dr. Hammond disclaims beneficial ownership of these shares. Also
includes 2,850 shares issuable upon exercise of options exercisable within
60 days of March 31, 1998.
(8) Includes 17,100 shares issuable upon exercise of options exercisable within
60 days of March 31, 1998.
(9) Includes 19,000 shares issuable upon exercise of options exercisable within
60 days of March 31, 1998. Ms. Klein is Vice President of Sales and
Corporate Development of Berlex Laboratories Inc., a subsidiary of Schering
AG.
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, the Company will be authorized to issue
40,000,000 shares of Common Stock, $0.001 par value per share, and 5,000,000
shares of undesignated preferred stock, $0.001 par value per share ("preferred
stock").
COMMON STOCK
At March 31, 1998, after giving effect to a 1.9-for-one forward stock split
of the Company's Common Stock and the conversion, upon the sale of Common Stock
in the Offering, of all shares of Preferred Stock into shares of Common Stock,
there were 8,292,573 shares of Common Stock outstanding and held of record by
approximately 36 stockholders. The holders of Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of the
stockholders. Subject to preferences that may be applicable to any outstanding
shares of preferred stock issued following the Offering, holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
out of funds legally available. See "Dividend Policy." All outstanding shares of
Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Board will have the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock in one or more
series and to fix the rights, priorities, preferences, qualifications,
limitations and restrictions, including dividend rights, conversion rights,
voting rights, terms of redemption, terms of sinking funds, liquidation
preferences and the number of shares constituting any series or the designation
of such series, which could decrease the amount of earnings and assets available
for distribution to holders of Common Stock or adversely affect the rights and
powers, including voting rights, of the holders of the Common Stock. The
issuance of preferred stock could have the effect of delaying or preventing a
change in control of the Company or make removal of management more difficult.
Additionally, the issuance of preferred stock may have the effect of decreasing
the market price of the Common Stock and may adversely affect the voting and
other rights of the holders of Common Stock. There are currently no shares of
preferred stock outstanding and the Company has no current plans to issue any
preferred stock.
REGISTRATION RIGHTS
The Company and the holders (the "Holders") of approximately 2.3 million
shares of Common Stock to be issued upon conversion of shares of Preferred Stock
(the "Registrable Securities") are parties to a
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<PAGE>
certain Amended and Restated Investors' Rights Agreement pursuant to which the
Holders are entitled to certain rights with respect to the registration of such
Registerable Securities under the Securities Act. If the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other stockholders exercising registration rights,
such Holders are entitled to notice of such registration and are entitled to
include such Registerable Securities therein. A majority of such Holders of the
Registrable Securities are also entitled to certain demand registration rights
pursuant to which they may require the Company to file a registration statement
under the Securities Act at the Company's expense with respect to their shares
of Common Stock, and the Company is required to use its best efforts to effect
such registration. Further, the Holders of such Registrable Securities may
require the Company to file additional registration statements on Form S-3 at
the Company's expense. All of these registration rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares of Registrable Securities included in
such registration and the right of the Company not to effect a requested
registration within 120 days following an offering of the Company's securities,
including the Offering. The Company is required to bear all expenses, other than
underwriting discounts and commissions, in connection with any registration of
the Registrable Securities. The Company is also required to indemnify the
Holders and the underwriters for the Holders, if any, under certain
circumstances.
All of the registration rights granted by the Company expire on the earlier
of (i) the fifth anniversary of the closing of the Offering or (ii) the date
after which all shares of Common Stock for which registration rights have been
granted may be immediately sold under Rule 144(k) during any 90-day period under
the Securities Act.
ANTITAKEOVER EFFECTS OF PROVISIONS OF SECOND RESTATED CERTIFICATE OF
INCORPORATION, RESTATED BYLAWS AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND RESTATED BYLAWS
Collateral's Certificate of Incorporation requires that any action required
or permitted to be taken by stockholders of the Company must be effected at a
duly called annual or special meeting of stockholders and may not be effected by
any consent in writing. The Restated Bylaws will not permit stockholders of the
Company to call a special meeting of stockholders. Under the Restated Bylaws,
special meetings may only be called by the Company's Chief Executive Officer,
President, or Chairman of the Board, and shall be called by the President or
Secretary at the written request of a majority of the Board. The Restated Bylaws
will also require that stockholders give advance notice to the Company's
secretary of any nominations for director or other business to be brought by
stockholders at any stockholders' meeting and will require a supermajority vote
of members of the Board and/or stockholders to amend certain Restated Bylaw
provisions. These provisions and other charter and bylaw provisions may have the
effect of discouraging, delaying or preventing certain types of transactions
involving an actual or potential change in control of the Company, including
transactions in which the stockholders might otherwise receive a premium for
their shares over the then current market prices, and may limit the ability of
the stockholders to consider transactions that they may deem to be in their best
interests. Such provisions may also have the effect of preventing changes in the
management of the Company. In addition, the Board of Directors has the authority
to fix the rights and preferences of and issue shares of preferred stock without
action by the stockholders, which, if issued, may have the effect of delaying or
preventing a change in control of the Company. See "Risk Factors--Effect of
Certain Anti-Takeover Provisions."
DELAWARE TAKEOVER STATUTE
The following description is applicable assuming the shareholders approve
the reincorporation of the Company in Delaware. The Company is subject to
Section 203 of the Delaware General Corporation Law ("Section 203") which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder (defined as any person
or entity that is the
59
<PAGE>
beneficial owner of at least 15% of a corporation's voting stock) for a period
of three years following the time that such stockholder became an interested
stockholder, unless: (i) prior to such time, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder's becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder's becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) at or subsequent
to such time, the business combination is approved by the Board and authorized
at an annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least two-thirds of the outstanding voting stock that
is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, lease, exchange, mortgage, transfer, pledge or other disposition involving
the interested stockholder and 10% or more of the assets of the corporation;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder; (iv) any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Based upon the number of shares outstanding as of March 31, 1998 and upon
completion of this Offering, there will be 11,622,573 shares of Common Stock of
the Company outstanding. There were also approximately 226,060 shares covered by
vested options outstanding, which are not considered to be outstanding shares.
Of the outstanding shares, approximately 3,352,800 shares, including the
3,330,000 shares of Common Stock sold in this Offering, will be immediately
eligible for resale in the public market without restriction under the
Securities Act, except that any shares purchased in this Offering by affiliates
of the Company ("Affiliates"), as that term is defined in Rule 144 under the
Securities Act ("Rule 144"), may generally only be resold in compliance with
applicable provisions of Rule 144. In addition, approximately 2,320,926 shares
are subject to registration rights that will be exercisable 120 days after the
effective date of the Offering. Beginning approximately 90 days after the date
of this Prospectus, approximately 360,782 additional shares of Common Stock
(including approximately 292,762 shares covered by options exercisable within
the 90-day period following the date of this Prospectus) will become eligible
for immediate resale in the public market, subject to compliance as to certain
of such shares with applicable provisions of Rules 144 and 701.
The Company, the executive officers and directors of the Company and certain
security and option holders have agreed pursuant to lock-up agreements not to
offer for sale, contract to sell, pledge, hypothecate, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock, without the prior
written consent of Bear, Stearns & Co. Inc., on behalf of the Underwriters for a
period of 180 days after the effective date of the registration statement of
which this Prospectus is a part.
60
<PAGE>
At the end of such 180-day period, approximately 8,525,443 shares of Common
Stock (including approximately 312,617 shares issuable upon exercise of vested
options) will be eligible for immediate resale, subject to compliance with Rule
144 and Rule 701. The remainder of the approximately 345,874 shares of Common
Stock outstanding or issuable upon exercise of options held by existing
stockholders or option holders will become eligible for sale at various times
over a period of less than two years and could be sold earlier if the holders
exercise any available registration rights or upon vesting pursuant to the
Company's standard four-year vesting schedule.
In general, under Rule 144, beginning approximately 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
a stockholder, including an Affiliate, who has beneficially owned his or her
restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 116,226 shares immediately after the offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of
the Company for at least three months prior to the sale is entitled to sell the
shares immediately without compliance with the foregoing requirements under Rule
144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted prior
to this offering) are also restricted securities and, beginning 90 days after
the date of this Prospectus, may be sold by stockholders other than an Affiliate
of the Company subject only to the manner of sale provisions of Rule 144 and by
an Affiliate under Rule 144 without compliance with its one-year holding period
requirement.
Prior to this Offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. The Company is unable to estimate
the number of shares that may be sold in the public market pursuant to Rule 144,
since this will depend on the market price of the Common Stock, the personal
circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through an offering of its equity securities.
In addition, the Company intends to register on the effective date of this
Offering 2,296,835 shares of Common Stock subject to outstanding options or
reserved for issuance under the Company's 1998 Plan plus 50,000 shares of Common
Stock reserved for issuance under its Purchase Plan. Further, upon expiration of
lock-up agreements described above, holders of approximately 2,320,926 shares of
Common Stock will be entitled to certain registration rights with respect to
such shares. If such holders, by exercising their registration rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have a material adverse effect on the market price of the Common
Stock.
61
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Bear, Stearns & Co. Inc.,
Raymond James & Associates, Inc. and Vector Securities International, Inc. (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement (the "Underwriting Agreement") by and
between the Company and the Underwriters, to purchase from the Company the
aggregate number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Bear, Stearns & Co. Inc..............................................................................
Raymond James & Associates, Inc......................................................................
Vector Securities International, Inc.................................................................
----------
Total........................................................................................ 3,330,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share, and the Underwriters may allow,
and such dealers may reallow, a concession of not more than $ per share
to certain other dealers. After the initial public offering, the offering price
and other selling terms may be changed by the Representatives. The Common Stock
is offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 499,500 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 3,330,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the initial public offering.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The Representatives have advised the Company that the Underwriters do not
expect to confirm sales to any accounts over which they exercise discretionary
authority.
The Company has retained Vector Securities International, Inc. ("Vector"),
one of the Representatives, for a period of one year commencing in February 1998
to provide the Company with information regarding biotechnology companies and
the condition of the equity markets. The Company has agreed to pay Vector a
retainer fee, payable in quarterly installments, as well as Vector's reasonable
out-of-pocket expenses incurred in connection with providing such information.
The executive officers and directors of the Company and certain stockholders
have agreed not to offer for sale, contract to sell, sell, pledge, hypothecate,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or
62
<PAGE>
exchangeable for shares of Common Stock, without the prior written consent of
Bear, Stearns & Co. Inc., on behalf of the Underwriters, for a period of 180
days from the effective date of the registration statement of which this
Prospectus is a part. After such 180-day period, such persons will be entitled
to sell, distribute or otherwise dispose of the Common Stock that they hold
subject to the provisions of applicable securities laws.
The Company has agreed that it will not offer for sale, contract to sell,
issue, sell, grant any option, warrant or other right to purchase or otherwise
sell or dispose of (or announce any offer of sale, contract of sale, sale, grant
of any option, warrant or other right to purchase or other sale or disposition
of), directly or indirectly, any shares of its Common Stock or securities
convertible into or exercisable or exchangeable for shares of its Common Stock
for a period of 180 days from the effective date of the registration statement
of which this Prospectus is a part without the prior written consent of Bear,
Stearns & Co. Inc.
Prior to the initial public offering, there has been no public market for
the Common Stock of the Company. Consequently, the initial public offering price
for the Common Stock will be negotiated between the Company and the
Representatives. Among the factors to be considered in determining the initial
public offering price of the Common Stock will be prevailing market and economic
conditions, market valuations of other companies engaged in activities similar
to the Company, estimates of the business potential and prospects of the
Company, the present state of the Company's business operations, the Company's
management and other factors deemed relevant.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares of Common Stock in the open market or by exercising the
over-allotment option granted to the Underwriters. In addition, the Underwriters
may stabilize or maintain the price of the Common Stock by bidding for or
purchasing shares of Common Stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in the Offering are reclaimed if shares of Common
Stock previously distributed in the Offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the Common Stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
63
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, San Diego, California. Members of
such firm own a total of 238,045 shares of the Company's Common Stock. Mr.
Andrews, a member of such firm, is a co-founder of the Company and has served as
a director of the Company since April 1995. Certain legal matters relating to
the Offering will be passed upon for the Underwriters by Coudert Brothers, New
York, New York.
EXPERTS
The financial statements of the Company for the period from inception (April
3, 1995) to December 31, 1995 and for the years ended December 31, 1996 and
1997, included in this Prospectus and the Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and are included in reliance upon such report
given upon the authority of said firm as experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk
Factors--Uncertainty of Patent Protection; Dependence on Proprietary
Technology," "Risk Factors--Reliance on Collaborative Relationships,"
"Business--Collaborative and Licensing Arrangements" and "Business--Patents and
Proprietary Rights" have been reviewed and approved by Lyon & Lyon LLP, patent
counsel for the Company, as experts on such matters, and are included herein in
reliance upon that review and approval. Mr. Bradford J. Duft, Of Counsel to Lyon
& Lyon LLP, owns 210,685 shares of the Company's Common Stock.
ADDITIONAL INFORMATION
The Company has filed with the Commission the Registration Statement under
the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document 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. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of all or any part thereof may be obtained
at prescribed rates from the Commission's Public Reference Section at such
addresses. Also, the Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2
Balance Sheets at December 31, 1996 and 1997 and at March 31, 1998 (unaudited)............................. F-3
Statements of Operations for the period from April 3, 1995 (inception) through December 31, 1995, the years
ended December 31, 1996 and 1997, and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................................................. F-4
Statement of Shareholders' Equity for the period from April 3, 1995 (inception) through December 31, 1995,
the years ended December 31, 1996 and 1997, and the three months ended March 31, 1998 (unaudited)........ F-5
Statements of Cash Flows for the period from April 3, 1995 (inception) through December 31, 1995, the years
ended December 31, 1996 and 1997, and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................................................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Collateral Therapeutics, Inc.
We have audited the accompanying balance sheets of Collateral Therapeutics, Inc.
as of December 31, 1996 and 1997 and the related statements of operations,
shareholders' equity, and cash flows for the period from April 3, 1995
(inception) through December 31, 1995 and the years ended December 31, 1996 and
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Collateral Therapeutics, Inc.
at December 31, 1996 and 1997 and the results of its operations and its cash
flows for the period from April 3, 1995 (inception) through December 31, 1995
and the years ended December 31, 1996 and 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
January 15, 1998
except for Notes 4 and 5, as to which the dates are
April 6, 1998 and May 29, 1998, respectively.
F-2
<PAGE>
COLLATERAL THERAPEUTICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, EQUITY AT
---------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (NOTE 1)
ASSETS
Current assets:
Cash and cash equivalents................................. $2,429,657 $5,605,361 $5,676,330
Restricted cash--current.................................. -- -- 600,000
Milestone receivable from a related party................. -- 2,000,000 --
Prepaid expenses and other current assets................. 94,573 170,951 449,089
---------- ---------- -----------
Total current assets........................................ 2,524,230 7,776,312 6,725,419
Restricted cash--noncurrent................................. -- -- 72,600
Property and equipment, net................................. 91,516 293,447 559,844
---------- ---------- -----------
$2,615,746 $8,069,759 $7,357,863
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 442,059 $ 683,012 $ 746,535
Deferred revenue.......................................... 214,732 155,043 315,665
---------- ---------- -----------
Total current liabilities................................... 656,791 838,055 1,062,200
Notes payable to a related party............................ 500,000 500,000 500,000
Commitments
Shareholders' equity:
Series A Convertible Preferred Stock, par value $.001;
374,532 shares authorized, issued and outstanding at
December 31, 1996 and 1997 and at March 31, 1998 (no
shares authorized, issued and outstanding pro forma),
liquidation preference of $2,625,000.................... 375 375 375 $ --
Series B Convertible Preferred Stock, par value $.001;
374,532 shares authorized, issued and outstanding at
December 31, 1997 and March 31, 1998 (no shares
authorized, issued and outstanding pro forma),
liquidation preference of $2,500,000.................... -- 375 375 --
Series C Convertible Preferred Stock, par value $.001;
472,476 shares authorized, issued and outstanding at
December 31, 1997 and March 31, 1998 (no shares
authorized, issued and outstanding pro forma),
liquidation preference of $3,779,808.................... -- 472 472 --
Common Stock, par value $.001; 19,000,000 shares
authorized; 5,889,050 shares issued and outstanding at
December 31, 1996 and 5,971,647 issued and outstanding
at December 31, 1997 and March 31, 1998 (40,000,000
shares authorized and 8,292,573 shares issued and
outstanding pro forma).................................. 5,889 5,972 5,972 8,293
Additional paid-in capital................................ 2,522,168 9,537,189 9,718,149 9,717,050
Deferred compensation..................................... -- (615,979) (631,820) (631,820)
Note receivable secured by common stock................... -- (150,000) (150,000) (150,000)
Accumulated deficit....................................... (1,069,477) (2,046,700) (3,147,860) (3,147,860)
---------- ---------- ----------- -------------
Total shareholders' equity.................................. 1,458,955 6,731,704 5,795,663 $ 5,795,663
---------- ---------- ----------- -------------
-------------
$2,615,746 $8,069,759 $7,357,863
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
COLLATERAL THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 3, 1995 YEAR ENDED THREE MONTHS
(INCEPTION) DECEMBER 31, ENDED MARCH 31,
THROUGH ------------------------ ------------------------
DECEMBER 31, 1995 1996 1997 1997 1998
----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues under collaborative research
and development agreement with a
related party........................ $ -- $ 1,679,462 $ 5,647,189 $ 814,732 $ 989,378
Expenses:
Research and development............. 398,481 1,142,669 5,058,952 1,140,053 1,422,955
General and administrative........... 270,852 951,239 1,732,289 388,063 748,707
----------------- ----------- ----------- ----------- -----------
Total operating expenses............... 669,333 2,093,908 6,791,241 1,528,116 2,171,662
----------------- ----------- ----------- ----------- -----------
Loss from operations................... (669,333) (414,446) (1,144,052) (713,384) (1,182,284)
Interest income (expense), net......... (10,136) 24,438 166,829 13,739 81,124
----------------- ----------- ----------- ----------- -----------
Net loss............................... $ (679,469) $ (390,008) $ (977,223) $ (699,645) $(1,101,160)
----------------- ----------- ----------- ----------- -----------
----------------- ----------- ----------- ----------- -----------
Pro forma net loss per share (Basic and
Diluted)............................. $ (0.16) $ (0.14)
----------- -----------
----------- -----------
Weighted average shares used in
computing pro forma net loss per
share (Basic and Diluted)............ 6,301,472 7,634,162
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
COLLATERAL THERAPEUTICS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
---------------------- ---------------------- PAID-IN DEFERRED SECURED BY ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION COMMON STOCK DEFICIT
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common
Stock at $.0005 per
share for cash....... -- $ -- 5,215,120 $ 5,215 $ (2,470) $ -- $ -- $ --
Net loss............... -- -- -- -- -- -- -- (679,469)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
Balance at December 31,
1995................... -- -- 5,215,120 5,215 (2,470) -- -- (679,469)
Issuance of Series A
Convertible Preferred
Stock at $6.675 per
share................ 374,532 375 -- -- 2,499,625 -- -- --
Issuance of Common
Stock at $.005 per
share for cash....... -- -- 206,530 207 880 -- -- --
Stock options exercised
for cash............. -- -- 467,400 467 24,133 -- -- --
Net loss............... -- -- -- -- -- -- -- (390,008)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
Balance at December 31,
1996................... 374,532 375 5,889,050 5,889 2,522,168 -- -- (1,069,477)
Issuance of Series B
Convertible Preferred
Stock at $6.675 per
share................ 374,532 375 -- -- 2,499,625 -- -- --
Issuance of Series C
Convertible Preferred
Stock at $8.00 per
share, net of
expenses of
$76,539.............. 472,476 472 -- -- 3,702,797 -- -- --
Stock options exercised
for cash............. -- -- 82,597 83 18,789 -- -- --
Deferred compensation
related to stock
options.............. -- -- -- -- 793,810 (793,810) -- --
Amortization of
deferred
compensation......... -- -- -- -- -- 177,831 -- --
Note receivable secured
by Common Stock...... -- -- -- -- -- -- (150,000) --
Net loss............... -- -- -- -- -- -- -- (977,223)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
Balance at December 31,
1997................... 1,221,540 1,222 5,971,647 5,972 9,537,189 (615,979) (150,000) (2,046,700)
Deferred compensation
related to stock
options
(unaudited).......... -- -- -- -- 180,960 (180,960) -- --
Amortization of
deferred compensation
(unaudited).......... -- -- -- -- -- 165,119 -- --
Net loss (unaudited)... -- -- -- -- -- -- -- (1,101,160)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
Balance at March 31, 1998
(unaudited)............ 1,221,540 $ 1,222 5,971,647 $ 5,972 $9,718,149 $(631,820) $ (150,000) $(3,147,860)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Issuance of Common
Stock at $.0005 per
share for cash....... $ 2,745
Net loss............... (679,469)
-------------
Balance at December 31,
1995................... (676,724)
Issuance of Series A
Convertible Preferred
Stock at $6.675 per
share................ 2,500,000
Issuance of Common
Stock at $.005 per
share for cash....... 1,087
Stock options exercised
for cash............. 24,600
Net loss............... (390,008)
-------------
Balance at December 31,
1996................... 1,458,955
Issuance of Series B
Convertible Preferred
Stock at $6.675 per
share................ 2,500,000
Issuance of Series C
Convertible Preferred
Stock at $8.00 per
share, net of
expenses of
$76,539.............. 3,703,269
Stock options exercised
for cash............. 18,872
Deferred compensation
related to stock
options.............. --
Amortization of
deferred
compensation......... 177,831
Note receivable secured
by Common Stock...... (150,000)
Net loss............... (977,223)
-------------
Balance at December 31,
1997................... 6,731,704
Deferred compensation
related to stock
options
(unaudited).......... --
Amortization of
deferred compensation
(unaudited).......... 165,119
Net loss (unaudited)... (1,101,160)
-------------
Balance at March 31, 1998
(unaudited)............ $ 5,795,663
-------------
-------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
COLLATERAL THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 3, 1995
(INCEPTION) YEAR ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------- ---------------------
1995 1996 1997 1997 1998
----------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net loss..................................... $(679,469) $(390,008) $ (977,223) $(699,645) $(1,101,160)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 1,443 14,299 144,107 26,661 32,188
Amortization of deferred compensation...... -- -- 177,831 -- 165,119
Changes in operating assets and
liabilities:
Milestone receivable from a related
party................................ -- -- (2,000,000) -- 2,000,000
Prepaid expenses and other current
assets............................... (5,661) (88,912) (76,378) 60,620 (278,138)
Accounts payable and accrued
expenses............................. 298,805 143,254 240,953 88,519 63,523
Deferred revenue....................... -- 214,732 (59,689) 85,268 160,622
Restricted cash........................ -- -- -- -- (672,600)
----------------- --------- ---------- --------- ----------
Net cash provided by (used in) operating
activities................................. (384,882) (106,635) (2,550,399) (438,577) 369,554
INVESTING ACTIVITIES
Purchases of property and equipment.......... (10,754) (96,504) (346,038) (231,783) (298,585)
----------------- --------- ---------- --------- ----------
Net cash used in investing activities........ (10,754) (96,504) (346,038) (231,783) (298,585)
FINANCING ACTIVITIES
Issuance of Series A convertible preferred
stock...................................... -- 2,500,000 -- -- --
Issuance of Series B convertible preferred
stock...................................... -- -- 2,500,000 -- --
Issuance of Series C convertible preferred
stock...................................... -- -- 3,703,269 -- --
Issuance of common stock..................... 2,745 1,087 -- -- --
Proceeds from exercise of stock options...... -- 24,600 18,872 -- --
Issuance of note receivable secured by common
stock...................................... -- -- (150,000) -- --
Proceeds from notes payable to a related
party...................................... 500,000 -- -- -- --
----------------- --------- ---------- --------- ----------
Net cash provided by financing activities.... 502,745 2,525,687 6,072,141 -- --
----------------- --------- ---------- --------- ----------
Net increase (decrease) in cash and cash
equivalents................................ 107,109 2,322,548 3,175,704 (670,360) 70,969
Cash and cash equivalents at beginning of the
period..................................... -- 107,109 2,429,657 2,429,657 5,605,361
----------------- --------- ---------- --------- ----------
Cash and cash equivalents at end of the
period..................................... $ 107,109 $2,429,657 $5,605,361 $1,759,297 $5,676,330
----------------- --------- ---------- --------- ----------
----------------- --------- ---------- --------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Collateral Therapeutics, Inc. (the "Company") is focused on the discovery,
development and commercialization of non-surgical gene therapy products for the
treatment of cardiovascular diseases, including coronary artery disease,
peripheral vascular disease, congestive heart failure and heart attack. The
Company intends to focus on research and development of products while
leveraging its technology through the establishment of product development,
manufacturing and marketing collaborations with select pharmaceutical and
biotechnology companies. The Company was incorporated in California on April 3,
1995 and reincorporated in Delaware on May 28, 1998.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. The carrying value of these instruments approximates fair value. The
Company generally invests its excess cash in high credit quality debt
instruments of corporations and financial institutions, and in U.S. government
securities. Such investments are made in accordance with the Company's
investment policy, which establishes guidelines relative to diversification and
maturities designed to maintain safety and liquidity. These guidelines are
periodically reviewed and modified to take advantage of trends in yields and
interest rates. The Company has not experienced any losses on its cash and cash
equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets, ranging from three years to five years, using the
straight-line method. Leasehold improvements are stated at cost and amortized
over the shorter of the estimated useful lives of the assets or the lease term.
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
("SFAS 121"), establishes the accounting for impairment of long-lived assets,
identifiable intangibles and goodwill related to those assets. To date the
Company has not identified any indicators of impairment nor recorded any
impairment losses.
UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY
In March 1998, the Board of Directors authorized management of the Company
to file a registration statement with the SEC permitting the Company to sell
shares of its common stock to the public. If the initial public offering is
closed under the terms presently anticipated, the 1,221,540 shares of preferred
stock outstanding at March 31, 1998 will automatically convert into 2,320,926
shares of common stock. Such conversion is reflected as "Unaudited Pro Forma
Shareholders' Equity" at March 31, 1998 in the accompanying balance sheet.
F-7
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Additionally, if the initial public offering is closed under the terms
presently anticipated, the unaudited pro forma authorized shares of the
corporation will be 40,000,000 shares of common stock ($0.001 par value) and
5,000,000 shares of Preferred Stock ($0.001 par value).
INTERIM FINANCIAL INFORMATION
The accompanying financial statements for the three months ended March 31,
1997 and 1998 are unaudited but include all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
statement of the financial information set forth therein, in accordance with
generally accepted accounting principles.
REVENUE RECOGNITION
The Company currently generates substantially all of its revenue through a
collaborative research and development agreement with a related party (Note 3).
Amounts received in advance for funding of research and development, which are
not refundable, are deferred. Such amounts are recognized as revenue when the
related reimbursable expenses are incurred and the Company has no future
performance obligations. The Company is also entitled to milestone and royalty
payments upon attaining contract specified conditions. These amounts are
recognized upon satisfaction of the specified conditions when the Company has no
further performance obligations.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenditures are charged to expense as incurred.
The Company generally expenses amounts paid to obtain patents or acquire
licenses, as the ultimate recoverability of the amounts paid is uncertain.
STOCK OPTIONS
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("SFAS 123"), establishes the use of the fair value
based method of accounting for stock-based compensation arrangements, under
which compensation cost is determined using the fair value of stock-based
compensation determined as of the grant date, and is recognized over the periods
in which the related services are rendered. SFAS 123 also permits companies to
elect to continue using the implicit value accounting method specified in
Accounting Principles Board Opinion No. 25 to account for stock-based
compensation related to option grants and stock awards to employees and
directors. The Company has elected to retain the implicit value based method for
such grants and awards, and has disclosed the pro forma effect of using the fair
value based method to account for its stock-based compensation (Note 5). Option
grants to non-employees are valued using the fair value based method prescribed
by SFAS 123 and expensed over the period services are provided.
F-8
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"). SFAS 128 requires
the presentation of basic earnings (loss) per share and diluted earnings (loss)
per share, if more dilutive, for all periods presented.
In accordance with SFAS 128, basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period, except that pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 98, common shares issued in each of the periods
presented for nominal consideration, if any, would be included in the
calculation as if they were outstanding for all periods presented. No such
shares have been issued. Diluted net loss per share, which would include
additional potential common shares related to outstanding options, if dilutive,
is unchanged due to the Company's net losses.
Pro forma net loss per share (Basic and Diluted) as presented in the
Statement of Operations has been computed as described above and also gives
effect to the conversion of the convertible Preferred Stock that will
automatically convert upon completion of the Company's initial public offering
(using the as-if converted method) from the original date of issuance.
A reconciliation of shares used in the calculation of basic and pro forma
net loss per share follows:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 3,
1995
(INCEPTION) YEAR ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------- -----------------------
1995 1996 1997 1997 1998
------------ --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net loss......................................... $ (679,469) $(390,008) $(977,223) $(699,645) $(1,101,160)
Weighted average shares of common stock
outstanding and shares used in computing net
loss per share (Basic and Diluted)............. 1,798,878 3,599,371 4,651,094 4,212,026 5,313,236
------------ --------- --------- ----------- ----------
Net loss per share (Basic and Diluted)........... $ (0.38) $ (0.11) $ (0.21) $ (0.17) $ (0.21)
------------ --------- --------- ----------- ----------
------------ --------- --------- ----------- ----------
Adjustment to reflect the effect of the assumed
conversion of preferred stock.................. 1,650,378 2,320,926
--------- ----------
Shares used in computing pro forma net loss per
share (Basic and Diluted)...................... 6,301,472 7,634,162
--------- ----------
--------- ----------
Pro forma net loss per share (Basic and
Diluted)....................................... $ (0.16) $ (0.14)
--------- ----------
--------- ----------
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-9
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS
130") and Statement of Financial Accounting Standards No. 131, SEGMENT
INFORMATION ("SFAS 131"). Both of these standards are effective for fiscal years
beginning after December 15, 1997. SFAS 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. The Company does not
believe that comprehensive income or loss will be materially different than net
income or loss. SFAS 131 amends the requirements for public enterprises to
report financial and descriptive information about its reportable operating
segments. Operating segments, as defined in SFAS 131, are components of an
enterprise for which separate financial information is available and is
evaluated regularly by the Company in deciding how to allocate resources and in
assessing performance. The financial information is required to be reported on
the basis that is used internally for evaluating the segment performance. The
Company believes it operates in one business and operating segment and does not
believe adoption of SFAS 131 will have a material impact on the Company's
financial statements.
RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified to
conform with the current year presentation.
YEAR 2000 COMPLIANCE (UNAUDITED)
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 hardware and software issues. The Company
intends to confirm its compliance regarding Year 2000 issues for both internal
and external information systems by the end of 1998. This process will entail
communications with significant suppliers, financial institutions, insurance
companies and other parties that provide significant services to the Company.
Expenditures required to make the Company Year 2000 compliant will be expensed
as incurred and are not expected to be material to the Company's financial
position or results of operations.
F-10
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
2. BALANCE SHEET INFORMATION
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Laboratory equipment.................................... $ 52,139 $ 110,908 $ 131,794
Computer equipment...................................... 39,799 111,881 123,801
Furniture and office equipment.......................... 10,371 178,067 202,708
Leasehold improvements.................................. 4,949 52,440 293,578
---------- ----------- -----------
107,258 453,296 751,881
Accumulated depreciation
and amortization...................................... (15,742) (159,849) (192,037)
---------- ----------- -----------
$ 91,516 $ 293,447 $ 559,844
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
3. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT WITH RELATED PARTY
In May 1996, the Company entered into a collaboration, license and royalty
agreement (the "Schering Agreement") with Schering AG, Germany ("Schering AG")
which established a strategic alliance covering the development and
commercialization of gene therapy products to promote angiogenesis. Under the
Schering Agreement, the Company agreed to conduct research and development in
the field of gene therapy to promote angiogenesis solely with Schering AG during
the term of the Schering Agreement. The Company granted Schering AG an exclusive
worldwide license to all rights to the Company's technology in the field of
angiogenic gene therapy and to certain other rights to technology developed by
the Company with funding support from Schering AG during the five-year research
and development program under the Schering Agreement. In exchange for such
rights, Schering AG agreed to: (i) purchase up to $5.0 million of the Company's
preferred stock; (ii) provide research and development funding and support
totaling up to $5.0 million annually to support the Company's research and
development pursuant to the Schering Agreement; (iii) pay the Company milestone
payments totaling up to $20.5 million for each Initial Product and for each New
Product (each as defined therein) based on the Company's achievement of
milestones pertaining to certain regulatory filings and the development and
commercialization of products under the Schering Agreement; and (iv) pay the
Company a royalty rate based on worldwide net sales of each product and to pay
an additional supplemental royalty based on worldwide net sales of each product
and the product's cost of goods, up to a maximum specified royalty rate. To
date, substantially all revenue received by the Company has been from its
collaboration with Schering AG. Schering AG may terminate the collaborative
agreement upon 60 days' written notice and payment of a termination fee to the
Company.
In 1996 and 1997, the Company received cash payments under the agreement
totaling $1,894,000 and $3,588,000, respectively, of which $1,679,000 and
$3,433,000, respectively, was earned and $215,000 and $155,000 of which was
recorded as deferred revenue at December 31, 1996 and 1997, respectively. At
December 31, 1997, Schering was also committed to pay an additional $2,000,000
for the Company's achievement of a program milestone in 1997. Such payment was
received in January 1998.
F-11
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
3. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT WITH RELATED PARTY
(CONTINUED)
For the three month period ended March 31, 1998, the Company received cash
payments under the agreement totalling $1,150,000 (excluding the $2,000,000
milestone payment previously described) of which $834,000 was earned and
recorded as revenue and the remaining $316,000 was recorded as deferred revenue
at March 31, 1998.
In 1995, the Company entered into two promissory notes with Schering
totaling $500,000 to fund operations. Principal and interest on the notes is due
and payable upon demand after June 30, 1999. The notes bear interest at 1% below
the prime rate; at March 31, 1998, the notes bore interest at 7.5%. Such notes
are secured by the assets of the Company (with the exception of certain
equipment purchased from February 15, 1998 through November 15, 1998 which is
pledged on a first priority basis under the Company's $400,000 bank loan
referred to in Note 4).
4. COMMITMENTS
LEASES
The Company leases office facilities under an operating lease agreement that
expires on December 31, 1998. In December 1997, the Company entered into a
multi-year operating lease for research facilities commencing April 15, 1998,
terms of which include renewal options, payment of executory costs such as a
real estate taxes, insurance, and common area maintenance, and escalation
clauses. In accordance with the terms of the lease agreement, in January 1998,
the Company became committed to spend at least $200,000 in 1998 on building
improvements at the research facility and is required to maintain restricted
cash balances totaling $600,000 on behalf of the landlord until such time as all
building improvements at the research facility are complete. Additionally, the
Company is required to maintain restricted cash balances totaling $72,600 on
behalf of the landlord as rent deposits through the end of the lease term (April
2003).
In April 1998, the Company entered into a multi-year operating lease for
administrative facilities with payments to commence on occupancy which is
expected in December 1998. Terms of the lease include renewal options, payment
of executory costs such as real estate taxes, insurance, and common area
maintenance, and escalation clauses. The Company is required to maintain
restricted cash balances totaling $693,000 on behalf of the landlord until such
time as the Company completes an initial public offering.
F-12
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. COMMITMENTS (CONTINUED)
Annual future minimum lease obligations for operating leases as of December
31, 1997, including the leases entered into in December 1997 and April 1998, are
as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31: LEASES
- ------------------------------------------------------------- ------------
<S> <C>
1998....................................................... $ 309,000
1999....................................................... 694,000
2000....................................................... 713,000
2001....................................................... 733,000
2002....................................................... 753,000
Thereafter................................................. 990,000
------------
Total.................................................. $ 4,192,000
------------
------------
</TABLE>
Rent expense was $91,000 and $106,000 for the years ended December 31, 1996
and 1997, respectively, $25,000 for the period from April 3, 1995 (inception)
through December 31, 1995, and $33,000 and $215,000 for the three month periods
ended March 31, 1997 and 1998, respectively.
LICENSE AND RESEARCH AGREEMENTS
In connection with certain license and research agreements, the Company paid
fees of $379,000 and $3,108,000 for the years ended December 31, 1996 and 1997,
respectively, and $707,000 and $564,000 for the three months ended March 31,
1997 and 1998, respectively. The fees were charged to research and development.
The Company has future non-cancelable commitments to pay fees totaling $551,635
on research and development contracts, of which $276,635 is due in 1998 and
$275,000 is due in 1999. Additionally, the Company may pay royalties upon
commercial sales, if any, on certain products.
In addition, on the earlier of either September 25, 1998 or 30 days after
the completion of any initial public offering for the purchase of shares of the
Company being listed on any stock exchange in the United States, the Company
will pay a licensor $1.0 million. If the Company fails to make this payment
within 10 days of the date due, this agreement will be deemed terminated.
NOTE PAYABLE
On April 6, 1998, the Company entered into a loan and security agreement
with a bank under which the Company may borrow up to $400,000 to acquire
equipment. Amounts borrowed bear interest at prime plus 1.25%, are secured by
the equipment acquired under the agreement, and are payable in installments
commencing November 1998 through April 2003. The loan is subject to certain
covenants including minimum working capital levels and the requirement that the
Company must obtain the lenders' consent for certain additional indebtedness.
F-13
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY
REINCORPORATION AND STOCK SPLIT
On May 28, 1998, the Company reincorporated in Delaware. The number of
authorized shares of the new Delaware corporation are 19,000,000 shares of
common stock ($0.001 par value) and 1,221,540 shares of Preferred Stock ($0.001
par value). Additionally, on May 29, 1998, the Company effected a 1.9-for-one
stock split of the Company's common stock. All shares and per share amounts and
stock option data have been retroactively restated in these financial statements
to give effect to the reincorporation and the stock split.
COMMON STOCK
As of March 31, 1998, the Company had issued 5,971,647 shares of common
stock at prices ranging from $.0005 to $.24 per share. In connection with
certain stock purchase agreements with employees and consultants, and options
exercised under the 1995 option plan, the Company has the option to repurchase,
at the original issue price, unvested shares in the event of termination of
employment or engagement. Shares issued under these agreements generally vest
over three or four years. At March 31, 1998, 410,767 shares were subject to
repurchase by the Company.
CONVERTIBLE PREFERRED STOCK
In May 1996, the Company issued 374,532 shares of Series A Preferred Stock
at $6.675 per share, for total proceeds of $2,500,000. In June 1997, the Company
issued 374,532 shares of Series B Preferred Stock at $6.675 per share, for total
proceeds of $2,500,000. Also in June 1997, the Company issued 472,476 shares of
Series C Preferred Stock at $8.00 per share, for net proceeds of $3,703,269.
The Preferred Stock is convertible, at the option of the holder, on a
1.9-for-one basis into the Company's common stock, subject to certain
antidilution adjustments. Subsequent to effecting the stock split previously
described, the Company has reserved 2,320,926 shares of the Company's common
stock for issuance upon conversion of the 1,221,540 shares of Preferred Stock
then outstanding. The Preferred Stock will convert automatically upon the sale
of the Company's common stock in a firm commitment underwritten public offering
with proceeds to the Company of at least $10,000,000 and at a price not less
than $5.26 per share or upon the consent of a majority of the holders of the
outstanding shares of the Series A, B and C Preferred Stock. The holders of
Preferred Stock, as a group, are entitled to elect one director to the Board of
Directors, and in all other matters, the holder of each share of Preferred Stock
is entitled to one vote for each share of common stock into which it would
convert.
Annual dividends of $.334 per share of Series A and Series B Preferred
Stock, and $.40 per share of Series C Preferred Stock, are payable whenever
funds are legally available when, as and if declared by the Board of Directors.
No dividends have been declared to date. In the event of a liquidation of the
Company, holders of preferred stock are entitled to a liquidation preference of
the original purchase price per share plus the sum of a 5% return, compounded
annually, on the original purchase price of the Preferred Stock and any declared
but unpaid dividends. If upon occurrence of such event, the amounts thus
distributed among the holders of the Preferred Stock are insufficient to permit
the payment to such holders of the full aforesaid preferential amounts, then,
the entire assets and funds of the corporation
F-14
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
legally available for distribution shall be distributed ratably among holders of
the Preferred Stock in proportion to the number of shares of such stock owned by
each such holder.
STOCK OPTIONS
In November 1995, the Company adopted a stock option plan, under which
1,011,248 shares of common stock were reserved for issuance upon exercise of
options granted by the Company. In June 1997, the number of shares reserved for
issuance under this plan was increased to 1,346,832 shares. The stock option
plan provides for the grant of incentive and nonstatutory options. The exercise
price of incentive stock options must equal at least the fair value on the date
of grant, and the exercise price of nonstatutory stock options may be no less
than 85% of the fair value on the date of grant. The options are immediately
exercisable for a period up to ten years after the date of grant and vest over a
four year period from the date of grant. Unvested common shares obtained on
early exercise of options are subject to repurchase by the Company at the
original issue price.
A summary of option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- -----------
<S> <C> <C>
Granted............................................................. 278,350 $ .03
Exercised........................................................... -- $ --
Cancelled........................................................... -- $ --
-----------
Balance at December 31, 1995.......................................... 278,350 $ .03
Granted............................................................. 604,200 $ .13
Exercised........................................................... (467,400) $ .05
Cancelled........................................................... -- $ --
-----------
Balance at December 31, 1996.......................................... 415,150 $ .14
Granted............................................................. 330,600 $ .47
Exercised........................................................... (82,597) $ .23
Cancelled........................................................... (3,853) $ .10
-----------
Balance at December 31, 1997.......................................... 659,300 $ .30
Granted............................................................. 49,400 $ .74
Exercised........................................................... -- $ --
Cancelled........................................................... -- $ --
-----------
Balance at March 31, 1998............................................. 708,700 $ .33
-----------
-----------
</TABLE>
F-15
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of options outstanding at March 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED WEIGHTED EXERCISE
AVERAGE AVERAGE PRICE
RANGE OF EXERCISE OPTIONS REMAINING LIFE EXERCISE OPTIONS OF OPTIONS
PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE EXERCISABLE
- ---------------------- ----------- ----------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$.0005................ 123,500 7.58 $ .0005 123,500 $ .0005
$.05.................. 60,800 7.69 $ .05 60,800 $ .05
$.23-.28.............. 330,600 9.0 $ .26 330,600 $ .26
$.74.................. 193,800 9.71 $ .74 193,800 $ .74
----------- -----------
708,700 9.13 $ .33 708,700 $ .33
----------- -----------
----------- -----------
</TABLE>
Included in the above tables are 123,500 shares that were granted outside
the 1995 plan. Additionally, in April 1998, the Company granted 209,000 Common
Stock options at an exercise price of $4.92 per share.
In April 1998, the Company adopted the 1998 Stock Incentive Plan (the "1998
Plan") that is intended to serve as the successor equity incentive program to
the Company's then existing stock option plan, as amended (the "Predecessor
Plan"). A total of 2,296,835 shares of Common Stock have been authorized for
issuance under the 1998 Plan. Outstanding options and unvested shares issued
under the Predecessor Plan have been incorporated into the 1998 Plan, and no
further option grants will be made under the Predecessor Plan. The incorporated
options will continue to be governed by their existing terms, unless the Plan
Administrator elects to extend one or more features of the 1998 Plan to those
options. After giving effect to the 585,200 options outstanding under the
Predecessor Plan and the 209,000 option grants described in the preceding
paragraph, there remain 1,502,635 options which may be granted under the 1998
Plan.
Adjusted pro forma information regarding net loss and net loss per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options and stock purchase plan under the fair value
method of SFAS 123. The fair value for these options was estimated at the date
of grant using the "Minimum Value" method for options pricing with the following
assumptions for 1995, 1996 and 1997: risk-free interest rates of 6.50%; dividend
yield of 0%; and a weighted-average expected life of the options of six years.
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options are amortized to expense over the vesting period. The
weighted-averaged fair value of options granted during 1996 and
F-16
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
1997 was $.05 and $.16, respectively, and for the first three months of 1998 was
$.24. The Company's adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------------------
1996 1997 1997 1998
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Adjusted pro forma net loss.......... $ (390,683) $ (983,882) $ (700,797) $ (1,105,867)
Adjusted pro forma net loss
per share (Basic and Diluted)...... $ (0.11) $ (0.16) $ (0.17) $ (0.14)
</TABLE>
The effect of applying SFAS 123 to adjusted pro forma net loss and adjusted
pro forma net loss per share (Basic and Diluted) for the period from April 3,
1995 (inception) through December 31, 1995 was not material. The pro forma
effect on net loss for the periods presented may not be representative of the
pro forma effect on net loss in future years because they reflect less than four
years of vesting.
DEFERRED COMPENSATION
Through March 31, 1998, the Company recorded deferred compensation for the
difference between the exercise price of stock options granted and the deemed
fair value for financial statement presentation purposes of the Company's common
stock at the date of issuance or grant. The deferred compensation will be
amortized over the vesting period of the related options, which is generally
four years. Gross deferred compensation recorded during the year ended December
31, 1997 and the three months ended March 31, 1998 totaled $793,810 and
$180,960, respectively, and related amortization expense totaled $177,831 and
$165,119 in 1997 and 1998, respectively. In April 1998, the Company recorded an
additional $977,900 of deferred compensation for 209,000 common stock options
granted in April 1998.
6. RELATED PARTY TRANSACTIONS
A partner of the Company's general counsel firm is a member of the Board of
Directors and is a shareholder. The Company incurred expenses of $53,107,
$104,367 and $145,252 for the period from April 3, 1995 (inception) through
December 31, 1995 and the years ended December 31, 1996 and 1997, respectively,
and $10,772 and $51,563 for the three months ended March 31, 1997 and 1998,
respectively, with its general counsel. The Company had payables to the general
counsel of $53,000, $9,000 and $5,000 at December 31, 1995, 1996 and 1997,
respectively, and $9,000 and $49,000 at March 31, 1997 and 1998, respectively.
In December 1997, the Company loaned $150,000 to a shareholder who is also
of counsel with the Company's lead patent attorneys. This loan bears interest at
ten percent per annum, is due in one year, and is secured by the common stock of
the Company owned by such shareholder.
During 1997, a shareholder and member of the Company's Board of Directors
was an executive officer of the landlord for the Company's office facilities.
The Company has leased these facilities through December 31, 1998 (see Note 4).
F-17
<PAGE>
COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
7. INCOME TAXES
At December 31, 1997, the Company had federal and California income tax net
operating loss carryforwards of approximately $1,758,000 and $1,755,000,
respectively. The federal and California tax loss carryforwards will begin to
expire in 2010 and 2003, respectively, unless previously utilized. The Company
also has federal and California research tax credit carryforwards of
approximately $7,000 and $6,800, respectively, which will begin to expire in
2010, unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of
the Company's net operating loss and credit carryforwards may be limited if
cumulative changes in ownership of more than 50% occur during any three year
period.
Significant components of the Company's deferred tax assets are shown below.
A valuation allowance has been recognized to offset the deferred tax assets as
of December 31, 1997 as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1996 1997
----------- -----------
Deferred tax assets:
Net operating loss carryforwards.................................. $ 429,000 $ 720,000
Other............................................................. 19,000 47,000
----------- -----------
Total deferred tax assets........................................... 448,000 767,000
Valuation allowance for deferred tax assets......................... (448,000) (767,000)
----------- -----------
Net deferred tax assets............................................. $ -- $ --
----------- -----------
----------- -----------
</TABLE>
8. 401(K) PLAN
Effective October 1, 1996, the Company adopted a 401(k) defined contribution
plan that covers substantially all full time employees, as defined, who meet
certain length-of-service requirements. Employees may contribute up to a maximum
of 15% of their annual compensation (subject to a maximum limit imposed by
federal tax law).
F-18
<PAGE>
Collateral Therapeutics is focused on the discovery, development and
commercialization of non-surgical gene therapy products for the treatment of
cardiovascular diseases. The Company believes that its non-surgical gene therapy
products under development hold the potential to revolutionize the treatment of
cardiovascular diseases and become a new standard of care by offering patients
simpler, more cost effective and lower-risk alternatives to currently available
treatments.
[Various Pictures of elderly couple walking, research assistant,
syringe and solution and research facility.]
The key elements of the Company's business strategy are to develop a new
paradigm for the treatment of cardiovascular diseases, maintain technological
leadership by focusing resources exclusively on cardiovascular gene therapy,
continue to expand, enhance and protect Collateral's proprietary technology,
including methods of gene therapy and portfolio of therapeutic genes, and
leverage the Company's technology through the establishment of strategic
collaborations.
[COLLATERAL THERAPEUTICS LOGO]
<PAGE>
[COLLATERAL THERAPEUTICS LOGO]
GENERX-TRADEMARK-
PRODUCT DEVELOPMENT STATUS
A commercial Investigational New Drug application was filed with the U.S. Food
and Drug Administration in December 1997 by the Company's strategic partner,
Schering AG, Germany. A Phase I/II clinical trial for GENERX-TRADEMARK- was
initiated in May 1998 by Berlex Laboratories, Inc., a subsidiary of Schering AG,
in collaboration with Collateral. The trial, which is placebo-controlled and
double-blind, will enroll approximately 100 patients and is being conducted in
10 major cardiovascular centers in the U.S. This trial will evaluate safety and
efficacy at six different dose levels of GENERX-TRADEMARK- in patients with
chronic stable exertional angina due to atherosclerosis.
[Picture of syringe and solution.]
[Depiction of PCR detection of FGF-4
and a control in the heart, eye, liver
and diaphragm.]
PRECLINICAL RESEARCH: SAFETY OF GENERX-TRADEMARK-
BIODISTRIBUTION BY PCR DETECTION
As part of the safety evaluation of GENERX-TRADEMARK-, it was important to
establish the distribution of the product after its administration in animals.
Polymerase chain reaction (PCR) is a sensitive method used to identify the
presence of a specific sequence of DNA in test samples. In the preclinical
animal studies, led by the Company's chief scientist, PCR was used to determine
whether DNA from the adenovirus was present in a variety of tissues, including
heart, liver, eye and diaphragm, two weeks after gene transfer. DNA from the
adenovirus was present in the heart but not in the other tissues. These results
indicated that treatment with GENERX-TRADEMARK- resulted in gene transfer
limited to the heart. There was no evidence of inflammation in the heart or
liver on histologic evaluation.
[Depiction of FGF-4 protein
expression, following treatment with
GENERX-TRADEMARK- and a control in
heart, liver and eye tissues.]
PROTEIN EXPRESSION
It was also important to confirm that the transfected heart muscle cells
expressed FGF-4 protein as a result of treatment with GENERX-TRADEMARK-.
Immunoblotting is a method used to detect the presence of a specific protein. In
the preclinical animal studies, conducted by the Company's chief scientist,
immunoblotting was performed on homogenates of heart (LAD, LCx), liver (LIV),
and eye tissues two weeks after gene transfer to detect whether there was FGF-4
protein expression in these tissues. The presence of FGF-4 protein was confirmed
in heart samples but not elsewhere after GENERX-TRADEMARK- treatment, indicating
selective cardiac expression of the transgene protein. Control animals showed no
transgene expression in any of the tissues examined.
The research described above reflects preclinical animal studies. There can
be no assurance that human clinical trials of any product under development will
demonstrate the efficacy and safety of such product or will result in a
marketable product. See "Risk Factors--Uncertainties Related to Clinical Trials;
Uncertainties Related to Safety and Efficacy."
<PAGE>
NON-SURGICAL CARDIOVASCULAR GENE THERAPY
GENERX-TRADEMARK-
PRODUCT PROFILE
GENERX-TRADEMARK-, Collateral's initial proprietary non-surgical angiogenic
product, is designed to relieve stable exertional angina due to coronary artery
disease. In vivo preclinical studies led by the Company's chief scientist
demonstrated that gene therapy with human angiogenic growth factor genes
resulted in high-yield gene transfer limited to the heart and restored heart
function and regional blood flow in an ischemic region of the heart in a
preclinical model. GENERX-TRADEMARK- is administered by a one-time
intra-coronary injection through a cardiac catheter, and could be administered
at the time of initial angiography, on an out-patient basis.
PRECLINICAL RESEARCH:
EFFICACY OF GENERX-TRADEMARK-
Heart Function
Heart Function is measured by myocardial thickening using echo-cardiography.
Results from preclinical animal studies, led by the Company's chief scientist,
showed that before treatment (red bar), wall thickening in the ischemic region
of the heart was reduced during stress (heart rate to 200 beats per minute). Two
weeks after a one-time, non-surgical angiogenic gene therapy treatment with
GENERX-TRADEMARK- (blue bar), heart function was increased 2.5 fold, to a value
similar to normal function in animals (green bar).
[Bar graph depicting effect of
GENERX-TRADEMARK- on heart function.]
Blood Flow
Blood flow in the heart is estimated from video images during contrast
echocardiography. The results are reported as the ratio of the peak video
contrast in the ischemic region of the heart receiving blood from the left
cirumflex artery (LCx), and the peak video contrast in the region receiving
normal blood flow through the left anterior descending coronary artery (LAD). In
the preclinical animal studies, led by the Company's chief scientist, there was
a deficit in blood flow in the ischemic region during stress before treatment
(red bar). Two weeks after non-surgical angiogenic gene therapy treatment with
GENERX-TRADEMARK-(blue bar), blood flow was increased 1.7 fold, to a value
similar to normal animals during stress (green bar).
[Bar graph depicting effect of
GENERX-TRADEMARK- on blood flow.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 7
Special Note Regarding Forward-Looking
Statements.................................... 17
Use of Proceeds................................. 18
Dividend Policy................................. 18
Capitalization.................................. 19
Dilution........................................ 20
Selected Financial Data......................... 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations... 22
Business........................................ 26
Management...................................... 44
Certain Transactions............................ 56
Principal Stockholders.......................... 57
Description of Capital Stock.................... 58
Shares Eligible for Future Sale................. 60
Underwriting.................................... 62
Legal Matters................................... 64
Experts......................................... 64
Additional Information.......................... 64
Index to Financial Statements................... F-1
</TABLE>
--------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,330,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
RAYMOND JAMES & ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates,
except for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.................................................. $ 15,086
Nasdaq National Market fee........................................ 17,500
NASD fee.......................................................... 5,479
Blue Sky fees and expenses........................................ 15,000
Printing and engraving expenses................................... 150,000
Legal fees and expenses........................................... 350,000
Accounting fees and expenses...................................... 190,000
Transfer Agent and Registrar fees................................. 10,000
Miscellaneous expenses............................................ 46,935
---------
TOTAL........................................................... $ 800,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of the Company under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation Law.
Article VII, Section 1 of the Restated Bylaws of the Company provides that
the Company shall indemnify its directors, officers, employees and agents to the
fullest extent not prohibited by the Delaware General Corporation Law. The
rights to indemnity thereunder continue as to a person who has ceased to be a
director, officer, employee or agent and inure to the benefit of the heirs,
executors and administrators of the person. In addition, expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of the Company (or was serving at the Company's
request as a director or officer of another corporation) shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Company as authorized by the relevant section
of the Delaware General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article V, Section (A) of the Company's Certificate of Incorporation provides
that a director of the Company shall not be personally liable for monetary
damages or breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derived any improper personal benefit.
The Company has directors and officers liability insurance now in effect
which insures directors and officers of the Company.
The Company intends to enter into indemnification agreements under Delaware
law with each of its directors and executive officers. Generally, the
indemnification agreements attempt to provide the
II-1
<PAGE>
maximum protection permitted by Delaware law as it may be amended from time to
time. Moreover, the indemnification agreements provide for additional
indemnification for certain amounts not otherwise covered by directors and
officers liability insurance. Under such additional indemnification provisions,
however, such director or executive officer will not be indemnified for
settlements not approved by the Company. The indemnification agreements provide
for the Company to advance to the individual any and all reasonable expenses
(including legal fees and expenses) incurred in investigating or defending any
such action, suit or proceeding. Also, the individual must repay such advances
upon a final judicial decision that he or she is not entitled to
indemnification. The obligations of the Company under these indemnification
agreements shall continue during the period that such director or officer is
serving the Company as such and shall continue for so long thereafter as such
director or officer shall be subject to any possible claim, action, suit or
proceeding. For six years after the effective time of the acquisition of the
Company by another entity or the sale of all or substantially all of the assets
of the Company, the Company shall cause the acquiring or surviving corporation
to indemnify such director or officer in accordance with the terms of this
indemnification agreement and use such acquiring or surviving corporation's best
efforts to provide director's and officer's liability insurance on terms
substantially similar to those of the Company's.
The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by which
the Underwriters have agreed to indemnify the Company, each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act,
each director of the Company, and each officer of the Company who signs this
Registration Statement, with respect to information furnished in writing by or
on behalf of the Underwriters specifically for use in the Registration
Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since April 1995, the Company has sold and issued the following unregistered
securities:
(1) From April 1995 to March 31, 1998, the Company granted an aggregate of
1,262,550 options to purchase Common Stock with exercise prices ranging from
$.0005 to $.74 per share under the Predecessor Plan and an aggregate of
549,997 shares of Common Stock were issued through the exercise of options
granted under the Predecessor Plan for aggregate proceeds of $43,472. For
additional information concerning these transactions, reference is made to
the information contained under the caption "Management--Benefit Plans" in
the Prospectus included herein.
(2) On April 5, 1995, the Company issued an aggregate of 1,159,000 shares of
Common Stock to executive officers of the Company for an aggregate
consideration of $610.00
(3) On August 9, 1995, the Company issued 3,866,120 shares of Common Stock to
executive officers and consultants of the Company for an aggregate
consideration of $2,034.80.
(4) On November 20, 1995, the Company issued 190,000 shares of Common Stock to a
director of the Company for an aggregate consideration of $100.00.
(5) In March 1996, the Company issued 206,530 shares of Common Stock to
executive officers, directors and consultants of the Company for an
aggregate consideration of $1,087.00.
(6) On May 7, 1996, the Company issued 374,532 shares of Series A Preferred
Stock to Schering Berlin Venture Corp. for an aggregate consideration of
$2,500,000.00.
(7) On June 11, 1997, the Company issued 374,532 shares of Series B Preferred
Stock to Schering Berlin Venture Corp. for an aggregate consideration of
$2,500,000.00.
(9) On June 30, 1997, the Company issued an aggregate of 472,476 shares of
Series C Preferred Stock to The Wellcome Trust, Schering Berlin Venture
Corp. and Jerry C. Benjamin, respectively, for an aggregate consideration of
$3,779,808.00.
The sales and issuances of securities in the above transactions were deemed
to be exempt under the Securities Act by virtue of Section 4(2) thereof and/or
Regulation D and Rule 701 promulgated thereunder as transactions not involving
any public offering. The purchasers in each case represented their intention to
II-2
<PAGE>
acquire the securities for investment only and not with a view to the
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. Similar representations of investment intent were
obtained and similar legends imposed in connection with any subsequent transfers
of any such securities. The Company believes that all recipients had adequate
access, through employment or other relationships, to information about the
Company to make an informed investment decision.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1+ Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Form of Second Restated Certificate of Incorporation of the Company to become effective simultaneously
with the completion of the Offering.
3.3 Bylaws of the Company.
3.4 Form of Restated Bylaws of the Company to be effective simultaneously with the completion of the
Offering.
4.1 Form of the Certificate for Common Stock.
5.1++ Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common Stock being registered.
10.1++ Form of Restricted Stock Issuance Agreement between the Company and certain individuals listed on the
attached schedule.
10.2++ Form of Stock Issuance Agreement between the Company and certain individuals listed on the attached
schedule.
10.3*++ Preferred Stock Purchase Agreement between the Company and Schering Berlin Venture Corp., dated May 7,
1996.
10.4*++ Series C Preferred Stock Purchase Agreement by and among the Company and the investors listed on
Schedule A thereto, dated June 30, 1997.
10.5++ Amended and Restated Investors' Rights Agreement by and among the Company and the investors listed on
Schedule A thereto, dated June 30, 1997.
10.6++ Amended and Restated Co-Sale Agreement by and among the Company and the individuals listed on Schedule
A thereto, dated June 30, 1997.
10.7++ Security Agreement between the Company and Schering Berlin Venture Corp., dated August 16, 1995.
10.8++ Amended and Restated Promissory Note between the Company and Schering AG, dated August 16, 1995, as
amended May 16, 1996.
10.9++ Amended and Restated Promissory Note between the Company and Schering AG, dated October 12, 1995, as
amended May 16, 1996.
10.10++ Side Letter between the Company and Schering Berlin Venture Group, dated May 6, 1996.
10.11*++ Exclusive License Agreement between The Regents of the University of California and the Company for
Angiogenesis Gene Therapy, dated September 27, 1995, as amended.
10.12*++ Collaboration, License and Royalty Agreement between Schering AG and the Company, dated May 6, 1996.
10.13*++ License Agreement by and among Dimotech Ltd., Gera Neufeld and the Company, dated October 17, 1996.
10.14*++ Exclusive License Agreement between The Regents of the University of California and the Company for
Gene Therapy for Congestive Heart Failure, dated January 22, 1997.
10.15* Agreement between New York University and the Company, dated March 24, 1997, as amended.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.16*++ License Agreement by and among AMRAD Developments Pty. Ltd., Ludwig Institute for Cancer Research and
the Company, dated March 25, 1997.
10.17*++ Research Agreement between the University of Washington and the Company, dated April 21, 1997.
10.18*++ Exclusive License Agreement between The Regents of the University of California and the Company for
Angiogenic Gene Therapy for Congestive Heart Failure, dated June 18, 1997.
10.19*++ Letter Agreement between the Company and Veterans Medical Research Foundation, dated August 13, 1997.
10.20*++ Sponsored Research Contract between the Curators of The University of Missouri and the Company, dated
October 22, 1997.
10.21*++ Biological Materials Agreement between Targeted Genetics Corporation and the Company, dated January
26, 1998.
10.22*++ Research Agreement between The Regents of the University of California and the Company, dated February
23, 1998.
10.23*++ Letter Agreement between the Company and Veterans Medical Research Foundation, dated March 20, 1998.
10.24 Sublease Agreement between the Company and Gensia, Inc., dated June 15, 1995, as amended.
10.25++ Standard Industrial/Commercial Multi-Tenant Lease-Modified Net between the Company and ARE 11025
Roselle Street, LLC, dated November 24, 1997, as amended.
10.26++ Torrey Reserve Office Lease between Pacific Torrey Reserve Holding, L.P. and the Company, dated April
7, 1998.
10.27++ Form of Scientific Advisor Consulting Agreement between the Company and certain individuals listed on
the attached schedule.
10.28++ Form of Scientific Advisory Board Agreement between the Company and certain individuals listed on the
attached schedule.
10.29++ Form of Consulting Agreement between the Company and certain individuals listed on the attached
schedule.
10.30++ 1995 Stock Option/Stock Issuance Plan.
10.31++ 1995 Stock Option/Stock Issuance Plan Form of Notice of Grant.
10.32++ 1995 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.33++ 1995 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.34++ 1995 Stock Option/Stock Issuance Plan Form of Restricted Stock Issuance Agreement.
10.35++ 1998 Stock Incentive Plan.
10.36++ 1998 Stock Incentive Plan Form of Notice of Grant.
10.37++ 1998 Stock Incentive Plan Form of Stock Option Agreement.
10.38++ 1998 Stock Incentive Plan Form of Stock Issuance Agreement.
10.39++ 1998 Employee Stock Purchase Plan.
10.40++ Form of Indemnification Agreement between the Company and each of its directors.
10.41++ Form of Indemnification Agreement between the Company and each of its officers.
10.42 Credit Agreement between the Company and Imperial Bank, dated April 30, 1998.
23.1++ Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Lyon & Lyon LLP.
24.1++ Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ To be filed by amendment.
II-4
<PAGE>
++ Previously filed with the Commission.
* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant to
the Company's Application Requesting Confidential Treatment under Rule 406
under the Securities Act.
(B) FINANCIAL STATEMENT SCHEDULES INCLUDED SEPARATELY IN THE REGISTRATION
STATEMENT.
None
All schedules are omitted because they are not required, are not applicable
or the information is included in the Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 14, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-1 and has duly caused this Amendment No. 2 to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Diego, State of California, on the
3rd day of June, 1998.
COLLATERAL THERAPEUTICS, INC.
BY: /S/ JACK W. REICH
-----------------------------------------
Jack W. Reich
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Director, President And
/s/ JACK W. REICH Chief Executive Officer
- ------------------------------ (Principal Executive June 3, 1998
(Jack W. Reich) Officer)
Director, Chief Operating
* And Chief Financial
- ------------------------------ Officer (Principal June 3, 1998
(Christopher J. Reinhard) Financial and Accounting
Officer)
* Director And Secretary
- ------------------------------ June 3, 1998
(Craig S. Andrews)
* Director, Vice President,
- ------------------------------ Medical Director June 3, 1998
(Robert L. Engler)
* Director, Vice President,
- ------------------------------ Research June 3, 1998
(H. Kirk Hammond)
* Director
- ------------------------------ June 3, 1998
(Elise G. Klein)
* Director
- ------------------------------ June 3, 1998
(David F. Hale)
* Director
- ------------------------------ June 3, 1998
(David E. Robinson)
* /s/ JACK W. REICH
-------------------------
ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1+ Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Form of Second Restated Certificate of Incorporation of the Company to become effective simultaneously
with the completion of the Offering.
3.3 Bylaws of the Company.
3.4 Form of Restated Bylaws of the Company to be effective simultaneously with the completion of the
Offering.
4.1 Form of the Certificate for Common Stock.
5.1++ Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common Stock being registered.
10.1++ Form of Restricted Stock Issuance Agreement between the Company and certain individuals listed on the
attached schedule.
10.2++ Form of Stock Issuance Agreement between the Company and certain individuals listed on the attached
schedule.
10.3*++ Preferred Stock Purchase Agreement between the Company and Schering Berlin Venture Corp., dated May 7,
1996.
10.4*++ Series C Preferred Stock Purchase Agreement by and among the Company and the investors listed on
Schedule A thereto, dated June 30, 1997.
10.5++ Amended and Restated Investors' Rights Agreement by and among the Company and the investors listed on
Schedule A thereto, dated June 30, 1997.
10.6++ Amended and Restated Co-Sale Agreement by and among the Company and the individuals listed on Schedule
A thereto, dated June 30, 1997.
10.7++ Security Agreement between the Company and Schering Berlin Venture Corp., dated August 16, 1995.
10.8++ Amended and Restated Promissory Note between the Company and Schering AG, dated August 16, 1995, as
amended May 16, 1996.
10.9++ Amended and Restated Promissory Note between the Company and Schering AG, dated October 12, 1995, as
amended May 16, 1996.
10.10++ Side Letter between the Company and Schering Berlin Venture Group, dated May 6, 1996.
10.11*++ Exclusive License Agreement between The Regents of the University of California and the Company for
Angiogenesis Gene Therapy, dated September 27, 1995, as amended.
10.12*++ Collaboration, License and Royalty Agreement between Schering AG and the Company, dated May 6, 1996.
10.13*++ License Agreement by and among Dimotech Ltd., Gera Neufeld and the Company, dated October 17, 1996.
10.14*++ Exclusive License Agreement between The Regents of the University of California and the Company for
Gene Therapy for Congestive Heart Failure, dated January 22, 1997.
10.15* Agreement between New York University and the Company, dated March 24, 1997, as amended.
10.16*++ License Agreement by and among AMRAD Developments Pty. Ltd., Ludwig Institute for Cancer Research and
the Company, dated March 25, 1997.
10.17*++ Research Agreement between the University of Washington and the Company, dated April 21, 1997.
10.18*++ Exclusive License Agreement between The Regents of the University of California and the Company for
Angiogenic Gene Therapy for Congestive Heart Failure, dated June 18, 1997.
10.19*++ Letter Agreement between the Company and Veterans Medical Research Foundation, dated August 13, 1997.
10.20*++ Sponsored Research Contract between the Curators of The University of Missouri and the Company, dated
October 22, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.21*++ Biological Materials Agreement between Targeted Genetics Corporation and the Company, dated January
26, 1998.
10.22*++ Research Agreement between The Regents of the University of California and the Company, dated February
23, 1998.
10.23*++ Letter Agreement between the Company and Veterans Medical Research Foundation, dated March 20, 1998.
10.24 Sublease Agreement between the Company and Gensia, Inc., dated June 15, 1995, as amended.
10.25++ Standard Industrial/Commercial Multi-Tenant Lease-Modified Net between the Company and ARE 11025
Roselle Street, LLC, dated November 24, 1997, as amended.
10.26++ Torrey Reserve Office Lease between Pacific Torrey Reserve Holding, L.P. and the Company, dated April
7, 1998.
10.27++ Form of Scientific Advisor Consulting Agreement between the Company and certain individuals listed on
the attached schedule.
10.28++ Form of Scientific Advisory Board Agreement between the Company and certain individuals listed on the
attached schedule.
10.29++ Form of Consulting Agreement between the Company and certain individuals listed on the attached
schedule.
10.30++ 1995 Stock Option/Stock Issuance Plan.
10.31++ 1995 Stock Option/Stock Issuance Plan Form of Notice of Grant.
10.32++ 1995 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.33++ 1995 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.34++ 1995 Stock Option/Stock Issuance Plan Form of Restricted Stock Issuance Agreement.
10.35++ 1998 Stock Incentive Plan.
10.36++ 1998 Stock Incentive Plan Form of Notice of Grant.
10.37++ 1998 Stock Incentive Plan Form of Stock Option Agreement.
10.38++ 1998 Stock Incentive Plan Form of Stock Issuance Agreement.
10.39++ 1998 Employee Stock Purchase Plan.
10.40++ Form of Indemnification Agreement between the Company and each of its directors.
10.41++ Form of Indemnification Agreement between the Company and each of its officers.
10.42 Credit Agreement between the Company and Imperial Bank, dated April 30, 1998.
23.1++ Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Lyon & Lyon LLP.
24.1++ Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ To be filed by amendment.
++ Previously filed with the Commission.
* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant to
the Company's Application Requesting Confidential Treatment under Rule 406
under the Securities Act.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF COLLATERAL THERAPEUTICS, INC.,
a Delaware Corporation
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct business and promote the purpose
hereinafter stated, under the provisions and subject to the requirements of the
laws of the State of Delaware hereby certifies that:
ARTICLE I
The name of this corporation is Collateral Therapeutics, Inc.
ARTICLE II
The address of the corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent 19901. The name
of its registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act for
which a corporation may now or hereafter be organized under the Delaware
General Corporation Law.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to
issue is Eleven Million Two Hundred Twenty-One Thousand Five Hundred Forty
(11,221,540) shares. Ten Million (10,000,000) shares shall be Common Stock and
One Million Two Hundred Twenty-One Thousand Five Hundred Forty (1,221,540)
shares shall be Preferred Stock. The Preferred Stock authorized by this
Certificate of Incorporation shall be issued by series as set forth herein.
The first series of Preferred Stock shall be designated "Series A Preferred
Stock" and shall consist of Three Hundred Seventy-Four Thousand Five Hundred
Thirty-Two (374,532) shares. The second series of Preferred Stock shall be
designated "Series B Preferred Stock" and shall consist of Three Hundred
Seventy-Four Thousand Five Hundred Thirty-Two (374,532) shares. The third
series of Preferred Stock shall be designated "Series C Preferred Stock" and
shall consist of Four Hundred Seventy-Two Thousand Four Hundred Seventy-Six
(472,476) shares. Except to the extent otherwise provided herein, the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be
treated as a single class referred to herein collectively as the "Preferred
Stock." The Preferred Stock shall have a par value of
<PAGE>
$.001 per share and the Common Stock shall have a par value of $.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
preferences, privileges and restrictions granted to and imposed on the
Preferred Stock are as set forth below in this Article IV(B).
1. Dividend Provisions. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, the holders of
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, pro-rata and prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Common Stock of this corporation, (i) with respect to the
Series A Preferred Stock and Series B Preferred Stock, at the rate of $0.334
per share per annum and (ii) with respect to the Series C Preferred Stock, at
the rate of $0.40 per share per annum, when, as and if declared by the Board of
Directors. Such dividends shall not be cumulative.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive, pro-rata and prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock by reason of their ownership thereof, (i) with respect
to the Series A Preferred Stock, an amount per share equal to the sum of
(A) $6.675 for each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price") and (B) an amount equal to the sum of (I) five
percent (5%) return on the Original Series A Issue Price, compounded annually
from the Series A Purchase Date (as defined herein) through the date of
liquidation, dissolution or winding up of this corporation and (II) declared
but unpaid dividends on each share, (ii) with respect to the Series B Preferred
Stock, an amount per share equal to the sum of (A) $6.675 for each outstanding
share of Series B Preferred Stock (the "Original Series B Issue Price") and (B)
an amount equal to the sum of (I) five percent (5%) return on the Original
Series B Issue Price, compounded annually from the Series B Purchase Date (as
defined herein) through the date of liquidation, dissolution or winding up of
this corporation and (II) declared but unpaid dividends on each share and (iii)
with respect to the Series C Preferred Stock, an amount per share equal to the
sum of (A) $8.00 for each outstanding share of Series C Preferred Stock (the
"Original Series C Issue Price") and (B) an amount equal to the sum of (I) five
percent (5%) return on the Original Series C Issue Price, compounded annually
from the Series C Purchase Date (as defined herein) through the date of
liquidation, dissolution or winding up of this corporation and (II) declared
but unpaid dividends on each share. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series A Preferred
Stock, Series B Preferred Stock and
2
<PAGE>
Series C Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then, subject to the rights
of series of Preferred Stock that may from time to time come into existence,
the entire assets and funds of the corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in
proportion to the amount of such stock owned by each such holder.
(b) After the distributions described in subsection (a) above
have been paid, subject to the rights of series of Preferred Stock which may
from time to time come into existence, the remaining funds and assets of the
corporation available for distribution to stockholders shall be distributed
among the holders of Common Stock pro-rata based on the number of shares of
Common Stock held by each.
(c)(i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include, (A) the acquisition of the corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's stockholders of record as constituted
immediately prior to such acquisition or sale will immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
3
<PAGE>
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate
fair market value thereof, as mutually determined by the corporation and the
holders of at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(iii) In the event the requirements of this subsection 2(c) are
not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Preferred Stock shall revert
to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the
final approval of such transaction. The first of such notices shall describe
the material terms and conditions of the impending transaction and the
provisions of this Section 2, and the corporation shall thereafter give such
holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after the corporation has given
the first notice provided for herein or sooner than ten (10) days after the
corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting
power of all then outstanding shares of such Preferred Stock.
3. Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of this corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined, (i) with respect to the Series A Preferred
Stock, by dividing the Original Series A Issue Price by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion, (ii) with respect to the
Series B Preferred Stock, by
4
<PAGE>
dividing the Original Series B Issue Price by the Conversion Price applicable
to such share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion and (iii) with respect to the Series
C Preferred Stock, by dividing the Original Series C Issue Price by the
Conversion Price applicable to such share, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion. The initial
Conversion Price per share for shares of Series A Preferred Stock shall be the
Original Series A Issue Price; provided, however, that the Conversion Price for
the Series A Preferred Stock shall be subject to adjustment as set forth in
subsection 3(d). The initial Conversion Price per share for shares of Series B
Preferred Stock shall be the Original Series B Issue Price; provided, however,
that the Conversion Price for the Series B Preferred Stock shall be subject to
further adjustment as set forth in subsequent subsections of subsection 3(d).
The initial Conversion Price per share for shares of Series C Preferred Stock
shall be the Original Series C Issue Price; provided, however, that the
Conversion Price for the Series C Preferred Stock shall be subject to
adjustment as set forth in subsection 3(d).
(b) Automatic Conversion. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such series of Preferred Stock immediately upon the
earlier of (i) except as provided below in subsection 3(c), the corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement under the Securities Act of 1933, as
amended, the aggregate net proceeds to the corporation of which were not less
than $10,000,000 (provided the corporation has a fully-diluted valuation prior
to such offering of at least $25,000,000) or (ii) the date specified by written
consent or agreement of the holders of at least a majority of the
then-outstanding shares of Preferred Stock, voting as a single class.
(c) Mechanics of Conversion. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he,
she or it shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to this corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares
of Common Stock are to be issued. This corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of the shares of Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering Preferred Stock for conversion, be conditioned upon the
closing with the underwriters of the sale of
5
<PAGE>
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock upon conversion of the Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
shall be subject to adjustment from time to time as follows:
(A) If the corporation shall issue, after the date
upon which any shares of Series A Preferred Stock were first issued (the
"Series A Purchase Date") (with respect to the Series A Preferred Stock), after
the date upon which any shares of Series B Preferred Stock were first issued
(the "Series B Purchase Date") (with respect to the Series B Preferred Stock)
or after the date upon which any shares of Series C Preferred Stock were first
issued (the "Series C Purchase Date") (with respect to the Series C Preferred
Stock), any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for such series in
effect immediately prior to the issuance of such Additional Stock, the
Conversion Price for such series in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this subsection 3(d))
be adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock that the aggregate consideration received by the corporation for
such issuance would purchase at such Conversion Price; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subsections 3(d)(E)(3) and (E)(4), no adjustment of such Conversion Price
pursuant to this subsection 3(d) shall have the effect of increasing the
Conversion Price above the Conversion Price in effect immediately prior to such
adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
6
<PAGE>
(D) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on
or after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 3(d):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subsections 3(d)(D) and
(d)(E)), if any, received by the corporation upon the issuance of such options
or rights plus the minimum exercise price provided in such options or rights
(without taking into account potential antidilution adjustments) for the Common
Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
the corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received
by the corporation upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each case to be
determined in the manner provided in subsections 3(d)(D) and (d)(E)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
7
<PAGE>
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, to the extent in any way affected
by or computed using such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock (and convertible or exchangeable
securities which remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
3(d)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection 3(d)(E)(3)
or (4).
(F) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
3(d)(E)) by this corporation after the Series C Purchase Date other than:
(1) Common Stock issued pursuant to a
transaction described in subsection 3(d)(G) hereof: or
(2) shares of Common Stock issuable or issued to
employees, consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board of Directors of this
corporation at any time when the total number of shares of Common Stock so
issuable or issued (and not repurchased at cost by the corporation in
connection with the termination of employment) does not exceed 708,859 or
(3) shares of Common Stock issued or issuable
(I) in a public offering before or in connection with which all outstanding
shares of Preferred Stock will be converted to Common Stock or (II) upon
exercise of warrants or rights granted to underwriters in connection with such
a public offering; or
(4) securities issued pursuant to the
acquisition of another business entity or business segment of any such entity
by this corporation by merger, purchase of substantially all the assets or
organization whereby the corporation will own not less than fifty-one (51%)
percent of the voting power of such a business entity or business segment of
any such entity; or
(5) securities issued (I) to vendors or
customers or to other persons in similar commercial situations with the
corporation or (II) in
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<PAGE>
connection with obtaining lease financing, whether issued to a lessor,
guarantor or other person.
(G) In the event the corporation should at any time
or from time to time after the Series C Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of each share of such series
shall be increased in proportion to such increase of the aggregate number of
shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents with the number of shares issuable with respect to
Common Stock Equivalents determined from time to time in the manner provided
for deemed issuances in subsection 3(d)(E).
(H) If the number of shares of Common Stock
outstanding at any time after the Series C Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable
on conversion of each share of such series shall be decreased in proportion to
such decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in subsection 3(d)(G),
then, in each such case for the purpose of this subsection 3(e), the holders of
the Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 3 or Section 2) provision
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<PAGE>
shall be made so that the holders of the Preferred Stock shall thereafter be
entitled to receive upon conversion of the Preferred Stock the number of shares
of stock or other securities or property of the Company or otherwise, to which
a holder of Common Stock deliverable upon conversion would have been entitled
on such recapitalization. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section 3 with respect to the
rights of the holders of the Preferred Stock after the recapitalization to the
end that the provisions of this Section 3 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Preferred Stock) shall be applicable after that event as
nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 3 and in the taking of
all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the nearest whole
share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock pursuant to this Section 3, this
corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of such series of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of such series of Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price for such series of
Preferred Stock at the time in effect and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of such series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining
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the holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, this corporation shall mail to each
holder of Preferred Stock, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, this corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in best efforts to
obtain the requisite stockholder approval of any necessary amendment to this
Certificate of Incorporation.
(k) Notices. Any notice required by the provisions of this
Section 3 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of
this corporation.
4. Voting Rights.
(a) General Voting Rights. In addition to the voting rights
described in Section 5 of this Article IV, the holder of each share of
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Preferred Stock could then be converted, and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
(b) Election of Directors. With respect to the election of
directors,
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the holders of Series A Preferred Stock and Series B Preferred Stock, voting
separately as a class, shall have the right to elect one (1) director, and the
holders of Common Stock shall have the right to elect all other directors.
5. Protective Provisions. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, this
corporation shall not:
(a) sell, convey or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of
without first obtaining the approval (by vote or written consent, as provided
by law) (i) for a period of two years following May 7, 1996 (the "Protective
Period"), by (A) the holders of at least a majority of the then outstanding
shares of Series A Preferred Stock and Series B Preferred Stock and (B) if the
effective price per share to be received by a stockholder (whether or not
payable in installments) is less than $8.00 per share, by the holders of at
least a majority of the then outstanding shares of Series C Preferred Stock,
and (ii) following the Protective Period, by the holders of at least a majority
of the then outstanding shares of Preferred Stock, voting together as a single
class;
(b) authorize, create or issue, or obligate itself to issue
(including by reclassification of any outstanding shares), any other equity
security, including any other security convertible into or exercisable for any
equity security having a preference on parity with or superior to any series of
currently-outstanding Preferred Stock with respect to dividends or upon
liquidation without first obtaining the approval (by vote or written consent,
as provided by law) of the holders of at least a majority of the then
outstanding shares of Preferred Stock, voting together as a single class; or
(c) alter or change the rights, preferences, privileges or
powers of, or the restrictions provided for the benefit of, the shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
so as to affect adversely such shares without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of the Series of Preferred Stock so
adversely affected.
6. Status of Converted Stock. In the event any shares of Preferred
Stock shall be converted pursuant to Section 3 hereof, the shares so converted
shall be cancelled and shall not be issuable by the corporation. The
Certificate of Incorporation of this corporation shall be appropriately amended
to effect the corresponding reduction in the corporation's authorized capital
stock.
7. Repurchase of Shares. In connection with repurchases by this
Corporation of its Common Stock pursuant to its agreements with certain of the
holders
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thereof, Sections 502 and 503 of the California General Corporation Law shall
not apply in whole or in part with respect to such repurchases.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of Common Stock shall be entitled to receive, when and as declared
by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
A. Exculpation. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the 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 any
improper personal benefit. If the Delaware General Corporation Law is
hereafter amended to further reduce or to authorize, with the approval of the
corporation's stockholders, further reductions in the liability of the
corporation's directors for breach of fiduciary duty, then a director of the
corporation shall not be liable for any such breach to the fullest extent
permitted by the Delaware General Corporation Law as so amended.
B. Indemnification. To the extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement
of expenses to) such agents (and any other persons to which Delaware law
permits this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with
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<PAGE>
respect to actions for breach of duty to the corporation, its stockholders, and
others.
C. Effect of Repeal or Modification. Any repeal or modification of any
of the foregoing provisions of this Article V shall be prospective and shall
not adversely affect any right or protection of a director, officer, agent or
other person existing at the time of, or increase the liability of any director
of the corporation with respect to any acts or omissions of such director
occurring prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation.
ARTICLE VII
No holder of shares of stock of the corporation shall have any preemptive
or other right, except as such rights are expressly provided by contract, to
purchase or subscribe for or receive any shares of any class, or series
thereof, of stock of the corporation, whether now or hereafter authorized, or
any warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any share of any class, or
series thereof, of stock; but such additional shares of stock and such
warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any shares of any class, or
series thereof, of stock may be issued or disposed of by the Board of Directors
to such persons, and on such terms and for such lawful consideration as in its
discretion it shall deem advisable or as the corporation shall have by contract
agreed.
ARTICLE VIII
The corporation is to have a perpetual existence.
ARTICLE IX
The corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate of Incorporation and/or any provision
contained in any amendment to or restatement of this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this
reservation.
ARTICLE X
The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws by the requisite affirmative vote of Directors as set forth
in the Bylaws; provided, however, that the stockholders may change or repeal
any bylaw adopted by the Board of
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Directors by the requisite affirmative vote of stockholders as set forth in the
Bylaws; and, provided further, that no amendment or supplement to the Bylaws
adopted by the Board of Directors shall vary or conflict with any amendment or
supplement thus adopted by the stockholders.
ARTICLE XI
The name and mailing address of the incorporator is Lisa A. McQuen, 550
West "C" Street, Suite 1200, San Diego, California 92101.
IN WITNESS WHEREOF, this Certificate of Incorporation has been signed
under the seal of the corporation as of this 16th day of April, 1998 by the
undersigned who affirms that the statements made herein are true and correct.
/s/ Lisa A. McQuen
-----------------------------------
Lisa A. McQuen
15
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CORRECTED
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION OF
COLLATERAL THERAPEUTICS, INC.
Collateral Therapeutics, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), certifies as follows:
1. The original Certificate of Amendment of the Certificate of
Incorporation was filed with the Secretary of State of Delaware on
May 29, 1998 (the "Amendment") and that said Amendment requires correction,
as permitted by Section 103 of the General Corporation Law of the State of
Delaware.
2. The Amendment incorrectly stated the number of authorized shares of the
Corporation and as corrected, said Amendment shall read in its entirety as
follows:
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION OF
COLLATERAL THERAPEUTICS, INC.
Collateral Therapeutics, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That resolutions were duly adopted by the Board of Directors of
the Corporation setting forth proposed amendments to the Certificate of
Incorporation of the Corporation, and declaring said amendments to be advisable
and recommended for approval by the stockholders of the Corporation. The
resolutions setting forth the proposed amendments are as follows:
NOW, THEREFORE, BE IT RESOLVED, that Section A of Article III of the
Certificate of Incorporation of the Corporation be amended in its entirety
to read as follows:
"A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the corporation is
authorized to issue is Twenty Million Two Hundred Twenty One
Thousand Five Hundred Forty (20,221,540) shares. Nineteen Million
(19,000,000) shares shall be Common Stock and One Million Two Hundred
Twenty One Thousand Five Hundred Forty (1,221,540) shares shall be
Preferred Stock. The Preferred Stock authorized by this Certificate of
Amendment shall be issued by series as set forth herein. The first series
of Preferred Stock shall be designated "Series A Preferred Stock" and
shall consist of Three Hundred Seventy Four Thousand Five Hundred Thirty
Two (374,532) shares. The second series of Preferred Stock shall be
designated "Series B Preferred Stock" and shall consist of Three Hundred
Seventy Four Thousand, Five Hundred Thirty Two (374,532) shares. The third
series of Preferred Stock shall be designated "Series C Preferred Stock"
and shall consist of Four Hundred Seventy Two Thousand Four Hundred
Seventy Six (472,476) shares. Except to the extent otherwise provided
herein, the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock shall be treated as a single class referred to
herein collectively as the "Preferred Stock." The Preferred Stock shall
have a par value of $0.001 per share and the Common Stock shall have a par
value of $0.001 per share.
Upon the amendment of this Article III as set forth herein, each
share of Common Stock, $0.001 par value per share, issued and outstanding
at such time shall
<PAGE>
be split and converted into one and nine-tenths (1.9) shares of Common
Stock, $0.001 par value per share ("new shares"). No fractional share
shall be issued upon the split and conversion of any share or shares of
Common Stock. If the split and conversion of the shares of Common Stock
represented by each certificate (including, for this purpose, a holder of
a certificate of shares of Common Stock issuable upon the conversion of
Preferred Stock) would result in the issuance of a fraction of a share of
Common Stock, the Corporation shall, in lieu of issuing any fractional
share, issue the holder one additional share. An amount shall be
transferred from surplus to capital so that the amount of capital
represented by the new shares in the aggregate at the time of filing of
this Certificate of Amendment shall equal the aggregate number of new
shares multiplied by $0.001. Unless otherwise requested by the holders
thereof, the share certificates representing the shares outstanding prior
to the filing of this Certificate of Amendment shall represent such number
of new shares as split and converted following the filing of this
Certificate of Amendment. Upon surrender by a holder of Common Stock of a
certificate or certificates for Common Stock, $0.001 par value, duly
endorsed, at the office of this Corporation, this Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such
holder of Common Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of new shares to which such
holder shall be entitled as aforesaid."
SECOND: That, thereafter, the stockholders approved the foregoing
amendment by written consent in accordance with Section 228 of the Delaware
General Corporation Law.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
FOURTH: That the capital of said Corporation shall not be reduced under
or by reason of said amendment.
[Remainder of This Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, Collateral Therapeutics, Inc. has caused this
certificate to be signed by Christopher Reinhard, its Chief Financial Officer,
this 1st day of June, 1998.
By: /s/ Christopher Reinhard
---------------------------------------
Christopher Reinhard
[SIGNATURE PAGE TO CERTIFICATE OF AMENDMENT]
3
<PAGE>
EXHIBIT 3.2
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF COLLATERAL THERAPEUTICS, INC.,
a Delaware corporation
Collateral Therapeutics, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Collateral Therapeutics, Inc. The
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on April 16, 1998 and was amended
pursuant to a Certificate of Amendment of Certificate of Incorporation of the
Corporation filed with the Secretary of State of the State of Delaware on
May 29, 1998.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, the Second Restated Certificate of Incorporation was
adopted by the corporation's Board of Directors and stockholders, the
stockholders of the corporation having approved the Second Restated Certificate
of Incorporation by the written consent of the holders of at least a majority
of the outstanding shares in accordance with Section 228 thereof, and written
notice having been given in accordance with the requirements of such Section.
The Second Restated Certificate of Incorporation restates, integrates and
amends the provisions of the Certificate of Incorporation of this corporation.
3. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby restated and further amended to read in its entirety as
follows:
ARTICLE I
The name of this corporation is Collateral Therapeutics, Inc.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent 19901. The name
of its registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law.
<PAGE>
ARTICLE IV
(A) Classes of Stock. This corporation is authorized to issue two
classes of stock, denominated Common Stock and Preferred Stock. The Common
Stock shall have a par value of $0.001 per share and the Preferred Stock shall
have a par value of $0.001 per share. The total number of shares of Common
Stock which the Corporation is authorized to issue is Forty Million
(40,000,000), and the total number of shares of Preferred Stock which the
Corporation is authorized to issue is Five Million (5,000,000), which shares of
Preferred Stock shall be undesignated as to series.
(B) Issuance of Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby
authorized, by filing one or more certificates pursuant to the Delaware General
Corporation Law (each, a "Preferred Stock Designation"), to fix or alter from
time to time the designations, powers, preferences and rights of each such
series of Preferred Stock and the qualifications, limitations or restrictions
thereof, including without limitation the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and the liquidation
preferences of any wholly-unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issuance of shares of that series, but
not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be decreased in accordance with the
foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
(C) Rights, Preferences, Privileges and Restrictions of Common Stock.
1. Dividend Rights. Subject to the prior or equal rights of holders
of all classes of stock at the time outstanding having prior or equal rights as
to dividends, the holders of the Common Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of any assets of the
corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors.
2. Redemption. The Common Stock is not redeemable upon demand of any
holder thereof or upon demand of this corporation.
3. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
(A) Exculpation. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a
2
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director, except for liability (i) for any breach of the director's duty of
loyalty to the 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 any improper personal
benefit. If the Delaware General Corporation Law is hereafter amended to
further reduce or to authorize, with the approval of the corporation's
stockholders, further reductions in the liability of the corporation's
directors for breach of fiduciary duty, then a director of the corporation
shall not be liable for any such breach to the fullest extent permitted by the
Delaware General Corporation Law as so amended.
(B) Indemnification. To the extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement
of expenses to) such agents (and any other persons to which Delaware law
permits this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
(C) Effect of Repeal or Modification. Any repeal or modification of any
of the foregoing provisions of this Article V shall be prospective and shall
not adversely affect any right or protection of a director, officer, agent or
other person existing at the time of, or increase the liability of any director
of the corporation with respect to any acts or omissions of such director
occurring prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation. The number of directors
shall be as specified in the Bylaws of the corporation. In no event will the
number of directors be less than three. Directors need not be stockholders.
ARTICLE VII
No holder of shares of stock of the corporation shall have any preemptive
or other right, except as such rights are expressly provided by contract, to
purchase or subscribe for or receive any shares of any class, or series
thereof, of stock of the corporation, whether now or hereafter authorized, or
any warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any share of any class, or
series thereof, of stock; but such additional shares of stock and such
warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any shares of any class, or
series thereof, of stock may be issued or disposed of by the Board of Directors
to such persons, and on such terms and for such lawful consideration as in its
discretion it shall deem advisable or as the corporation shall have by contract
agreed.
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<PAGE>
ARTICLE VIII
The corporation is to have a perpetual existence.
ARTICLE IX
The corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Second Restated Certificate of Incorporation and/or
any provision contained in any amendment to or restatement of this Second
Restated Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred on stockholders herein are
granted subject to this reservation.
ARTICLE X
The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws by the requisite affirmative vote of Directors as set forth
in the Bylaws; provided, however, that the stockholders may change or repeal
any bylaw adopted by the Board of Directors by the requisite affirmative vote
of stockholders as set forth in the Bylaws; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of stockholders called in accordance with the
Bylaws, and no action shall be taken by the stockholders by written consent.
ARTICLE XII
Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
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IN WITNESS WHEREOF, this Second Restated Certificate of Incorporation has
been signed under the seal of the corporation as of this ____ day of
__________, 1998.
COLLATERAL THERAPEUTICS, INC.,
a Delaware corporation
By:
-----------------------------------------
Jack W. Reich
President and Chief Executive Officer
ATTEST:
- -----------------------------------
Craig S. Andrews, Secretary
[SIGNATURE PAGE TO SECOND RESTATED CERTIFICATE OF
INCORPORATION OF COLLATERAL THERAPEUTICS, INC.]
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EXHIBIT 3.3
BYLAWS
OF
COLLATERAL THERAPEUTICS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover, County of
Kent, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and 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 1. All meetings of the stockholders for the election of directors
shall be held in the City of San Diego, State of California, at such place as
may be fixed from time to time by the Board of Directors, or at such other
place either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting. Meetings of stockholders for any other purpose may be held at such
time and place, within or without the State of Delaware, as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year
1998, shall be held on such date and at such time as shall be designated from
time to time by the Board of Directors and stated in the notice of the meeting,
at which
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they shall elect by a plurality vote a board of directors, and transact such
other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 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 list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders holding not less than
ten percent (10%) of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
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Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the certificate of incorporation, a different vote is
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required, in which case such express provision shall govern and control the
decision of such question.
Section 10. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three
years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall not be less than four (4) nor more than eight (8), the exact number of
directors to be fixed from time to time within such limit by duly adopted
resolutions of the Board of Directors. The exact number of directors presently
authorized shall be eight (8) until changed within the limits set
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forth above, and each director elected shall hold office until his successor is
elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting
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and no notice of such meeting shall be necessary to the newly elected directors
in order legally to constitute the meeting, provided a quorum shall be present.
In the event of the failure of the stockholders to fix the time or place of
such first meeting of the newly elected Board of Directors, or in the event
such meeting is not held at the time and place so fixed by the stockholders,
the meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors, or as shall be specified in a written waiver signed by all of the
directors.
Section 6. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board may be called by the President
on four (4) days' notice to each director by mail or 48 hours' notice to each
director either personally or by telegram; special meetings shall be called by
the President or Secretary in like manner and on like notice on the written
request of two directors unless the board consists of only one director, in
which case special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
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Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee
to consist of two or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors
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in the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in
reference to amending the certificate of incorporation, adopting an agreement
of merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. 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 and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
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REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be elected by the Board
of Directors and shall include a President, a Secretary and a Chief Financial
Officer. The Board of Directors may elect from among its members a Chairman of
the Board and a Vice Chairman of the Board. The Board of Directors may also
elect one or more Vice Presidents, Assistant
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Secretaries and Assistant Chief Financial Officers. Any number of offices may
be held by the same person, unless the certificate of incorporation or these
bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall elect a President, a Secretary and a Chief
Financial Officer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualified. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice Chairman
of the Board, if any, shall preside at all meetings of the Board of Directors
and of the stockholders at which he shall be present. He shall have and may
exercise such powers as are, from time to time, assigned to him by the Board
and as may be provided by law.
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THE PRESIDENT AND VICE PRESIDENT
Section 8. The President shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of
Directors. He shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
Section 10. In the absence of the President or in the event of his
inability or refusal to act, the Vice President, if any, (or in the event there
be more than one Vice President, the Vice Presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall
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perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The Assistant Secretary, or, if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the Secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
THE CHIEF FINANCIAL OFFICER AND ASSISTANT CHIEF FINANCIAL OFFICER
Section 13. The Chief Financial Officer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Chief Financial Officer and of the financial condition
of the corporation.
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Section 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
Section 16. The Assistant Chief Financial Officer, or if there shall be
more than one, the Assistant Chief Financial Officer in the order determined by
the Board of Directors (or if there be no such determination, then in the order
of their election) shall, in the absence of the Chief Financial Officer or in
the event of his inability or refusal to act, perform the duties and exercise
the powers of the Chief Financial Officer and shall perform such other duties
and have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the President or a Vice
President and the Chief Financial Officer or an Assistant Chief Financial
Officer, or the Secretary or an Assistant Secretary of the corporation,
certifying the number of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
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If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the corporation shall issue to represent such
class or series of stock, a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing
such issue of a new certificate or certificates, the Board of Directors may, in
its discretion and as a
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condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal representative,
to advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. 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 to express consent to corporate action in writing
without a meeting, 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 of Directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
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REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall indemnify its officers, directors,
employees and agents to the full extent permitted by the General Corporation
Law of Delaware.
ARTICLE VIII
AMENDMENT
Section 1. These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or by the Board of Directors, when such
power is conferred upon the Board of Directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or
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repeal bylaws is conferred upon the Board of Directors by the certificate of
incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal bylaws.
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CERTIFICATE OF SECRETARY
The undersigned, being the Secretary of Collateral Therapeutics, Inc., a
Delaware corporation, does hereby certify the foregoing to be the Bylaws of
said Corporation, as adopted by the directors of the Corporation and which
remain in full force and effect as of the date hereof.
Executed at San Diego, California effective as of April 17, 1998.
/s/ Craig Andrews
--------------------------------------------
Craig Andrews, Secretary
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EXHIBIT 3.4
RESTATED BYLAWS
OF
COLLATERAL THERAPEUTICS, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office 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 and 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 1. Place of Meetings. All meetings of the stockholders for the
election of Directors shall be held in the City of San Diego, State of
California, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
California as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meetings of stockholders for any
other purpose may be held at such time and place, within or without the State
of California, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meeting.
(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of Directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or
(C) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation no
later than the date specified in the corporation's proxy
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statement released to stockholders in connection with the previous year's
annual meeting of stockholders, which date shall be not less than one hundred
twenty (120) calendar days in advance of the date of such proxy statement;
provided, however, that in the event that no annual meeting was held in the
previous year or the date of the annual meeting has been changed by more than
thirty (30) days from the date contemplated at the time of the previous year's
proxy statement, notice by the stockholder to be timely must be so received a
reasonable time before the solicitation is made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on
the corporation's books, of the stockholder proposing such business, (iii) the
class and number of shares of the corporation which are beneficially owned by
the stockholder, (iv) any material interest of the stockholder in such business
and (v) any other information that is required to be provided by the
stockholder pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act"), in his capacity as a proponent to a
stockholder proposal. In addition to the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the 1934 Act to the extent such
regulations require notice that is different from the notice required above.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b) of this Section 2. The chairman of the annual
meeting shall, if the facts warrant, determine and declare at the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to
vote in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 2. Such stockholder's
notice shall set forth (i) as to each person, if any, whom the stockholder
proposes to nominate for election or re-election as a Director: (A) the name,
age, business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the corporation that are beneficially owned by such person, (D) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as
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a Director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to subitems (ii), (iii) and (iv)
of paragraph (b) of this Section 2. At the request of the Board of Directors,
any person nominated by a stockholder for election as a Director shall furnish
to the Secretary of the corporation that information required to be set forth
in the stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a Director of the corporation unless
nominated in accordance with the procedures set forth in this paragraph (c).
The chairman of the meeting shall, if the facts warrant, determine and declare
at the meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
at the meeting, and the defective nomination shall be disregarded.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. Voting List. The officer who has charge of the stock ledger
of the corporation shall prepare and make, or have prepared and made, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at
the place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
Section 5. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, as amended from time to time, may only be called
as provided in this Section 5 by the President, Chief Executive Officer or
Chairman of the Board and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors. Such request shall
state the purpose or purposes of the proposed meeting. The place, date and
time of any special meeting shall be determined by the Board of Directors.
Such determination shall include the record date for determining the
stockholders having the right of and to vote at such meeting.
Section 6. Notice of Special Meeting. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 7. Action at Special Meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
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Section 8. Quorum and Adjournments.
(a) The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation, as amended from time to time. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally notified. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
(b) When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of statutes or of
the Certificate of Incorporation, as amended from time to time, a different
vote is required, in which case such express provision shall govern and control
the decision of such question.
Section 9. Voting Rights. Unless otherwise provided in the Certificate
of Incorporation, as amended from time to time, each stockholder shall at every
meeting of the stockholders be entitled to one (1) vote in person or by proxy
for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three (3) years from its
date, unless the proxy provides for a longer period.
Section 10. Action Without Meeting. No action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with these Bylaws, and no action shall be
taken by the stockholders by written consent.
ARTICLE III
Directors
Section 1. Number and Qualification of Directors. The authorized number
of Directors shall not be less than five (5) nor more than nine (9) until
changed by amendment of the Certificate of Incorporation or by a bylaw amending
this Section 1 duly adopted by the vote of holders of a majority of the
outstanding shares entitled to vote, provided that a proposal to reduce the
authorized number or the minimum number of Directors below five cannot be
adopted if the votes cast against its adoption at a meeting are equal to more
than 16-2/3 percent of the outstanding shares entitled to vote. The exact
number of Directors shall be fixed from time to time, within the limites
specified in the Certificate of Incorporation or in this Section 1, by a bylaw
or amendment thereof duly adopted by the vote of a majority of
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the shares entitled to vote represented at a duly held meeting at which a
quorum is present or by the Board of Directors.
Subject to the foregoing provisions for changing the number of Directors,
the number of Directors of this corporation has been fixed at eight (8).
Section 2. Vacancies. Vacancies may be filled only by a majority of the
Directors then in office, though less than a quorum, or by a sole remaining
Director. Each Director so chosen shall hold office until a successor is duly
elected and shall qualify or until his earlier death, resignation or removal.
If there are no Directors in office, then an election of Directors may be held
in the manner provided by statute. If, at the time of filling any vacancy, the
Directors then in office shall constitute less than a majority of the whole
Board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such Directors, summarily order an election to be
held to fill any such vacancies, or to replace the Directors chosen by the
Directors then in office.
Section 3. Powers. The business of the corporation shall be managed by
or under the direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation, as amended from time to time,
or by these Bylaws directed or required to be exercised or done by the
stockholders.
Section 4. Regular and Special Meetings. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of California.
Section 5. Annual Meeting. The annual meeting of each newly elected Board
of Directors shall be held without notice other than this Bylaw immediately
after, and at the same place as, the annual meeting of stockholders. In the
event the annual meeting of any newly elected Board of Directors shall not be
held immediately after, and at the same place as, the annual meeting of
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 6. Notice of Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 7. Notice of Special Meetings. Special meetings of the Board may
be called by the Chief Executive Officer or President on no less than
forty-eight (48) hours notice to each Director either personally, or by
telephone, mail, telegram or facsimile; special meetings shall be called by the
Chief Executive Officer, President or Secretary in like manner and on like
notice on the written request of two Directors unless the Board consists of
only one Director, in which case special meetings shall be called by the Chief
Executive Officer, President or Secretary in like manner and on like notice on
the written request of the sole
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Director. A written waiver of notice, signed by the person entitled thereto,
whether before or after the time of the meeting stated therein, shall be deemed
equivalent to notice.
Section 8. Quorum. At all meetings of the Board a majority of the
Directors shall constitute a quorum for the transaction of business and the act
of a majority of the Directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation, as
amended from time to time. If a quorum shall not be present at any meeting of
the Board of Directors, the Directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 9. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation, as amended from time to time, or these Bylaws,
any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 10. Meetings by Telephone Conference Calls. Unless otherwise
restricted by the Certificate of Incorporation, as amended from time to time,
or these Bylaws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 11. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the corporation. The
Board may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, as amended
from time to time, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the Bylaws of the corporation; and, unless the
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resolution or the Certificate of Incorporation, as amended from time to time,
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
Section 12. Fees and Compensation. Unless otherwise restricted by the
Certificate of Incorporation, as amended from time to time, 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 and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
Director. No such payment shall preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for
attending committee meetings.
Section 13. Removal. Subject to any limitations imposed by law or the
Certificate of Incorporation, as amended from time to time, the Board of
Directors, or any individual Director, may be removed from office at any time
only with cause by the affirmative vote of the holders of at least a majority
of shares entitled to vote at an election of Directors.
ARTICLE IV
NOTICES
Section 1. Notice. Whenever, under the provisions of the statutes or of
the Certificate of Incorporation, as amended from time to time, or of these
Bylaws, notice is required to be given to any Director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such Director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to Directors may also be given by
telephone, telegram and facsimile.
Section 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of Incorporation, as
amended from time to time, or of these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE V
\ OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen
by the Board of Directors and shall be a Chief Executive Officer, a Chief
Financial Officer and a Secretary. The Board of Directors may elect from among
its members a Chairman of the Board and a
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Vice Chairman of the Board. The Board of Directors may also choose a
President, one or more Vice Presidents and one or more Assistant Secretaries.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation, as amended from time to time, or these Bylaws otherwise provide.
The compensation of all officers and agents of the corporation shall
be fixed by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his also being a Director of the
corporation.
Section 2. Election or Appointment. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a Chief
Executive Officer, Chief Financial Officer and a Secretary and may choose a
President, one or more Vice Presidents and one or more Assistant Secretaries.
The Board of Directors may appoint such other officers and agents as
it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time
to time by the Board.
Section 3. Tenure, Removal and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualified.
Any officer elected or appointed by the Board of Directors may be removed at
any time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the corporation shall be filled by the Board
of Directors.
Section 4. Chairman of the Board. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. The Chairman of the Board shall have and may
exercise such powers as are, from time to time, assigned by the Board and as
may be provided by law.
Section 5. Vice Chairman of the Board. In the absence of the Chairman of
the Board, the Vice Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. The Vice Chairman of the Board shall have and may exercise such
powers as are, from time to time, assigned by the Board and as may be provided
by law.
Section 6. Chief Executive Officer. The Chief Executive Officer of the
corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the corporation. The Chief Executive Officer shall preside at all meetings of
the stockholders and, in the absence or nonexistence of a Chairman or Vice
Chairman of the Board at all meetings of the Board of Directors. The Chief
Executive Officer shall have the general powers and duties of management
usually vested in the Chief Executive Officer of a corporation, including
general supervision, direction and control of the business and supervision of
other officers of the corporation, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws.
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The Chief Executive Officer shall, without limitation, have the authority
to execute bonds, mortgages and other contracts requiring a seal, under the
seal of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
Section 7. President. Subject to such supervisory powers as may be given
by these Bylaws or the Board of Directors to the Chairman of the Board or the
Chief Executive Officer, if there be such officers, the President shall have
general supervision, direction and control of the business and supervision of
other officers of the corporation, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws. In the event a
Chief Executive Officer shall not be appointed, the President shall have the
duties of such office.
Section 8. Vice Presidents. The Vice President, or if there shall be more
than one, the Vice Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President, act with all
of the powers and be subject to all the restrictions of the President. The
Vice Presidents shall also perform such other duties and have such other powers
as the Board of Directors, the President or these Bylaws may, from time to
time, prescribe.
Section 9. Secretary. The Secretary shall attend all meetings of the
Board of Directors, all meetings of the committees thereof and all meetings of
the stockholders and record all the proceedings of the meetings in a book or
books to be kept for that purpose. Under the Chief Executive Officer's or
President's supervision, the Secretary shall give, or cause to be given, all
notices required to be given by these Bylaws or by law; shall have such powers
and perform such duties as the Board of Directors, the Chief Executive Officer,
the President or these Bylaws may, from time to time, prescribe; and shall have
custody of the seal of the corporation. The Secretary, or an Assistant
Secretary, shall have authority to affix the seal of the corporation to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his or her signature.
Section 10. Assistant Secretary. The Assistant Secretary, if any, or if
there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors, shall, in the absence, disability or refusal to act of
the Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer, the President, the Secretary or these
Bylaws may, from time to time, prescribe.
Section 11. Chief Financial Officer. The Chief Financial Officer shall
act as Treasurer and shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors.
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The Chief Financial Officer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his or her transactions as Treasurer and of the financial
condition of the corporation.
If required by the Board of Directors, the Chief Financial Officer
shall give the corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office and for
the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these Bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by the Board of Directors, the Chief
Executive Officer or the President.
Section 13. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may delegate the powers and duties of such
officer to any officer or to any Director, or to any other person who it may
select.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Certificates of Stock. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President and the Chief Financial Officer or an
Assistant Chief Financial Officer, or the Secretary or an Assistant Secretary
of the corporation, certifying the number of shares owned by him in the
corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the corporation shall issue to
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represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Execution of Certificates. Any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholder 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 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. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Section 6. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
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ARTICLE VII
INDEMNIFICATION
Section 1. Indemnification of Directors and Executive Officers. The
corporation shall indemnify its Directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law; provided,
however, that the corporation may limit the extent of such indemnification by
individual contracts with its Directors and executive officers; and, provided,
further, that the corporation shall not be required to indemnify any Director
or executive officer in connection with any proceeding (or part thereof)
initiated by such person or any proceeding by such person against the
corporation or its Directors, officers, employees or other agents unless (i)
such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the corporation, and
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the Delaware
General Corporation Law.
Section 2. Indemnification of Other Officers, Employees and Other Agents.
The corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
Section 3. Good Faith.
(a) For purposes of any determination under this Bylaw, a Director
or officer shall be deemed to have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that any conduct was unlawful, if such
Director's or officer's action is based on information, opinions, reports and
statements, including financial statements and other financial data, in each
case prepared or presented by:
(1) one or more officers or employees of the
corporation whom the Director or executive officer believed
to be reliable and competent in the matters presented;
(2) counsel, independent accountants or other persons
as to matters which the Director or executive officer
believed to be within such person's professional
competence; and
(3) with respect to a Director, a committee of the
Board upon which such Director does not serve, as to
matters within such Committee's designated authority, which
committee the Director believes to merit confidence; so
long as, in each case, the Director or executive officer
acts without knowledge that would cause such reliance to be
unwarranted.
(b) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a
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presumption that the person did not act in good faith and in a manner which was
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal proceeding, that the person had
reasonable cause to believe that his or her consent was unlawful.
(c) The provisions of this Section 3 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
Section 4. Expenses. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director or officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant
to Section 4 of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (i) by the Board of Directors by
a majority vote of a quorum consisting of Directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation.
Section 5. Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the Director or officer. Any right to indemnification or
advances granted by this Bylaw to a Director or officer shall be enforceable by
or on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his or her claim. The corporation shall be entitled to raise as
a defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such 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 the 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 the
claimant has not met the applicable standard of conduct.
13
<PAGE>
Section 6. Non-Exclusivity of Rights. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, as amended from time to time, Bylaws, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding office.
The corporation is specifically authorized to enter into individual contracts
with any or all of its Directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.
Section 7. Survival of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8. Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
Section 9. Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
Section 10. Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
Section 11. Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of the testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
Directors, officers, and employees or agents, so that any person who is or was
a Director, officer, employee or agent of such constituent corporation,
14
<PAGE>
or is or was serving at the request of such constituent corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Bylaw with respect to the resulting or surviving corporation
as he would have with respect to such constituent corporation if its separate
existence had continued.
(d) References to a "Director," "officer," "employee," or "agent"
of the corporation shall include, without limitation, situations where such
person is serving at the request of the corporation as a Director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(e) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a Director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such Director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Bylaw.
ARTICLE VIII
LOANS TO OFFICERS
Section 1. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee
who is a Director of the Corporation or its subsidiaries, whenever, in the
judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing in
this Bylaw shall be deemed to deny, limit or restrict the powers of guaranty or
warranty of the corporation at common law or under any statute.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Declaration of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
as amended from time to time, if any, may be declared by the Board of Directors
at any regular or special meeting, pursuant to law. Dividends may be paid in
cash, in property, or in shares of the capital stock, subject to the provisions
of the Certificate of Incorporation, as amended from time to time.
15
<PAGE>
Section 2. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the Directors shall think conducive to the interest
of the corporation, and the Directors may modify or abolish any such reserve in
the manner in which it was created.
Section 3. Execution of Corporate Instruments. All checks or demands for
money and notes of the corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. Corporate Seal. The Board of Directors may adopt a corporate
seal having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE X
AMENDMENTS
Section 1. Amendments.
(a) Except as otherwise set forth in Section 9 of Article VII
of these Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by
the affirmative vote of a majority of the voting power of all of the
then-outstanding shares of capital stock of the corporation entitled to vote
generally in the election of Directors (the "Voting Stock"). The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors by the Certificate of Incorporation, as amended from time to time,
to adopt, amend or repeal Bylaws by a vote of the majority of the Board of
Directors unless a greater or different vote is required pursuant to the
provisions of the Bylaws, the Certificate of Incorporation or any applicable
provision of law.
(b) Notwithstanding any other provisions of these Bylaws or
any provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, the Certificate of Incorporation,
as amended from time to time, or any Preferred Stock Designation (as the term
is defined in the Certificate of Incorporation, as amended), the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class, shall be required to alter, amend or repeal
this paragraph (b) or Section 2, Section 5 or Section 10 of Article II or
Section 1, Section 2 or Section 13 of Article III of these Bylaws.
16
<PAGE>
(c) Notwithstanding any other provisions of these Bylaws or
any provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, the Certificate of Incorporation,
as amended from time to time, or any Preferred Stock Designation (as the term
is defined in the Certificate of Incorporation, as amended from time to time),
the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the Continuing Directors (as defined below), shall be required to alter, amend
or repeal this paragraph (c) or Section 2, Section 5 or Section 10 of Article
II or Section 1, Section 2 or Section 13 of Article III of these Bylaws. For
purposes of this paragraph, "Continuing Director" shall mean either (i) those
Directors (the "Original Directors") who are members of the Board of Directors
on the date these Restated Bylaws are adopted; or (ii) Directors who are
nominated for election or are elected by (A) a majority of the six (6) Original
Directors or (B) Directors, constituting a then majority of the Board of
Directors, who were all either Original Directors or were nominated for
election or elected by a then majority of the Board of Directors whose
nomination or election can be traced directly through other Directors to the
Original Directors.
17
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, being the Secretary of Collateral Therapeutics, Inc., a
Delaware corporation, does hereby certify the foregoing to be the Bylaws of
said Corporation, as adopted by the requisite vote or votes of the stockholders
and Directors of the Corporation and which remain in full force and effect as
of the date hereof.
Executed at San Diego, California effective as of , 1998.
-----------------
--------------------------------------------
Craig S. Andrews, Secretary
<PAGE>
Exhibit 4.1
Number COLLATERAL Shares
THERAPEUTICS
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
CUSIP
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $0.001 PAR VALUE OF
COLLATERAL THERAPEUTICS, INC.
transferable on the books of the Corporation by the holder hereof in person
or by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered
by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SEAL] /s/ Christopher Reinhard
--------------------------
CHIEF OPERATING OFFICER
/s/ Jack W. Reich, Ph.D. /s/ Craig S. Andrews
- -------------------------------- --------------------------
PRESIDENT SECRETARY
<PAGE>
SEE REVERSE FOR STATEMENTS RELATING TO RIGHTS, PREFERENCES, PRIVILEGES AND
RESTRICTIONS, IF ANY
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
----------------------------------------------------------------
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof
and the qualifications, limitations or restrictions of such preferences
and/or rights. Such requests shall be made to the Corporation's secretary at
the principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- Custodian
----------------- ----------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-----------------------------------------
(State)
UNIF TRF MIN ACT -- Custodian (until age )
----------------- ------
(Cust)
-------------------- under Uniform Transfers
(Minor)
to Minors Act,
------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ---------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------- X
----------------------------------
X
----------------------------------
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
NOTICE: WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
-----------------------------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
AGREEMENT
Between
NEW YORK UNIVERSITY
and
COLLATERAL THERAPEUTICS, INC.
<PAGE>
NYU/COLLATERAL THERAPEUTICS
Research & License Agreement
INDEX
Section l Definitions page 1
Section 2 Effective Date page 4
Section 3 Performance of the NYU Research Project page 4
Section 4 Funding of the NYU Research Project page 5
Section 5 Title page 5
Section 6 Patents and Patent Applications page 6
Section 7 Grant of License page 8
Section 8 Payments for License page 9
Section 9 Method of Payment page 12
Section 10 Development and Commercialization page 13
Section 11 Confidential Information page 15
Section 12 Publication page 15
Section 13 Liability and Indemnification page 16
Section 14 Security for Indemnification page 17
Section 15 Expiry and Termination page 18
Section 16 Representations and Warranties by CORPORATION page 19
Section 17 Representations and Warranties by NYU page 20
Section 18 No Assignment page 21
Section 19 Use of Narne page 21
Section 20 Miscellaneous page 22
Appendix I Pre Existing Inventions
Appendix II Research Program
Appendix III Development Plan
<PAGE>
RESEARCH AND LICENSE AGREEMENT
This Agreement, effective as of March 24, 1997 (the "Effective Date"), is
by and between NEW YORK UNIVERSITY (herein-after "NYU"), a corporation organized
and existing under the laws of the State of New York and having a place of
business at 70 Washington Square South, New York, New York 10012 and COLLATERAL
THERAPEUTICS, INC. (hereinafter "CORPORATION"), a corporation organized and
existing under the laws of the State of California, having its principal office
at 9360 Towne Centre Drive, San Diego, California 92121.
RECITALS
WHEREAS, Dr Claudia Basilico of NYU (hereinafter "the NYU Scientist"),
together with other co-inventors, has made certain inventions all as more
particularly described in an issued U S. patent and U. S patent applications and
foreign patent applications owned by NYU, in each case identified in annexed
Appendix I and forming an integral part hereof (hereinafter "the PreExisting
Inventions");
WHEREAS, NYU is willing to perform the NYU Research Project (as
hereinafter defined);
WHEREAS, CORPORATION is prepared to sponsor the NYU Research Project;
WHEREAS, subject to the terms and conditions hereinafter set forth, NYU is
willing to grant to CORPORATION and CORPORATION is willing to accept from NYU
the License (as hereinafter defined);
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, the parties hereto hereby agree as follows:
1. Definitions.
(a) "Calendar Year" shall mean any consecutive period of twelve months
commencing on the first day of January of any year.
(b) "Corporation Entity" it shall mean any company or other legal entity
which controls, or is controlled by, or is under common control
with, CORPORATION; control means the holding of fifty percent (50%)
or more of (i) the capital and/or (ii) the voting rights and/or
(iii) the right to elect or appoint directors.
<PAGE>
2
(c) "Date of First Commercial Sale" shall have the meaning set forth in
Section 7(b) hereof.
(d) "FGF-4" shall mean Fibroblast Growth Factor 4 the amino acid
sequence of which is provided in Figure 1 in the article by P. Delli
Bovi, A.M. Curatola, F. G. Kern, A. Greco, M. Ittmann, and C.
Basilico published in Cell, Volume 50, pages 729-737, August 28,
1987.
(e) "Field" shall mean gene therapy for coronary artery disease,
congestive heart failure, and peripheral vascular disease.
(f) ***
***
***
***
***
***
(g) "License" shall mean the exclusive worldwide license to practice the
Research Technology (as hereinafter defined) for the development,
manufacture, use and sale of the Licensed Products (as hereinafter
defined) in the Field and the exclusive worldwide right to
sublicense such rights in accordance with Section 7(c).
(h) "Licensed Products" shall mean products comprising a nucleic acid
sequence encoding FGF-4 or fragments or analogs thereof, in each
case which are covered by a claim of any unexpired patent within the
NYU Patents (as hereinafter defined) which has not been disclaimed
or held invalid by a court of competent jurisdiction from which no
appeal can be taken or of any active patent application within the
NYU Patents, or which utilize all or any portion of NYU Know-How.
(i) "Net Sales" shall mean the total amount invoiced in connection with
sales of Licensed Products by CORPORATION, any Corporation Entity or
any sublicensee of CORPORATION, any Corporation Entity or a
sublicensee in accordance with Section 7(c)(iii), in each case to
end users; provided that Net Sales shall (i) not include any amounts
invoiced in connection with sales of Licensed Products for (A)
transportation charges, including insurance relating thereto, or (B)
sales and excise taxes, value-added taxes or customs duties paid by
the
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
3
person selling or distributing any Licensed Product or any other
governmental charges imposed upon the sale or distribution of any
Licensed Product; and (ii) be adjusted to reflect any deductions to
amounts invoiced to take account of (X) distributors' fees, rebates,
allowances or sales commissions actually granted, allowed or
incurred and credits for returns or (Y) quantity or case discounts,
cash discounts or chargebacks actually granted, allowed or incurred
in the ordinary course of business in connection with the sale or
distribution of any Licensed Product; provided, further, that Net
Sales shall not include amounts invoiced by CORPORATION to any
person or entity that is a Corporation Entity or a sublicensee of
CORPORATION or a Corporation Entity under the License.
(j) "NYU Know-How" shall mean the Pre-Existing Inventions, any
proprietary information or proprietary materials including, but not
limited to, pharmaceutical, chemical, biological and biochemical
products, information and trade secrets, know-how, technical and
nontechnical data, materials, methods and processes and any
drawings, plans, diagrams, specifications and/or other documents
containing such information, discovered, developed or acquired by,
or on behalf of students or employees of NYU during the term and in
the course of the NYU Research Project.
(k) "NYU Patents" shall mean all United States and foreign patents and
patent applications, and any divisions, continuations, in whole or
in part, reissues, re-examinations, renewals and extensions thereof,
and pending applications therefor:
(1) which claim Pre-Existing Inventions and which are identified
on annexed Appendix I; or
(2) which claim inventions that are made, in whole or in part, by
students or employees of NYU during the term and in the course
of the NYU Research Project.
(l) "Research Period" shall mean the three-year period commencing on the
Effective Date hereof and any extension thereof as to which NYU and
CORPORATION shall mutually agree in writing.
(m) "NYU Research Project" shall mean the investigations at NYU during
the Research Period into the Field under the supervision of the NYU
Scientist in
<PAGE>
4
accordance with the research program, described in annexed Appendix
II, which forms an integral part hereof.
(n) "Research Technology" shall mean all NYU Patents and NYU Know-How.
(o) "Total Net Sales" shall mean the aggregate Net Sales of CORPORATION,
any Corporation Entity and any sublicensee of CORPORATION or any
Corporation Entity to end users of Licensed Products.
2. Effective Date.
This Agreement shall be effective as of the date first written above and
shall remain in full force and effect until it expires or is terminated in
accordance with Section 16 hereof.
3. Performance of the NYU Research Project.
(a) In consideration of the sums to be paid to NYU as set forth in
Section 4 below, NYU undertakes to perform the NYU Research
Project under the supervision of the NYU Scientist during the
Research Period, as such Project may be amended in accordance
with Section 20(f). If, during the Research Period the NYU
Scientist shall cease to supervise the NYU Research Project,
then NYU shall promptly so notify CORPORATION and shall
endeavor to find among the scientists of NYU a Scientist
acceptable to CORPORATION to continue the supervision of the
NYU Research Project. If NYU is unable to find such a
Scientist acceptable to CORPORATION within three months after
such notice to CORPORATION, CORPORATION shall have the option
to terminate its funding of the NYU Research Project.
CORPORATION shall promptly advise NYU in writing if
CORPORATION so elects. Such termination of funding pursuant to
this Section 3(a) shall not terminate this Agreement or the
License granted herein. Nothing herein contained shall be
deemed to impose an obligation on NYU to find a replacement
for the NYU Scientist.
(b) Nothing contained in this Agreement shall be construed as a
warranty on the part of NYU that any results or inventions
will be achieved by the NYU Research Project, or that the
Research Technology and/or any other results or inventions
achieved by the NYU Research Project, if any, are or will be
commercially exploitable and furthermore, NYU makes
<PAGE>
5
no warranties whatsoever as to the commercial or scientific
value of the Research Technology and/or as to any results
which may be achieved in the NYU Research Project.
(c) NYU will have full authority and responsibility for the NYU
Research Project. All students and employees of NYU who work
on the NYU Research Project will do so as employees or
students of NYU, and not as employees of CORPORATION.
(d) NYU shall provide to CORPORATION a report on the NYU Research
Project within ninety (90) days following the end of each
twelve-month period occurring during the Research Period.
4. Funding of the NYU Research Project.
(a) As compensation to NYU for work to be performed on the NYU
Research Project during the Research Period, subject to any
earlier termination of the Research Project pursuant to
Section 3(a) hereof, CORPORATION will pay NYU the total sum of
*** *** ***.
(b) Nothing in this Agreement shall be interpreted to prohibit NYU
(or the NYU Scientist) from obtaining additional financing or
research grants for the NYU Research Project from government
agencies, which grants or financing may render all or part of
the NYU Research Project and the results thereof subject to
the patent rights of the U.S. Government and its agencies, as
set forth in Title 35 U.S.C.ss.200 et seq.
5. Title.
(a) Subject to the License granted to CORPORATION hereunder, it is
hereby agreed that all right, title and interest, in and to
the Research Technology, and in and to any drawings, plans,
diagrams, specifications, and other documents containing any
of the Research Technology shall vest solely in NYU. At the
request of NYU, CORPORATION shall take all steps as may be
necessary to give full effect to said right, title and
interest of NYU including, but not limited to, the execution
of any documents that may be required to record such right,
title and interest with the appropriate agency or government
office.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
6
(b) Subject to the License granted to CORPORATION hereunder, for
so long as the NYU Scientist is employed by NYU, any and all
inventions made by such NYU Scientist and relating to the
Field shall be owned solely by NYU.
6. Patents and Patent Applications.
(a) NYU will promptly disclose to CORPORATION in writing any
inventions which constitute potential NYU Patents developed in
the course of the NYU Research Project.
(b) At the initiative of CORPORATION or NYU, the parties shall
consult with each other regarding the prosecution of all
patent applications within NYU Patents (excluding any
Pre-Existing Invention). Such patent applications shall be
filed, prosecuted and maintained by the law fire of Darby &
Darby or by other patent counsel jointly selected by NYU and
CORPORATION. Copies of all such patent applications and patent
office actions shall be forwarded to each of NYU and
CORPORATION.
NYU and CORPORATION shall each also have the right to have
such patent applications and patent office actions
independently reviewed by other patent counsel separately
retained by NYU or CORPORATION, upon prior notice to and
consent of the other party, which consent shall not
unreasonably be withheld.
(c) All applications and proceedings with respect to NYU Patents
(other than those relating to any Pre-Existing Invention)
shall be filed, prosecuted and maintained by NYU at the
expense of CORPORATION. Against the submission or invoices,
CORPORATION shall reimburse NYU for all costs and fees
incurred by NYU during the term of this Agreement, in
connection with the filing, maintenance, prosecution,
protection and the like of such patents.
(d) NYU and CORPORATION shall assist, and cause their respective
employees and consultants to assist each other, in assembling
inventorship information and data for the filing and
prosecution of patent applications on inventions pertaining to
the Research Technology.
<PAGE>
7
(e) If at any time during the term of this Agreement CORPORATION
decides that it is undesirable, as to one or more countries,
to prosecute or maintain any patents or patent applications
within the NYU Patents (other than those relating to any
Pre-Existing Invention), it shall give prompt written notice
thereof to NYU, and upon receipt of such notice CORPORATION
shall be released from its obligations to bear all of the
expenses to be incurred thereafter as to such countries in
conjunction with such patent(s) or patent application(s) and
such patent(s) or application(s) shall be deleted from the
Research Technology and NYU shall be free to grant rights in
and to the Research Technology in such countries to third
parties, without further notice or obligation to CORPORATION,
and the CORPORATION shall have no rights whatsoever to exploit
the Research Technology in such countries.
(f) Under the *** provisions exist to determine the circumstances
under which patent, protection will be obtained by NYU with
respect to any Pre-Existing Invention. For patent applications
with respect to Pre-Existing Inventions, copies of such
applications and office actions shall be forwarded to
CORPORATION who may consult with NYU with regard thereto.
CORPORATION agrees, upon presentation of supporting
documentation, to reimburse NYU for *** of the expenses
incurred by NYU as of the Effective Date in connection with
obtaining such patent protection. In the event that such
separate provisions result in a situation where patent
protection in any country is not pursued by NYU because of a
lack of funding pursuant to such provisions, then NYU shall
notify CORPORATION thereof and CORPORATION shall have the
option to pay NYU to pursue such patent protection.
(g) Nothing herein contained shall be deemed to be a warranty by
NYU that
(i) NYU can or will be able to obtain any patent or patents
on any patent application or applications in the NYU
Patents or any portion thereof, or that any of the NYU
Patents will afford adequate or commercially worthwhile
protection, or
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
8
(ii) that the manufacture, use, or sale of any element of the
Research Technology or any Licensed Product will not
infringe any patent(s) of a third party.
7. Grant of License.
(a) Subject to the terms and conditions hereinafter set forth, and
subject to any rights of the U.S. Government pursuant to Title
35 of the United States Code ss.200 et seq., NYU hereby grants
to CORPORATION and CORPORATION hereby accepts from NYU the
License.
(b) The License granted to CORPORATION in Section 7(a) hereto
shall commence upon the Effective Date and shall remain in
force on a country-by-country basis, if not previously
terminated under the terms of this Agreement, for fifteen (15)
years from the Date of First Commercial Sale in such country
or until the expiration date of the last patent within the NYU
Patents in any such country to expire, whichever shall be
later CORPORATION shall inform NYU in writing of the Date of
First Commercial Sale with respect to each Licensed Product in
each country as soon as practicable after the making of each
such first commercial sale.
(c) CORPORATION shall be entitled to grant sublicenses under the
License on terms and conditions in compliance and not
inconsistent with the terms and conditions of this Agreement
(except that the rate of royalty may be at higher rates than
those set forth in this Agreement) (i) to a Corporation Entity
or (ii) to other third parties for consideration and in an
arms-length transaction. All sublicenses shall only be granted
by CORPORATION under a written agreement, a copy of which
shall be provided by CORPORATION to NYU as soon as practicable
after the signing thereof. Each sublicense granted by
CORPORATION hereunder shall be subject and subordinate to the
terms and conditions of this License Agreement and shall
contain (inter-alia) the following provisions:
(1) the sublicense shall expire automatically on the
termination of the License;
(2) the sublicense shall not be assignable, in whole or in
part;
<PAGE>
9
(3) the sublicensee shall not grant further sublicenses,
except that a sublicensee may grant a further sublicense
solely for purposes of effecting distribution of
Licensed Products to end users on the same terms
required for sublicenses under this Section 7(c);
(4) both during the term of the sublicense and thereafter
the sublicensee shall agree to a confidentiality
obligation similar to that imposed on CORPORATION in
Section 11 below, and that the sublicensee shall impose
on its employees, both during the terms of their
employment and thereafter, a similar undertaking of
confidentiality; and
(5) the sublicense agreement shall include the text of
Sections 13 and 14 of this Agreement and shall state
that NYU is an intended third party beneficiary of such
sublicense agreement for the purpose of enforcing such
indemnification and insurance provisions.
8. Payments for License.
(a) In consideration for the grant and during the term of the
License with respect to each Licensed Product, CORPORATION
shall pay to NYU:
(1) On the Effective Date, a non-refundable, noncreditable
license issue fee of one hundred thousand dollars
($100,000);
(2) On the *** of the *** *** and *** ***, a *** license ***
of *** *** ; provided that such fee *** on the *** ***
following the completion by CORPORATION of *** *** of
*** in accordance with the terms of this Agreement;
(3) Upon the achievement of the following technical
milestones with respect to any Licensed Product, the
payments as indicated below:
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
10
Milestone Payments
- --------- --------
Upon the filing of an initial Investigational New Drug Application (or foreign
equivalent thereof) for each new Licensed Product
<TABLE>
<CAPTION>
<S> <C>
$250,000
***
***
***
***
***
***
***
***
***
***
***.
</TABLE>
(4) With respect to sales of Licensed Products a *** of Total Net
Sales during each calendar year.
(b) For the purpose of computing the royalties due to NYU hereunder, the
year shall be divided into two parts ending on June 30 and December
31. Not later than one hundred thirty (130) days after each December
and June in each Calendar Year during the term of the License,
CORPORATION shall submit to NYU a full and detailed report of
royalties or payments due NYU under the terms of this Agreement for
the preceding half year (hereinafter "the Half-Year Report"),
setting forth the Total Net Sales and Net Sales of each of
CORPORATION, each Corporation Entity and each sublicensee of
CORPORATION, any Corporation Entity or sublicensee permitted under
Section 7(c)(iii) and/or lump sum payments and all other payments or
consideration from sublicensees upon which such royalties are
computed and including at least:
(i) the quantity of Licensed Products used, sold, transferred or
otherwise disposed of on a country-by-country basis;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
11
(ii) the selling price of each Licensed Product;
(iii) the deductions permitted under subsection 1(i) hereof to
arrive at Net Sales; and
(iv) the royalty computations and subject of payment.
If no royalties or other payments are due, a statement shall be sent
to NYU stating such fact. Payment of the full amount of any
royalties or other payments due to NYU for the preceding half year
shall accompany each Half-Year Report on royalties and payments.
CORPORATION shall keep for a period of at least *** after the date
of entry, full, accurate and compete books and records consistent
with sound business and accounting practices and in such form and in
such detail as to enable the determination of the amounts due to NYU
from CORPORATION pursuant to the teems of this Agreement.
(c) Within ninety (90) days after the end of each Calendar Year,
commencing on the Date of First Commercial Sale CORPORATION
shall furnish NYU with a report (hereinafter the "Annual
Report"), certified by an independent certified public
accountant, relating to the royalties and other payments due
to NYU pursuant to this Agreement in respect of the Calendar
Year covered by such Annual Report and containing the same
details as those specified in Section 8(b) above in respect of
the Half-Year Report.
(d) On reasonable notice and during regular business hours, NYU or
the authorized representative of NYU shall each have the right
to inspect the books of accounts, records and other relevant
documentation of CORPORATION or of Corporation Entity and the
sublicensees of CORPORATION, Corporation Entity and any
sublicensee insofar as they relate to the production,
marketing and sale of the Licensed Products, in order to
ascertain or verify the amount of royalties and other payments
due to NYU hereunder, and the accuracy of the information
provided to NYU in the aforementioned reports. NYU shall also
have the right, not more than once each calendar year, to
audit CORPORATION's books and financial records for the
purpose of verifying full
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
12
payment by CORPORATION of its royalty obligations hereunder.
Such audits shall be conducted during normal business hours
and shall not interfere with CORPORATION's conduct of its
business. Each such audit shall be at NYU's expense, unless a
particular audit reveals an underpayment of *** or more of the
amount that should have been paid to NYU for the period
audited, in which case CORPORATION shall bear the expense of
such audit. In the event of any underpayment of royalties,
CORPORATION shall promptly remit to NYU all amounts due.
(e) Beginning in the year in which CORPORATION completes one full
year of sales of Licensed Products and continuing thereafter
until this Agreement shall terminate or expire, CORPORATION
agrees that if the total royalties paid to NYU under
subsection 8(a)(4) hereof do not amount to *** in each
Calendar Year, CORPORATION will pay to NYU within one hundred
thirty (130) days after the end of each such Calendar Year,
*** *** the *** *** *** *** failing which NYU shall have the
right solely at its election, upon written notice to
CORPORATION, to either terminate this Agreement for cause or
to declare the License granted herein to CORPORATION to be
non-exclusive.
(f) CORPORATION shall, and shall cause each Corporation Entity and
sublicensee of CORPORATION, Corporation Entity or a
sublicensee, to effect sales of Licensed Products to third
parties on commercially reasonable, arm's length terms.
9. Method of Payment.
(a) Royalties and other payments due to NYU hereunder shall be
paid to NYU in United States dollars. Any such royalties on or
other payments relating to transactions in a foreign currency
shall be converted into United States dollars based on the
closing buying rate of the Morgan Guaranty Trust Company of
New York applicable to transactions under exchange regulations
for the particular currency on the last business day of the
accounting period for which such royalty or other payment is
due.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
13
(b) CORPORATION shall be responsible for payment to NYU of all
royalties due on sale, transfer or disposition of Licensed
Products by Corporation Entity or by the sublicensees of
CORPORATION, Corporation Entity or a sublicensee.
10. Development and Commercialization.
(a) It shall be within the judgment of CORPORATION
in what manner to proceed with the development
of Licensed Products for commercialization;
provided that CORPORATION shall use efforts,
consistent with its sound and reasonable
business practices and technical judgment, to
effect introduction of Licensed Products into
the commercial market. CORPORATION shall be
deemed to satisfy the due diligence requirements
of this Section 10(a) by: ***
***
***
***
***
***
***
***
***
***
***
*** .
Corporation's Development Plan is annexed hereto as Appendix III.
(b) Provided that applicable laws, rules and regulations require that
the performance of the tests, trials, studies and other activities
required by subsection (a) above shall be carried out in accordance
with FDA current Good Laboratory Practices, current Good
Manufacturing Practices and current Good Clinical Practices and in a
manner acceptable to the relevant health authorities, CORPORATION
shall carry out such tests, trials, studies and other activities in
accordance with such Practices and in a manner acceptable to the
relevant health authorities. Furthermore, the Licensed Products
shall be produced in accordance with FDA current Good Manufacturing
Practice procedures in a facility which has been licensed by the FDA
to manufacture such Licensed Products, provided that applicable
laws, rules and regulations so require.
(c) CORPORATION undertakes to begin the regular commercial production,
use, and sale of the Licensed
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
14
Products in each counted in which approve has been received (as
described in Section 10(a)) and to continue diligently thereafter to
commercialize the Licensed Products in each such country in a manner
consistent with sound and reasonable business practices.
(d) CORPORATION shall provide NYU with written reports on all activities
and actions undertaken by CORPORATION to develop and commercialize
the Licensed Products; such reports shall be made within sixty (60)
days after each six (6) months of the duration of this Agreement,
commencing six months after the Effective Date.
(e) If CORPORATION shall not satisfy the requirements set forth in
Section 10(a) (unless such delay or failure is necessitated by FDA
or other regulatory agencies or unless NYU and CORPORATION have
mutually agreed to amend the Development Plan because of
unforeseen circumstances) NYU shall notify CORPORATION in writing
of CORPORATION's failure and shall allow CORPORATION *** to cure
such failure Upon receiving such notice, CORPORATION may elect to
extend such diligence period and all subsequent diligence periods
relating to such Licensed Product for *** upon written certification
to NYU that CORPORATION is continuing product development work with
respect to a Licensed Product and payment to NYU of a *** *** .
After the expiration of any such *** CORPORATION may elect to
further extend its diligence obligations under Section 10(a) with
respect to such Licensed Product for successive *** upon (i) written
notice to NYU, (ii) certification by CORPORATION that it is
continuing to diligently develop such Licensed Product and, together
with its sublicensee(s), will spend no less than *** *** in each
Calendar Year on development of such Product and (iii) payment to
NYU prior to the beginning of such year of an amount equal to ***
representing *** *** . CORPORATION's failure to cure a delay in the
diligence requirements to NYU's reasonable satisfaction or elect and
satisfy the requirements of one of the options set forth above
within such *** shall be a material breach of this Agreement.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
15
11. Confidential Information.
(a) Except as otherwise provided in Section 11(b) and 11(c) below
CORPORATION shall maintain any and all of the Research
Technology in confidence and shall not release or disclose any
tangible or intangible component thereof to any third party
without first receiving the prior written consent of NYU to
said release or disclosure; provided that CORPORATION may,
without NYU's consent, disclose Research Technology to
sublicensees pursuant to Section 7, CORPORATION Entities and
consultants engaged by CORPORATION, in each case pursuant to a
confidentiality agreement requiring such party to maintain any
and all of the Research Technology in confidence and not
release or disclose any tangible or intangible component
thereof to any third party without first receiving the prior
written consent of NYU to said release or disclosure.
(b) The obligations of confidentiality set forth in Section 11(a)
shall not apply to any component of the Research Technology
which was part of the public domain prior to the Effective
Date of this Agreement or which becomes a part of the public
domain not due to some unauthorized act by or omission of
CORPORATION after the effective date of this Agreement or
which is disclosed to CORPORATION by a third party who has the
right to make such disclosure.
(c) The provisions of Section 11(a) notwithstanding, CORPORATION
may disclose the Research Technology to third parties who need
to know the same in order to secure regulatory approval for
the sale of Licensed Products.
12. Publication.
(a) Prior to submission for publication of a manuscript describing
the results of any aspect of the NYU Research Project, NYU
shall send CORPORATION a copy of the manuscript to be
submitted by overnight mail or facsimile transmission, and
shall allow CORPORATION *** from the date of such mailing to
determine whether the manuscript contains such subject
matter for which patent protection should be sought prior to
publication of such manuscript, for the purpose of protecting
an invention made by the NYU Scientist during the course and
within the term of the NYU Research Project.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
16
Should CORPORATION believe the subject matter of the
manuscript contains a patentable invention, then, prior to the
expiration of such *** from the mailing date of such
manuscript to CORPORATION by NYU, CORPORATION shall give
written notification to NYU of:
(i) its determination that such manuscript contains
patentable subject matter for which patent protection
should be sought; and
(ii) the countries in which such patent protection should be
sought.
(b) After the expiration of such *** from the date of mailing such
manuscript to CORPORATION, unless NYU has received the written
notice specified above from CORPORATION, NYU Shall be free to
submit such manuscript for publication to publish the
disclosed research results in any manner consistent with
academic standards.
(c) Upon receipt of such written notice from CORPORATiON, NYU will
thereafter delay submission of the manuscript for an
additional period of up to *** to permit the preparation and
filing in accordance with Section 6 hereof of a U.S. patent
application by NYU on the subject matter to be disclosed in
such manuscript. After expiration of such *** or the filing of
a patent application on each such invention, whichever shall
occur first, NYU shall be free to submit the manuscript and
to publish the disclosed results.
13. Liability and Indemnification.
(a) CORPORATION shall indemnify, defend and hold harmless NYU
and its trustees, officers, medical and professional staff,
employees, students and agents and their respective
successors, heirs and assigns (the "Indemnitees"), against any
liability, damage, loss or expense (including reasonable
attorneys' fees and expenses of litigation) incurred by or
imposed upon the Indemnitees or any one of them in connection
with any claims, suits, actions, demands or judgments (i)
arising out of the design, production, manufacture, sale,
use in commerce or in human clinical trials, lease, or
promotion by CORPORATION, a Corporation Entity or an agent of
CORPORATION, or by a sublicensee of CORPORATION, a
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
17
Corporation Entity or a sublicensee, of any Licensed Product,
process or service relating to, or developed pursuant to, this
Agreement or (ii) arising out of any other activities to be
carried out pursuant to this Agreement.
(b) With respect to an Indemnitee, CORPORATION's indemnification
under subsection (a)(i) of this Section 13 shall apply to any
liability, damage, loss or expense whether or not it is
attributable to the negligent activities of such Indemnitee.
CORPORATION's indemnification obligation under subsection
(a)(ii) of this Section 13 shall not apply to any liability,
damage, loss or expense to the extent that it is attributable
to the negligent activities of any such Indemnitee.
(c) CORPORATION agrees, at its own expense, to provide attorneys
reasonably acceptable to NYU to defend against any actions
brought or filed against any Indemnitee with respect to the
subject indemnity to which such Indemnitee is entitled
hereunder, whether or not such actions are rightfully brought.
14. Security for Indemnification.
(a) At such time as any Licensed Product, process or service
relating to, or developed pursuant to, this Agreement is being
commercially distributed or sold (other than for the purpose
of obtaining regulatory approvals) by CORPORATION or by a
sublicensee, Corporation Entity or agent of CORPORATION,
CORPORATION shall at its sole cost and expense procure and
maintain, or cause a sublicensee, Corporation Entity or agent
of CORPORATION to procure and maintain, policies of
comprehensive general liability insurance in amounts not
less than *** per incident and *** annual aggregate and naming
the Indemnitees as additional insureds. Such comprehensive
general liability insurance shall provide (i) product
liability coverage and (ii) broad form contractual liability
coverage for CORPORATION's indemnification under Section 13 of
this Agreement. If CORPORATION elects to self-insure all or
part of the limits described above (including deductibles or
retentions which are in excess of *** annual aggregate) such
self-insurance program must be acceptable to NYU.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
18
The minimum amounts of insurance coverage required under this
Section 14 shall not be construed to create a limit of
CORPORATION's liability with respect to its indemnification
under Section 13 of this Agreement.
(b) CORPORATION shall provide NYU with written evidence of such
insurance upon request of NYU. CORPORATION shall provide NYU
with written noticed at least *** prior to the cancellation,
nonrenewal or material change in such insurance; if
CORPORATION does not obtain replacement insurance providing
comparable coverage within such *** *** NYU shall have the
right to terminate this Agreement effective at the end of
such *** without notice or any additional waiting periods
(c) CORPORATION shall maintain such comprehensive general
liability insurance beyond the expiration or termination of
this Agreement during (i) the period that any product, process
or service, relating to, or developed pursuant to, this
Agreement is being commercially distributed or sold (other
than for the purpose of obtaining regulatory approvals) by
CORPORATION or by a sublicensee, Corporation Entity or agent
of CORPORATION and (ii) a reasonable period after the period
referred to in (c)(i) above which in no event shall be less
than *** *** .
15. Expiry and Termination.
(a) Unless earlier terminated pursuant to this Section 15 or
Section 8(e), hereof, this Agreement shall expire upon the
expiration of the period of the License in all countries as
set forth in Section 7(b) above.
(b) At any time prior to expiration of this Agreement, either
party may terminate this Agreement forthwith for cause, as
"cause" is described below, by giving written notice to the
other party. Cause for termination by one party of this
Agreement shall be deemed to exist if the other party
materially breaches or defaults in the performance or
observance of any of the provisions of this Agreement and such
breach or default is not cured within sixty (60) days or, in
the case of failure to pay
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
19
any amounts due hereunder, *** (unless otherwise specified
herein) after the giving of notice by the other party
specifying such breach or default, or if either NYU or
CORPORATION discontinues its business or becomes insolvent or
bankrupt.
(c) In the event that CORPORATION determines, at any time
following the end of the Research Period, to cease all
development or commercialization of all Licensed Products
covered by this Agreement, CORPORATION may terminate this
Agreement by notifying NYU in writing thereof no less than ***
*** prior to the date of termination.
(d) Any amount payable hereunder by one of the parties to the
other, which has not been paid by the date on which such
payment is due, shall earn interest from such date until the
date on which such payment is made, at the rate of *** *** ***
during the period of arrears and such amount and the interest
thereon may be set of against any amount due, whether in terms
of this Agreement or otherwise, to the party in default by any
non-defaulting party.
(e) Upon termination of this Agreement for any reason and prior to
expiration as set forth in Section 15(a) hereof, all rights in
and to the Research Technology shall revert to NYU, and
CORPORATION shall not be entitled to make any further use
whatsoever of the Research Technology.
(f) Termination of this Agreement shall not relieve either party
of any obligation to the other party incurred prior to such
termination.
(g) Sections 5, 11, 13, 14, 15 and 19 hereof shall survive and
remain in full force and effect after any termination,
cancellation or expiration of this Agreement.
16. Representations and Warranties by CORPORATION.
CORPORATION hereby represents and warrants to NYU as follows:
(1) CORPORATION is a corporation duly organized, validly existing
and in good standing under the laws of the State of
California. CORPORATION has been granted all requisite power
and authority to carry
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
20
on its business and to own and operate its properties and
assets. The execution, delivery and performance of this
Agreement have been duly authorized by the Board of
Directors of CORPORATION;
(2) There is no pending or, to CORPORATION's kowledge, threatened
litigation involving CORPORATION which would have any effect
on this Agreement or on CORPORATION's ability to perform its
obligations hereunder;
(3) There is no indenture, contract, or agreement to which
CORPORATION is a party or by which CORPORATION is bound
which prohibits or would prohibit the execution and delivery
by CORPORATION of this Agreement or the performance or
observance by CORPORATION of any term or condition of this
Agreement; and
(4) CORPORATION has received and reviewed copies of the *** (with
the exception of those sections of the February 6, 1989
Agreement following section 4.1) and understands and accepts
the terms thereof that it has received and reviewed.
17. Representations and Warranties by NYU.
NYU hereby represents and warrants to CORPORATION as follows:
(1) NYU is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York. NYU has
been granted all requisite power and authority to carry on
its business and to own and operate its properties and assets.
The execution, delivery and performance of this Agreement have
been duly authorized by the Board of Trustees of NYU.
(2) There is no pending or, to NYU's knowledge, threatened
litigation involving NYU which would have any effect on this
Agreement or on NYU's ability to perform its obligations
hereunder; and
(3) There is no indenture, contract, or agreement to which NYU is
a party or by which NYU is bound which prohibits or would
prohibit the execution and delivery by NYU of this Agreement
or the performance or observance by NYU of any term or
condition of this Agreement.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
21
(4) As of the Effective Date, NYU is not aware of any prior art
that would invalidate any patent or patent claim, or that
would prevent from issuing any patent application covered by
the NYU Patents.
18. No Assignment.
Neither CORPORATION nor NYU shall have the right to assign, delegate
or transfer at any time to any party, in whole or in part, any or
all of the rights, duties and interest herein granted without first
obtaining the written consent of the other to such assignment, which
consent shall not be unreasonably withheld; provided that (i)
CORPORATION may, without the prior consent of NYU, assign all of its
rights and obligations under this Agreement to a third party in
connection with a merger or corporate restructuring of CORPORATION
or a sale of all or substantially all of its assets, following
written notice thereof and execution by the third party with NYU of
an agreement to be bound by the terms of this Agreement and (ii) NYU
may assign its interest in this Agreement in whole or in part
without the consent of CORPORATION if such assignee (A) is a parent,
subsidiary, affiliate or related entity to NYU or (B) is a entity
that acquires substantially all of the ownership interests or assets
of NYU or New York University Medical Center (or any successor to
the foregoing) or (C) is an entity formed by NYU or New York
University Medical Center (or any successor to the foregoing) and
other institutions, one of the purposes of which is to perform the
activities for which NYU is obligated pursuant to this Agreement.
19 Use of Name.
Without the prior written consent of the other party, neither
CORPORATION nor NYU shall use the name of the other party or any
adaptation thereof or of any staff member, employee or student of
the other party:
(i) in any product labeling, advertising, promotional or
sales literature;
(ii) in connection with any public or private offering or in
conjunction with any application for regulatory
approval, unless disclosure is otherwise required by
law, in which case either party may make factual
statements concerning the Agreement or file copies of
the Agreement after providing the other party with an
oppor-
<PAGE>
22
tunity to comment and reasonable time within which to do
so on such statement in draft.
Except as provided herein, neither NYU nor CORPORATION will issue
public announcements about this Agreement or the status or existence
of the NYU Research Project without prior written approval of the
other party.
20. Miscellaneous.
(a) In carrying out this Agreement the parties shall comply with
all local, state and federal laws and regulations including
but not limited to, the provisions of Title 35 United States
Code ss.200 et seq. and 15 CFR ss.368 et seq.
(b) If any provision of this Agreement is determined to be invalid
or void, the remaining provisions shall remain in effect.
(c) This Agreement shall be deemed to have been made in the State
of New York and shall be governed and interpreted in all
respects under the laws of the State of New York.
(d) Any dispute arising under this Agreement shall be resolved in
an action in the courts of New York State or the federal
courts located in New York State, and the parties hereby
consent to personal jurisdiction of such courts in any action.
(e) All payments or notices required or permitted to be given
under this Agreement shall be given in writing and shall be
effective when either personally delivered or deposited,
postage prepaid, in the United States registered or certified
mail, addressed as follows:
To NYU: New York University Medical Center
550 First Avenue
New York, NY 10016
Attention: Isaac T. Kohlberg
Vice President for
Industrial Liaison
and
<PAGE>
23
Office of Legal Counsel
New York University
Bobst Library
70 Washington Square South
New York, NY 10012
Attention: Kathy L. Schulz
Associate General Counsel
TO CORPORATION:
Collateral Therapeutics, Inc.
9360 Towne Centre Drive
San Diego, California 92121
Attention: Jack W. Reich, PhD
President and Chief
Executive Officer
or such other address or addresses as either parry may
hereafter specify by written notice to the other. Such notices
and communications shall be deemed effective on the date of
delivery or fourteen (14) days after having been sent by
registered or certified mail, whichever is earlier.
(f) This Agreement (and the annexed Appendices) constitute the
entire Agreement between the parties and no variation,
modification or waiver of any of the terms or conditions
hereof shall be deemed valid unless made in writing and signed
by both parties hereto. This Agreement supersedes any and all
prior agreements or understandings, whether oral or written,
between CORPORATION and NYU.
(g) No waiver by either party of any non-performance or violation
by the other party of any of the covenants, obligations or
agreements of such other party hereunder shall be deemed to be
a waiver of any subsequent violation or non-performance of the
same or any other covenant, agreement or obligation, nor
shall forbearance by any party be deemed to be a waiver by
such party of its rights or remedies with respect to such
violation or nonperformance.
(h) The descriptive headings contained in this Agreement are
included for convenience and reference only and shall not be
held to expand, modify or aid
<PAGE>
24
in the interpretation, construction or meaning of this
Agreement.
(i) It is not the intent of the parties to create a partnership or
joint venture or to assume partnership responsibility or
liability. The obligations of the parties shall be limited to
those set out herein and such obligations shall be several and
not joint.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date and year first above written.
NEW YORK UNIVERSITY
By: /s/ Isaac T. Kohlberg
-------------------------------------------
Isaac T. Kohlberg
Title: Vice President for Industrial Liaison
----------------------------------------
Date: 3/24/87
-----------------------------------------
Collateral Therapeutics, Inc.
By: /s/ Christopher J. Reinhard
-------------------------------------------
Christopher J. Reinhard
Title: Chief Operating Officer
----------------------------------------
Date: 3-21-97
-----------------------------------------
<PAGE>
Appendix I
Pre-existing NYU Patent and Patent Applications:
*** entitled *** *** and US patent applications *** filed *** filed *** ***
filed *** Rule 60 continuing patent application filed *** and US divisional
patent application filed *** .
PCT filing *** filed ***
***
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
APPENDIX I
PRE-EXISTING NYU PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
U.S. APPLICATIONS Serial No. Filing Date Status
<S> <C> <C> <C>
*** *** 6/16/87 ABANDONED
*** *** 4/4/88 ABANDONED
***
*** *** 12/6/91 ABANDONED
***
*** *** 6/22/92 ABANDONED
***
*** *** 5/3/93 Allowed - Issue
*** Fee Paid 1/1/97
*** *** 1/25/94 Issued -
*** U.S. Patent No.
*** ***
*** *** 6/7/95 Pending
***
*** *** 6/7/95 Pending
***
*** Not yet assigned 12/31/96 Pending
***
*** Not yet assigned 2/13/97 Pending
***
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
APPENDIX I (Contd.)
FOREIGN APPLICATIONS
The following patents and patent applications are based upon International
Application No. *** filed November 15, 1990 and all are entitled *** .
<TABLE>
<CAPTION>
Country Application No. Filing Date Status
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
*** *** 11/15/90 ***
***
*** *** 11/15/90 pending
*** *** 11/15/90 Pending
*** *** 11/15/90 Pending
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
APPENDIX II
***
***
BACKGROUND
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
2
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
3
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
4
***
***
***
SPECIFIC AIMS OF THE RESEARCH PROGRAM
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
5
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
6
***
***
***
REFERENCES
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
7
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
8
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
APPENDIX III. Collateral Therapeutics Development Plan
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
APPENDIX III. (cont'd) Collateral Therapeutics Development Plan
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
FIRST AMENDMENT TO AGREEMENT
This First Amendment to Agreement (hereafter "Amendment") is effective on
April 28, 1998 by and between COLLATERAL THERAPEUTICS INC., a corporation
organized and existing under the laws of California, having a place of business
at 9360 Town Centre Drive, San Diego, California 92121 (hereafter
"CORPORATION"); and NEW YORK UNIVERSITY, a corporation organized and existing
under the laws of the State of New York, having a place of business at 70
Washington Square South, New York, New York 10012 (hereafter "NYU").
WITNESSETH:
WHEREAS, CORPORATION and NYU entered into a certain agreement made and
effective as of March 24, 1997 (the "Agreement"), pursuant to which, INTER ALIA,
CORPORATION undertook to sponsor certain research at NYU and NYU granted to
CORPORATION a license to certain Research Technology (as such term is defined in
the Agreement); and
WHEREAS, CORPORATION and NYU desire to expand the scope of the research
under the terms and conditions of the Agreement as specified herein; and
WHEREAS, NYU desires to perform such research; and
WHEREAS, CORPORATION desires to provide additional research funds to NYU
for the performance of such research by NYU.
NOW, THEREFORE, in consideration of the premises and the covenants,
conditions and promises set forth below, the parties hereto hereby agree as
follows:
1. Except as expressly provided for herein, all terms and conditions of
the Agreement shall remain in full force and effect.
2. Terms which are defined in the Agreement shall have the same meanings
when used in this Amendment, unless a different definition is given
herein.
3. Section 1(m) of the Agreement shall be, and hereby is, amended in its
entirety so that, as amended, said Section 1(m) shall read as follows:
1(m) "NYU Research Project" shall mean the investigations at NYU
during the Research Period into the Field under the supervision of the
NYU Scientist in 2accordance with the research program, described in
annexed Appendix II and in annexed Exhibit A to the Amendment, each of
which forms an integral part hereof.
<PAGE>
4. Section 4(a) of the Agreement shall be, and hereby is, amended in its
entirety so that, as amended, said Section 4(A) shall read as follows:
4(a) As compensation to NYU for work to be performed on the NYU
Research Project during the Research Period, subject to any earlier
termination of the Research Project pursuant to Section 3(a) hereof,
CORPORATION will pay NYU the total sum ***
***
***
***
***
***.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
follows:
NEW YORK UNIVERSITY COLLATERAL THERAPEUTICS, INC.
By: /s/ Isaac T. Kohlberg By: /s/ Christopher J. Reinhard
-------------------------------- --------------------------------
Title: Vice President Title: COO & CFO
for Industrial Liaison -----------------------------
Date: 5-1-98 Date: April 29, 1998
----------------------------- ------------------------------
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT A
SPECIFIC AIMS
***
***
***
RESEARCH PLAN
***
***
***
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT A (continued)
***
***
***
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT A (continued)
***
***
***
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
SUBLEASE AGREEMENT
------------------
This SUBLEASE AGREEMENT ("Sublease") is made and entered into as of the
15th day of June, 1995 by and between GENSIA, INC., a Delaware corporation
("Sublandlord") and COLLATERAL THERAPEUTICS, INC., a California corporation
("Subtenant").
WHEREAS, GENA PROPERTY COMPANY, a California general partnership, as
landlord ("Landlord"), and Sublandlord, as tenant, are parties to a certain
Lease Agreement dated as of December 21, 1993 ("Master Lease") whereby
Landlord leased to Tenant the building (the "Building") located at 9360 Towne
Centre Drive, San Diego, CA 92121 ("Master Premises"), as more particularly
described in the Master Lease, upon the terms and conditions contained
therein. All capitalized terms used herein shall have the same meaning
ascribed to them in the Master Lease unless otherwise defined herein. A copy
of those portions of the Master Lease which are applicable to this Sublease
is attached hereto as Exhibit "A" and made a part hereof. Hereinafter, the
term 'Master Lease" shall refer to only those portions of the Master Lease
which are intended to be applicable to this Sublease, as attached hereto as
Exhibit "A".
WHEREAS, Sublandlord and Subtenant are desirous of entering into a
sublease of that portion of the Master Premises which is cross-hatched in
black on the demising plan annexed hereto as Exhibit "B" and made a part
hereof ("Sublease Premises") on the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto mutually
covenant and agree as follows:
1. DEMISE. Sublandlord hereby subleases and demises to Subtenant and
Subtenant hereby hires and subleases from Sublandlord the Sublease Premises
(which the parties stipulate contain an aggregate of 4,431 rentable square
feet of office space located on the first floor of the Building), upon and
subject to the terms, covenants and conditions hereinafter set forth. The
Sublease Premises consist of two (2) separate areas, one comprised of 1,550
rentable square feet ("Area 1"), and the other comprised of 2,881 rentable
square feet ("Area 2"). The locations of Area 1 and Area 2 are depicted on
the attached Exhibit "B."
2. LEASE TERM. The term of this Sublease ("Term") shall commence on
the earlier of (i) June 15, 1995, or (ii) the
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<PAGE>
date upon which Subtenant, or any person occupying any of the Sublease
Premises with Subtenant's permission, commences business operations from the
Sublease Premises ("Sublease Commencement Date") and end, unless sooner
terminated or extended as provided herein, on December 31, 1996 ("Sublease
Expiration Date"). The Term shall commence as to Area 1 on the Sublease
Commencement Date, and as to Area 2 on January 1, 1996 (the "Area 2 Sublease
Commencement Date"). The term "Sublease Premises," as used in this Sublease,
shall refer to Area 1 until the Area 2 Sublease Commencement Date and,
thereafter, shall refer to both Area 1 and Area 2.
3. USE. The Sublease Premises shall be used and occupied by Subtenant
solely for office use in compliance with the Master Lease and for no other
purpose.
4. SUBRENTAL.
(a) BASE RENTAL. Beginning with the Sublease Commencement Date and
thereafter during the Term of this Sublease and ending on the Sublease
Expiration Date, Subtenant shall pay to Sublandlord monthly installments of
base rent ("Base Rental") as follows:
(i) From and after the Sublease Commencement Date with
respect to Area 1, monthly installments in the amount of $2,294 each; and
(ii) From and after the Area 2 Sublease Commencement Date,
monthly installments in the amount of $6,557.88 each as to the entire
Sublease Premises.
The first monthly installment of Base Rental shall be paid by Subtenant
upon the execution of this Sublease. Base Rental and additional rent shall
hereinafter be collectively referred to as "Rent."
(b) PRORATIONS. If the Sublease Commencement Date is not the first
(1st) day of a month, or if the Sublease Expiration Date is not the last day
of a month, a prorated installment of monthly Base Rental based on a thirty
(30) day month shall be paid for the fractional month during which the Term
commenced or terminated.
(c) ADDITIONAL RENT.
(i) NORMAL OPERATING EXPENSES. Beginning with the Sublease
Commencement Date and continuing to the Sublease Expiration Date, Subtenant
shall pay to Sublandlord as additional rent for this subletting the cost of
all additional expenses, costs and charges payable to Landlord or to third
party providers by Sublandlord resulting from Subtenant's use
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<PAGE>
of the Sublease Premises, which are not Normal Operating Expenses (as defined
below) for the Building and the Sublease Premises. The term "Normal Operating
Expenses" shall mean the full cost of all operating expenses (including
Building maintenance, common area expenses, insurance premiums for casualty
insurance maintained by Sublandlord with respect to the Building, but
excluding any insurance coverages for Subtenant's personal property),
security and janitorial services provided by Sublandlord and real estate
taxes, applicable to the Sublease Premises which are allocable to Subtenant's
normal and customary use of the Sublease Premises in accordance with this
Sublease. Normal Operating Expenses shall include Subtenant's utility charges
for electricity usage to the extent not separately metered to Subtenant and
shall exclude other excess or non-standard costs, expenses or charges
incurred with respect to Subtenant's use or occupancy of the Sublease
Premises which are incurred or requested by Subtenant. Subtenant shall not be
responsible for payment of any Impositions (as defined in Paragraph 9(a) of
the Master Lease) which are part of the Normal Operating Expenses or which
are not otherwise made the responsibility of Subtenant pursuant to this
Sublease.
(ii) TELEPHONE SYSTEM USAGE. Subtenant may elect to establish
telephonic (voice only) service to the Sublease Premises during the Term of
this Sublease by connection to Sublandlord's telephone system for the
Building. Subtenant shall provide a written request for such service to
Sublandlord specifying the number of telephone extensions requested by
Subtenant for the Sublease Premises together with payment in advance of the
sum of $600 for each telephonic extension Subtenant requests to service the
Sublease Premises as payment for Sublandlord's provision and installation of
necessary components, including telephones and the required circuitry, to
establish the connection of such extensions to Sublandlord's system. In
addition, Subtenant shall pay the amount of $100 monthly in advance to
Sublandlord for each telephone extension established to service the Sublease
Premises as reimbursement for maintenance and security services furnished by
Sublandlord with respect to each such extension. Telephones and other
equipment provided by Sublandlord for the Sublease Premises shall be of a
standard type used by Sublandlord in the Building. Telephones provided by
Sublandlord shall become the property of Subtenant upon payment of amounts
required hereunder to Sublandlord. All other components shall remain the
property of Sublandlord and shall be surrendered by Subtenant upon the
expiration or earlier termination of this Sublease. Subtenant shall have no
right to replace or upgrade such equipment except to the extent Sublandlord
agrees to any such replacement or upgrade on such terms and conditions as are
acceptable to Sublandlord and Subtenant pays all costs of Sublandlord
incurred in connection
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<PAGE>
with any such replacement or upgrade. Upon sixty (60) days prior notice to
Subtenant, Sublandlord may elect to discontinue all or any portion of the
telephone services provided hereunder. Subtenant shall be responsible for
paying to the carrier supplying same, all fees, charges and costs incurred by
Subtenant for transmissions made to or from the Sublease Premises. All
amounts to be paid by Subtenant to Sublandlord under this Section 4(c)(ii)
shall constitute additional rent under this Sublease. Subtenant shall make
its own arrangements in accordance with this Sublease, at its sole cost and
expense, for any telecopier or data transmission service it requires with
respect to the Sublease Premises. Subtenant shall at all times comply with
Sublandlord's security and other requirements and procedures applicable to
Subtenant's use of Sublandlord's telephone system.
(d) PAYMENT OF RENT. Except as otherwise specifically provided in
this Sublease, Rent shall be payable in lawful money without demand, and
without offset, counterclaim, or setoff in monthly installments, in advance,
on the first day of each and every month during the Term of this Sublease.
All of said Rent is to be paid to Sublandlord at its office at the address
set forth in Section 13 herein, or at such other place or to such agent and
at such place as Sublandlord may designate by notice to Subtenant. Any
additional rent payable on account of items which are not payable monthly by
Sublandlord to Landlord under the Master Lease is to be paid to Sublandlord
as and when such items are payable by Sublandlord to third parties or to
Landlord under the Master Lease unless a different time for payment is
elsewhere stated herein. Upon written request therefor, Sublandlord agrees to
provide Subtenant with copies of any statements or invoices received by
Sublandlord from Landlord pursuant to the terms of the Master Lease.
(e) LATE CHARGE. Subtenant shall pay to Sublandlord an
administrative charge at an annual interest rate equal to the Prime Rate plus
three percent (3%) ("Interest Rate") on all amounts of Rent payable hereunder
which are not paid within three (3) business days of the date on which such
payment is due, such charge to accrue from the date upon which such amount
was due until paid.
5. SECURITY DEPOSIT. Concurrently with the execution of this
Sublease, Subtenant shall deposit with Sublandlord the sum of Two Thousand
Two Hundred Ninety-Four Dollars ($2,294) ("Deposit"), which shall be held by
Sublandlord as security for the full and faithful performance by Subtenant of
its covenants and obligations under this Sublease. Effective on the Area 2
Sublease Commencement Date, Subtenant shall deposit with Sublandlord an
amount sufficient to increase the Deposit to the sum of Six Thousand Five
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<PAGE>
Hundred Fifty-Seven and Eighty-Eight One Hundredths Dollars ($6,557.88). The
Deposit is not an advance Rent deposit, an advance payment of any other kind,
or a measure of Sublandlord's damage in case of Subtenant's default. If
Subtenant defaults in the full and timely performance of any or all of
Subtenant's covenants and obligations set forth in this Sublease, then
Sublandlord may, from time to time, without waiving any other remedy
available to Sublandlord, use the Deposit, or any portion of it, to the
extent necessary to cure or remedy the default or to compensate Sublandlord
for all or a part of the damages sustained by Sublandlord resulting from
Subtenant's default. Subtenant shall immediately pay to Sublandlord within
five (5) days following demand, the amount so applied in order to restore the
Deposit to its original amount, and Subtenant's failure to immediately do so
shall constitute a default under this Sublease. If Subtenant is not in
default with respect to the covenants and obligations set forth in this
Sublease at the expiration or earlier termination of the Sublease,
Sublandlord shall return the Deposit to Subtenant after the expiration or
earlier termination of this Sublease. Sublandlord's obligations with respect
to the Deposit are those of a debtor and not a trustee. Sublandlord shall not
be required to maintain the Deposit separate and apart from Sublandlord's
general or other funds and Sublandlord may commingle the Deposit with any of
Sublandlord's general or other funds. Subtenant shall not at any time be
entitled to interest on the Deposit.
6. SIGNAGE. Subtenant shall have no right to maintain Subtenant
identification signs in any location in, on, or about the Premises other than
a listing in the lobby directory for the Building and an identification sign
located at the entry to the Sublease Premises, the size, appearance and
location of such signs to be subject to Sublandlord's prior approval. The
cost of such signs, including the installation, maintenance and removal
thereof, shall be at Subtenant's sole cost and expense. If Subtenant fails to
maintain its Sublease Premises sign, or if Subtenant fails to remove same
upon the expiration or earlier termination of this Sublease and repair any
damage caused by such removal, Sublandlord may do so at Subtenant's expense
and Subtenant shall reimburse Sublandlord for all actual costs incurred by
Sublandlord to effect such removal.
7. PARKING. At no additional rent or charge, Subtenant shall have the
right, during the Term of this Sublease, to use on a non-reserved basis up to
four (4) parking spaces in the parking facilities of the Building from and
after the Sublease Commencement Date. Said number of parking spaces shall
increase to seventeen (17) parking spaces from and after the Area 2 Sublease
Commencement Date. All such parking
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<PAGE>
privileges shall be subject to the terms and conditions set forth in the Master
Lease.
8. INCORPORATION OF TERMS OF MASTER LEASE.
(a) This Sublease is subject and subordinate to the Master Lease.
Subject to the modifications set forth in this Sublease, the terms of the
Master Lease are incorporated herein by reference, and shall, as between
Sublandlord and Subtenant (as if they were "Landlord" and "Tenant,"
respectively, under the Master Lease) constitute the terms of this Sublease
except to the extent that they are inapplicable to, inconsistent with, or
modified by, the terms of this Sublease. Notwithstanding the foregoing, to
the extent provisions of the Master Lease are unique and personal to
Sublandlord's interest in the Building pursuant to the Master Lease or are
indicated on the attached Exhibit "A" as intentionally omitted from the
Master Lease, Subtenant shall not be required to comply with such provisions.
Provisions which are personal and unique to Sublandlord under the Master
Lease include, but are not limited to, Paragraphs 17, 18 and 19 of the Master
Lease. In the event of any inconsistencies between the terms and provisions
of the Master Lease and the terms and provisions of this Sublease, the terms
and provisions of this Sublease shall govern. Subtenant acknowledges that it
has reviewed the Master Lease and is familiar with the terms and conditions
thereof.
(b) For the purposes of incorporation herein, the terms of the Master
Lease are subject to the following additional modifications:
(i) In all provisions of the Master Lease (under the terms
thereof and without regard to modifications thereof for purposes of
incorporation into this Sublease) requiring the approval or consent of
Landlord, Subtenant shall be required to obtain the approval or consent of
both Sublandlord and Landlord.
(ii) In all provisions of the Master Lease requiring Tenant to
submit, exhibit to, supply or provide Landlord with evidence, certificates,
or any other matter or thing, including, without limitation, the provisions
of Sections 10(c) and 10(f) thereof, Subtenant shall be required to submit,
exhibit to, supply or provide, as the case may be, the same to both Landlord
and Sublandlord. In any such instance, Sublandlord shall determine if such
evidence, certificate or other matter or thing shall be satisfactory.
(iii) In the event of any taking by eminent domain or
casualty to the Sublease Premises such that
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<PAGE>
Subtenant is deprived of the use and occupancy of greater than fifty percent
(50%) of the Sublease Premises for a period in excess of ninety (90) days,
Subtenant and Sublandlord shall each have the right to terminate this
Sublease upon not less than thirty (30) days written notice to the other. In
the event of any such taking by eminent domain or casualty such that
Subtenant is deprived of fifty percent (50%) or less of the use and occupancy
of the Sublease Premises, or in the event Subtenant elects to continue
occupancy of the remaining portion of the Sublease Premises after the
occurrence of a taking or casualty giving Subtenant a right to terminate this
Sublease, the Rent shall be proportionally reduced for the portion of the
Term during which Subtenant is prevented from using and occupying the damaged
or taken portion of the Sublease Premises. Sublandlord shall have no
obligation to restore or rebuild any portion of the Sublease Premises after
any destruction or taking by eminent domain, and Subtenant shall have no
rights to any portion of the award in any eminent domain proceeding affecting
the Sublease Premises.
(c) During the Term, Subtenant shall not be required to maintain
casualty insurance policies and coverages with respect to the Sublease
Premises and Subtenant shall be named as an additional insured under such
policies maintained by Sublandlord (to the extent of Subtenant's interest in
the Sublease Premises), evidence of such coverage to be in the form of a
certificate of insurance provided by Sublandlord to Subtenant; PROVIDED,
HOWEVER, such policies and coverages maintained by Sublandlord with respect
to the Building and the Sublease Premises shall not include coverage for
Subtenant's personal property and Subtenant, at its sole cost and expense,
shall maintain such policies and coverages with respect to its personal
property as it may elect. During the Term, Subtenant shall maintain a policy
of comprehensive general liability insurance with respect to its occupancy
of, and activities on, the Sublease Premises and related common areas, which
coverage shall be subject to any required waivers of subrogation as are
described under Paragraph 16 of the Master Lease and shall have a minimum
policy limit of $4,000,000 and shall otherwise meet the requirements of the
Master Lease for such insurance coverage. All such policies shall name
Sublandlord, Landlord and any other party required to be so named under the
Master Lease as additional insureds thereunder and shall be with carriers
reasonably acceptable to Sublandlord and, in all events, in accordance with
the requirements of the Master Lease except as otherwise provided
hereinabove. In the event Subtenant elects to carry its own policies of
casualty insurance with respect to the Sublease Premises, all such policies
shall name Sublandlord as an additional insured thereunder.
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<PAGE>
9. SUBTENANT'S OBLIGATIONS. Subtenant covenants and agrees that all
obligations of Sublandlord under the Master Lease shall be done or performed
by Subtenant with respect to the Sublease Premises, except as otherwise
provided by this Sublease, and Subtenant's obligations shall run to
Sublandlord and Landlord as Sublandlord may determine to be appropriate or be
required by the respective interests of Sublandlord and Landlord. Subtenant
agrees to indemnify Sublandlord, and hold it harmless, from and against any
and all claims, damages, losses, expenses and liabilities (including
reasonable attorneys' fees) incurred as a result of the non-performance,
non-observance or non-payment of any of Sublandlord's obligations under the
Master Lease which, as a result of this Sublease, became an obligation of
Subtenant. If Subtenant makes any payment to Sublandlord pursuant to this
indemnity, Subtenant shall be subrogated to the rights of Sublandlord
concerning said payment. Subtenant shall not do, nor permit to be done, any
act or thing which is, or with notice or the passage of time would be, a
default under this Sublease or the Master Lease.
10. SUBLANDLORD'S OBLIGATIONS. Sublandlord covenants and agrees that
all obligations of Sublandlord under the Master Lease, other than those which
are to be done or performed by Subtenant, with respect to the Sublease
Premises shall be done or performed by Sublandlord. Sublandlord agrees that
Subtenant shall be entitled to receive all services and repairs to be
provided by Landlord to Sublandlord under the Master Lease. Subtenant shall
look solely to Landlord for all such services and shall not, under any
circumstances, seek nor require Sublandlord to perform any of such services,
nor shall Subtenant make any claim upon Sublandlord for any damages which may
arise by reason of Landlord's default under the Master Lease. Any condition
resulting from a default by Landlord shall not constitute as between
Sublandlord and Subtenant an eviction, actual or constructive, of Subtenant
and no such default shall excuse Subtenant from the performance or observance
of any of its obligations to be performed or observed under this Sublease, or
entitle Subtenant to receive any reduction in or abatement of the Rent
provided for in this Sublease unless, and to the extent, Sublandlord is
excused from performance, or entitled to a reduction or abatement of its
rental obligations to Landlord under the Master Lease also. In furtherance of
the foregoing, Subtenant does hereby waive any cause of action and any right
to bring any action against Sublandlord by reason of any act or omission of
Landlord under the Master Lease. Sublandlord covenants and agrees with
Subtenant that Sublandlord will pay all fixed rent and additional rent
payable by Sublandlord pursuant to the Master Lease to the extent that
failure to perform the same would adversely affect Subtenant's use or
occupancy of the Sublease Premises.
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<PAGE>
11. DEFAULT BY SUBTENANT. In the event Subtenant shall be in default
of any covenant of, or shall fail to honor any obligation under, this
Sublease, Sublandlord shall have available to it against Subtenant all of the
remedies available (a) to Landlord under the Master Lease in the event of a
similar default on the part of Sublandlord thereunder or (b) at law.
12. QUIET ENJOYMENT. So long as Subtenant pays all of the Rent due
hereunder and performs all of Subtenant's other obligations hereunder,
Sublandlord shall do nothing to affect Subtenant's right to peaceably and
quietly have, hold and enjoy the Sublease Premises.
13. NOTICES. Anything contained in any provision of this Sublease to
the contrary notwithstanding, Subtenant agrees, with respect to the Sublease
Premises, to comply with and remedy any default in this Sublease or the
Master Lease which is Subtenant's obligation to cure, within the period
allowed to Sublandlord under the Master Lease, even if such time period is
shorter than the period otherwise allowed therein due to the fact that notice
of default from Sublandlord to Subtenant is given after the corresponding
notice of default from Landlord to Sublandlord. Sublandlord agrees to forward
to Subtenant, promptly upon receipt thereof by Sublandlord, a copy of each
notice of default received by Sublandlord in its capacity as Tenant under the
Master Lease. Subtenant agrees to forward to Sublandlord, promptly upon
receipt thereof, copies of any notices received by Subtenant from Landlord or
from any governmental authorities. All notices, demands and requests shall be
in writing and shall be sent either by hand delivery or by a nationally
recognized overnight courier service (e.g., Federal Express), in either case
return receipt requested, to the address of the appropriate party. Notices,
demands and requests so sent shall be deemed given when the same are
received. Notices to Sublandlord shall be sent to the attention of:
Gensia, Inc.
9360 Towne Centre Drive
San Diego, CA 92121
Attn: Mr. Fred Carmody
with a copy to:
Pillsbury Madison & Sutro
101 W. Broadway, Suite 1800
San Diego, California 92101
Attn: Eric A. Kremer, Esq.
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Notices to subtenant shall be sent to the attention of:
Collateral Therapeutics, Inc.
9360 Towne Centre Drive, Suite 130B
San Diego, CA 92121
Attn: Christopher J. Reinhard
14. BROKER. Sublandlord and Subtenant represent and warrant to each
other that no brokers were involved in connection with the negotiation or
consummation of this Sublease. Each party agrees to indemnify the other, and
hold it harmless, from and against any and all claims, damages, losses,
expenses and liabilities (including reasonable attorneys' fees) incurred by
said party as a result of a breach of this representation and warranty by the
other party.
15. CONDITION OF PREMISES. Subtenant acknowledges that it is
subleasing the Sublease Premises "as-is" in an unfurnished condition and that
Sublandlord is not making any representation or warranty concerning the
condition of the Sublease Premises and that Sublandlord is not obligated to
perform any work to prepare the Sublease Premises for Subtenant's occupancy.
Subtenant acknowledges that it is not authorized to make or do any
alterations or improvements in or to the Sublease Premises without
Sublandlord's prior written consent, which consent may impose additional
requirements applicable to the construction and completion of such
alterations or improvements in addition to requiring Subtenant's compliance
with requirements of the Master Lease. Subtenant further acknowledges that it
must deliver the Sublease Premises to Sublandlord on the Sublease Expiration
Date in the condition substantially the same as that on the Sublease
Commencement Date.
16. CONSENT OF LANDLORD. Section 21(b) of the Master Lease requires
Sublandlord to provide thirty (30) days' written notice of this Sublease to
Landlord. Although Sublandlord does not believe that this Sublease requires
the consent of Landlord pursuant to applicable provisions of the Master
Lease, in the event Landlord determines that such consent is required,
Sublandlord shall solicit Landlord's consent to this Sublease promptly
following the execution and delivery of this Sublease by Sublandlord and
Subtenant.
17. TERMINATION OF THE LEASE. If for any reason the term of the Master
Lease shall terminate prior to the Sublease Expiration Date, this Sublease
shall automatically be terminated and Sublandlord shall not be liable to
Subtenant by reason thereof unless said termination shall have been caused by
the default of Sublandlord under the Master Lease, and said
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Sublandlord default was not as a result of a Subtenant default hereunder.
18. ASSIGNMENT AND SUBLETTING.
(a) Independent of and in addition to any provisions of the Master
Lease, including without limitation the obligation to obtain Landlord's
consent to any assignment, it is understood and agreed that Subtenant shall
have no right to sublet the Sublease Premises or any portion thereof or any
right or privilege appurtenant thereto; PROVIDED, HOWEVER, that Subtenant
shall have the right to assign this Sublease or any interest therein, and to
suffer or permit any other person (other than agents, servants or associates
of the Subtenant) to occupy or use the Sublease Premises, only upon the prior
written consent of Sublandlord and Landlord, which consent shall not be
unreasonably withheld. Any assignment by Subtenant without Sublandlord's
prior written consent shall be void and shall, at the option of Sublandlord,
terminate this Sublease.
(b) Subtenant shall advise Sublandlord by notice of (i)
Subtenant's intent to assign this Sublease, (ii) the name of the proposed
assignee and evidence reasonably satisfactory to Sublandlord that such
proposed assignee is comparable in reputation, stature and financial
condition to tenants then leasing comparable space in comparable buildings,
and (iii) the terms of the proposed assignment. Sublandlord shall, within
thirty (30) days of receipt of such notice, and any additional information
requested by Landlord concerning the proposed assignee's financial
responsibility, elect one of the following:
(i) Consent to such proposed assignment;
(ii) Refuse such consent, which refusal shall be on reasonable
grounds; or
(iii) Elect to terminate the Sublease.
(c) In the event that Sublandlord shall consent to an assignment
under the provisions of this Section 18, Subtenant shall pay Sublandlord's
reasonable processing costs and reasonable attorneys' fees incurred in giving
such consent. Notwithstanding any permitted assignment, Subtenant shall at
all times remain directly, primarily and fully responsible and liable for all
payments owed by Subtenant under the Sublease and for compliance with all
obligations under the terms, provisions and covenants of the Sublease. If for
any proposed assignment, Subtenant receives Rent or other consideration,
either initially or over the term of the assignment, in excess of the Rent
required by this Sublease, after a deduction for
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the following: (a) any brokerage commission paid by Subtenant in connection
therewith and (b) any reasonable attorneys fees in connection with preparing
and negotiating an assignment document ("Profit"), Subtenant shall pay to
Sublandlord as additional Rent, fifty percent (50%) of such Profit or other
consideration received by Subtenant within five (5) days of its receipt by
Subtenant or, in the event the assignee makes payment directly to
Sublandlord, Sublandlord shall refund fifty percent (50%) of the Profit to
Subtenant after deducting (a) and (b) above.
(d) Occupancy of all or part of the Sublease Premises by parent,
subsidiary, or affiliated companies or a joint venture partnership of
Subtenant shall not be deemed an assignment or subletting provided that such
parent, subsidiary or affiliated companies or a joint venture partnership
were not formed as a subterfuge to avoid the obligation of this Section 18.
If Subtenant is a corporation, unincorporated association, trust or general
or limited partnership, then the sale, assignment, transfer or hypothecation
of any shares, partnership interest, or other ownership interest of such
entity or the dissolution, merger, consolidation, or other reorganization of
such entity, or the sale, assignment, transfer or hypothecation of the assets
of such entity, shall not be deemed an assignment or sublease subject to the
provisions of this Section 18.
19. LIMITATION OF ESTATE. Subtenant's estate shall in all respects be
limited to, and be construed in a fashion consistent with, the estate granted
to Sublandlord by Landlord. Subtenant shall stand in the place of Sublandlord
and shall defend, indemnify and hold Sublandlord harmless with respect to all
covenants, warranties, obligations, and payments made by Sublandlord under or
required of Sublandlord by the Master Lease with respect to the Subleased
Premises. In the event Sublandlord is prevented from performing any of its
obligations under this Sublease by a breach by Landlord of a term of the
Master Lease, then Sublandlord's sole obligation in regard to its obligation
under this Sublease shall be to use reasonable efforts in diligently pursuing
the correction or cure by Landlord of Landlord's breach.
20. ENTIRE AGREEMENT. It is understood and acknowledged that there are
no oral agreements between the parties hereto affecting this Sublease and
this Sublease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between the
parties hereto or displayed by Sublandlord to Subtenant with respect to the
subject matter thereof, and none thereof shall be used to interpret or
construe this Sublease. This Sublease, and the exhibits and schedules
attached hereto, contain all of the terms, covenants, conditions, warranties
and
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agreements of the panties relating in any manner to the rental, use and
occupancy of the Sublease Premises and shall be considered to be the only
agreements between the parties hereto and their representatives and agents.
None of the terms, covenants, conditions or provisions of this Sublease can
be modified, deleted or added to except in writing signed by the parties
hereto. All negotiations and oral agreements acceptable to both parties have
been merged into and are included herein. There are no other representations
or warranties between the parties, and all reliance with respect to
representations is based totally upon the representations and agreements
contained in this Sublease.
IN WITNESS WHEREOF, the parties have entered into this Sublease as of
the date first written above.
SUBLANDLORD:
GENSIA, INC.,
a Delaware corporation
By: /s/ Illegible
----------------------------------
Its: VP Finance
---------------------------------
SUBTENANT:
COLLATERAL THERAPEUTICS, INC.,
a California corporation
By: /s/ Christopher Reinhard
----------------------------------
Its: Vice President CFO
---------------------------------
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<PAGE>
EXHIBIT "A"
COPY OF MASTER LEASE
Attached
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<PAGE>
LEASE AGREEMENT
by and between
GENA PROPERTY COMPANY,
a California partnership
as LANDLORD
and
GENSIA, INC.,
a Delaware corporation,
as TENANT
Premises: San Diego, California
Dated as of: December 21, 1993
<PAGE>
LEASE AGREEMENT, made as of this 21st day of December, 1993, between GENA
PROPERTY COMPANY, a California partnership, ("LANDLORD") the partners of which
are GENA (CA) QRS 11-25, INC., a California corporation ("GENA:11") and GENA
(CA) QRS 12-1, INC., a California corporation ("GENA:12") with an address c/o W.
P. Carey & Co., Inc., 620 Fifth Avenue, New York, New York 10020, and GENSIA,
INC. ("TENANT"), a Delaware corporation with an address at 9360 Towne Centre
Drive, San Diego, California 92121.
In consideration of the rents and provisions herein stipulated to be paid
and performed, Landlord and Tenant hereby covenant and agree as follows:
1. DEMISE OF PREMISES. Landlord hereby demises and lets to Tenant, and
Tenant hereby takes and leases from Landlord, for the term and upon the
provisions hereinafter specified, the following described property
(collectively, the "LEASED PREMISES"): (a) the real property described in
EXHIBIT "A-1" hereto, together with the Appurtenances (collectively, the
"LAND"); (b) the buildings, structures, driveways, walkways and other
improvements now or hereafter constructed on the Land (collectively, the
"STRUCTURES"); and (c) the Building Systems Equipment (as defined in Paragraph
2).
2. CERTAIN DEFINITIONS.
"Additional Rent" shall mean Additional Rent as defined in Paragraph
7.
"Adjoining Property" shall mean all appurtenant sidewalks, driveways,
curbs, gores and vault spaces which are located on land adjoining the Land and
which Tenant is entitled to use and responsible to repair.
"Affiliate" with respect to Tenant shall mean any other Person
controlling, controlled by or under common control with Tenant and "control"
shall mean the power to direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
"Alterations" shall mean all changes, additions, improvements or
repairs to, all alterations, reconstructions, renewals, replacements or removals
of and all substitutions or replacements for any of the Improvements, both
interior and exterior, structural and non-structural, and ordinary and
extraordinary.
"Appurtenances" shall mean all tenements, hereditaments, easements,
rights-of-way, rights, privileges in and to the Land, including (a) easements
over other lands granted by any Easement Agreement and (b) rights to use any
streets, ways, alleys, vaults, gores or strips of land adjoining the Land.
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<PAGE>
"Contractors" shall mean those contractors who are parties to the
Construction Contracts.
"Costs" of a Person or associated with a specified transaction shall
mean all reasonable costs and expenses incurred by such Person or associated
with such transaction, including without limitation, attorneys' fees and
expenses, court costs, brokerage fees, escrow fees, title insurance premiums,
mortgage commitment fees, mortgage points, recording fees and transfer taxes, as
the circumstances require.
"Covenant Breach" shell mean Covenant Breach as defined in Paragraph
29(e).
"Covenant Event of Default" shall mean a Covenant Breach for which a
Letter of Credit is not issued in accordance with the provisions of Paragraph
29(e).
"CPI" shall mean the CPI as defined in EXHIBIT "D".
"Debt Rent" shall mean Debt Rent as defined in Paragraph 37(a)(ii).
"Default Rate" shall mean the Default Rate as defined in Paragraph
7(a)(iv).
"Direct Costs" shall mean Direct Costs as defined in Section 1.01 of
the Construction Management Agreement.
"Early Termination Amount" shall mean [INTENTIONALLY OMITTED].
"Early Termination Date" shall mean Early Termination Date as defined
in Paragraph 18.
"Early Termination Event" shall mean an Early Termination Event as
defined in Paragraph 18.
"Early Termination Notice" shall mean Early Termination Notice as
defined In Paragraph 18.
"Easement Agreements" shall mean any recorded conditions, covenants,
restrictions, easements, declarations, licenses and other agreements affecting
the Leased Premises. The initial Easement Agreements are listed on the Schedule
of Permitted Encumbrances attached hereto as EXHIBIT "C". Tenant shall not
negotiate or execute any Easement Agreement without Landlord's prior written
consent, which shall not be unreasonably withheld or delayed. If Tenant or
Landlord subsequently negotiates and the other party approves Easement
Agreements in addition to those listed on EXHIBIT "C", such additional Easement
Agreements shall be deemed to be Included as
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Landlord, Tenant or Lender, any Federal, state or local government or any other
Person for the costs of any removal or remedial action or natural resources
damage or for bodily injury or property damage, (b) any deposit, storage,
dumping, placement or use of any Hazardous Substance at, upon, under or within
the Leased Premises or which extends to any Adjoining Property in violation of
any Environmental Law or in excess of any reportable quantity established under
any Environmental Law or which could result in any liability to any Federal,
state or local government or to any other Person for the costs of any removal or
remedial action or natural resources damage or for bodily injury or property
damage, (c) the abandonment or discarding of any barrels, containers or other
receptacles containing any Hazardous Substances in violation of any
Environmental Laws, (d) any activity, occurrence or condition which could result
in any liability, cost or expense to Landlord or Lender or any other owner or
occupier of the Leased Premises, or which could result in a creation of a lien
on the Leased Premises, under any Environmental Law, or (e) any violation of or
noncompliance with any Environmental Law.
"Equipment" shall mean Building Systems Equipment and Tenant's
Equipment.
"Equity Rent" shall mean Equity Rent as defined in Paragraph 37(b).
"Event of Default" shall mean an Event of Default as defined in
Paragraph 22(a).
"Existing Leases" is defined in Paragraph 21.
"Fair Market Rent" shall mean Fair Market Rent as determined in
accordance with Section 3 of EXHIBIT "D".
"Federal Funds" shall mean federal or other immediately available
funds which at the time of payment are legal tender for the payment of public
and private debts in the United States of America.
"Final Release Conditions" shall mean Final Release Conditions as
defined in Paragraph 29.
"Financial Covenants" shall mean the financial covenants of Tenant
described on EXHIBIT "E".
"Funded Indebtedness" shall mean Funded Indebtedness as defined in
EXHIBIT "E".
"Funding Deadline" shall mean [INTENTIONALLY OMITTED].
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<PAGE>
"Indirect Costs" shall mean Indirect Costs as defined in Section 1.01
of the Construction Management Agreement.
"Initial Lender" shall mean The Northwestern Mutual Life Insurance
Company and its successors and assigns with respect to the Initial Loan.
"Initial Loan" shall mean the [INTENTIONALLY OMITTED]loan from Initial
Lender to Landlord.
"Initial Term" shall mean the Initial Term as defined in Paragraph 5.
"Initial Term Commencement Date" shall mean Initial Term Commencement
Date as defines in Paragraph 5(a).
"Initial Term Expiration Date" shall mean Initial Term Commencement
Date as defined in Paragraph 5(a).
"Insurance Requirements" shall mean the requirements of all insurance
policies required to be maintained in accordance with this Lease.
"Land" shall mean the Land as defined in Paragraph 1 and described in
EXHIBIT "A-1".
"Landlord's Cash Contribution" shall mean [INTENTIONALLY OMITTED].
"Landlord's Maximum Contribution" shall mean [INTENTIONALLY OMITTED].
"Landlord's Share of Project Costs" shall mean [INTENTIONALLY
OMITTED].
"Law" shall mean any constitution, statute, rule of law, code,
ordinance, order, judgment, decree, injunction, rule, regulation, policy,
requirement or administrative or judicial determination, even if unforeseen or
extraordinary, of every duly constituted governmental authority, court or
agency, now or hereafter enacted or in effect.
"Lease" shall mean this Lease Agreement.
"Leased Premises" shall mean the Leased Premises as defined in
Paragraph 1.
"Legal Requirements" shall mean all present and future Laws (including
but not limited to Environmental Laws and Laws relating to accessibility to,
usability by, and discrimination against, disabled individuals) and all
covenants, restrictions and conditions now or hereafter of record which may be
applicable to Tenant or to any of the Leased Premises, or to
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"Note" shall mean any promissory note evidencing Landlord's obligation
to repay a Loan, as the same may be amended, supplemented or modified.
"Notice Receipt Date" shall mean Notice Receipt Date as defined in
Paragraph 18(b).
"Occupancy Date" shall mean the date on which each of the following
events has occurred: (i) the Tenant Improvements have been completed
substantially in accordance with the Plans, as certified to Landlord by the
Architect (as defined in the Construction Management Agreement), and (ii) all
permanent permits and licenses required for the occupancy of the Leased Premises
have been obtained.
"Partial Casualty" shall mean any Casualty which does not constitute
an Early Termination Event.
"Partial Condemnation" shall mean any Condemnation which does not
constitute an Early Termination Event.
"Partial Release Conditions" shall mean Partial Release Conditions as
defines in Paragraph 29(b).
"Permitted Encroachments" shall mean the encroachments listed on that
certain ALTA/ACSM Land Title Survey of the Land dated December 2, 1992 and
revised November 21, 1993 which was prepared by Bock & Clark's National
Surveyors Network.
"Permitted Encumbrances" shall mean the existing state of title to the
Leased Premises including those covenants, restrictions, reservations, liens,
conditions and easements and other encumbrances, other than any Mortgage or
Assignment by Landlord, listed on EXHIBIT "C" hereto. It is agreed that such
listing shall not be deemed to revive any such encumbrances that have expired or
terminated or are otherwise invalid or unenforceable.
"Person" shall mean an individual, partnership, association,
corporation or other entity.
"Plans" shall mean the plane and specifications prepared and to be
prepared by McGraw Baldwin Architects or another architect selected by Tenant
for the installation and construction of the Tenant Improvements. A list of the
existing Plans is attached to the Construction Management Agreement. Any
amendments, modifications or additions to the Plans shall be approved as
provided in the Construction Management Agreement.
"Prepayment Premium" shall mean any payment (other than a payment of
principal and/or interest which Landlord is required to make under a Note or a
Mortgage) by reason of any prepayment by Landlord of any principal due under
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"Rent Determination Date" shall mean the date when the Fair Market
Rent is determined in accordance with Section 3 of EXHIBIT "D".
"Requisition" shall mean any temporary requisition or confiscation of
the use or occupancy of any of the Leased Premises by any governmental
authority, civil or military, whether pursuant to an agreement with such
governmental authority in settlement of or under threat of any such requisition
or confiscation, or otherwise.
"Retention Date" Shall mean the later of the date on which the amount
of the Remaining Sum is finally determined or the date on which Landlord's right
to the Remaining Sum is finally determined.
"Site Assessment" shall mean a Site Assessment as defined in Paragraph
10(c).
"State" shall mean the State of California.
"Structures" shall mean the Structures as defined in Paragraph 1.
"Surviving Obligations" shall mean any obligations of Tenant under
this Lease, actual or contingent, which arise on or prior to the expiration or
prior termination of this Lease or which survive such expiration or termination
by their own terms.
"Taking" shall mean (a) any taking or damaging of all or a portion of
any of the Leased Premises (i) in or by condemnation or other eminent domain
proceedings pursuant to any Law, general or special, or (ii) by reason of any
agreement with any condemner in settlement of or under threat of any such
condemnation or other eminent domain proceeding, or (b) any inverse or other de
facto condemnation. The Taking shall be considered to have taken place as of the
later of the date actual physical possession is taken by the condemner, or the
date on which the right to compensation and damages accrues under the Law
applicable to the Leased premises.
"Tenant Improvements" shall mean all interior improvements and
equipment to be purchased, paid for, constructed and/or installed in the
Structures, all in accordance with the Plans and the terms of the Construction
Management Agreement. The Tenant Improvements, including the Building Systems
Equipment, shall not include Tenant's Equipment.
"Tenant's Equipment" shall mean all furniture, fixtures and equipment
which are owned and paid for by Tenant at any time before or during the Term and
transferred to and installed in the Structures and any replacements thereof,
except
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COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD, EXPRESS OR
IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, ARISING PURSUANT TO THE
UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING
OTHERWISE.
(c) Tenant represents to Landlord that Tenant has examined the title
to the Leased Premises prior to the execution and delivery of this Lease and has
found the same to be satisfactory for the purposes contemplated hereby. Tenant
acknowledges that (i) fee simple title (both legal and equitable) is in Landlord
and that Tenant has only the leasehold right of possession and use of the Leased
Premises as provided herein, (ii) the Structures conform to all material Legal
Requirements and all Insurance Requirements, (iii) all easements necessary or
appropriate for the use or operation of the Leased Premises have been obtained,
(iv) except as shown on the schedule of even date delivered to Landlord, all
contractors and subcontractors who have performed work on or supplied materials
to the Leased Premises have been fully paid, and all materials and supplies have
been fully paid for, (v) the Structures (except for the Tenant Improvements)
have been fully completed in all material respects in a workmanlike manner of
first class quality, (vi) all Equipment (except for the Tenant Improvements)
necessary or appropriate for the use or operation of the Leased Premises has
been installed and is presently fully operative In all material respects, and
(vii) upon completion of the Tenant Improvements the Tenant Improvements will be
fully completed, installed and operative in all respects and of a first class
quality.
(d) Landlord hereby assigns to Tenant, without recourse or warranty
whatsoever, all warranties, guaranties, indemnities and similar rights which
Landlord may have against any manufacturer, seller, engineer, contractor or
builder in respect of any of the Leased Premises. Such assignment shall remain
in effect until an Event of Default occurs or until the expiration or earlier
termination of this Lease, whereupon such assignment shall cease and all of said
warranties, guaranties, indemnities and other rights shall automatically revert
to Landlord.
(e) Pursuant to the Construction Management Agreement, Tenant will
cause the Tenant Improvements to be constructed and installed with funds more
particularly described in the Construction Management Agreement. The Tenant
Improvements will be owned by Landlord and are included within the Leased
Premises. Tenant acknowledges that the Tenant Improvements have not yet been
completed and that, pursuant to the Construction Management Agreement, Tenant
has the responsibility for causing the Tenant Improvements to be completed in
accordance with the terms of the Construction Management Agreement. Landlord
will not make any representations or warranties with respect to the Tenant
Improvements. Tenant further acknowledges that, upon occurrence
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minimize disclosure by Tenant of confidential or proprietary products being
developed or manufactured by Tenant.
5. TERM.
(a) Subject to all of the provisions of this Lease, Tenant shall have
and hold the Leased Premises for a primary term ("PRIMARY TERM") commencing on
the date hereof and ending on the last day of the calendar month in which the
Funding Deadline occurs (the "PRIMARY TERM EXPIRATION DATE") and for an initial
term (the "INITIAL TERM") commencing on the first day of the first month
following the Primary Term Expiration Date (the "INITIAL TERM COMMENCEMENT
DATE") and ending on the last day (the "INITIAL TERM EXPIRATION DATE") of the
one hundred eightieth (180th) calendar month next following the date on which
the Initial Term commences. If all Rent and all other sums due hereunder shall
not have been fully paid by the end of the Term, Landlord may, at its option,
extend the Term on a month-to-month basis until all said sums have been fully
paid.
(b) Provided that if, on or prior to the Initial Term Expiration Date
or any other Renewal Date (as hereinafter defined) this Lease shall not have
been terminated pursuant to any provision hereof, then on the Initial Term
Expiration Date and on the tenth (10th), twentieth (20th) and thirtieth (30th)
anniversaries of the Initial Term Expiration Date (the Initial Term Expiration
Date and each such anniversary being a "RENEWAL DATE"), the Term shall be deemed
to have been automatically extended for an additional period of ten (10) years
(each such ten (10) year period, a "RENEWAL TERM"), unless Tenant shall notify
Landlord in writing at least one (1) year prior to the next Renewal Date that
Tenant is terminating this Lease as of the next Renewal Date. If Tenant so
notifies Landlord of Tenant's election to terminate this Lease, Tenant shall
deliver to Landlord such additional documents in recordable form as are
necessary to delete from the public records any reference to the leasehold
estate and other rights of Tenant hereunder. Any such extension of the Term
shall be subject to all of the provisions of this Lease, as the same may be
amended, supplemented or modified.
(c) If Tenant exercises its option not to extend or further extend
the Term, or if an Event of Default occurs, then Landlord shall have the right
during the remainder of the Term then in effect and, in any event, Landlord
shall have the right during the last year of the Term, to (i) advertise the
availability of the Leased Premises for sale or reletting and to erect upon the
Leased Premises signs indicating such availability and (ii) show the Leased
Premises to prospective purchasers or tenants or their agents at such reasonable
times as Landlord may select. Tenant may reasonably limit the extent of any such
inspection so as to minimize disclosure by Tenant of
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following sums until paid in full: (1) all overdue installments of Basic Rent
from the respective due dates thereof, provided that the Default Rate shall not
be due on any installment not paid as a result of Initial Lender's failure to
draw on the Letter of Credit pursuant to Paragraph 37(b) hereof, (2) all overdue
amounts of Additional Rent relating to obligations which Landlord or Lender
shall have paid on behalf of Tenant, beginning five (5) Business Days after
notice of payment thereof by Landlord or Lender, and (3) all other overdue
amounts of Additional Rent, from the date when any such amount becomes overdue.
(b) Subject to any specific provisions of this Lease to the contrary,
Tenant shall pay and discharge (i) any Additional Rent referred to in Paragraph
7(a)(i) when the same shall become due, provided that amounts which are billed
to Landlord, Lender or any third party, but not to Tenant, shall be paid within
ten (10) days after Landlord's or Lender's written demand for payment thereof,
and (ii) any other Additional Rent, within fifteen (15) days following Landlords
demand for payment thereof. At the time Landlord makes demand for payment,
Landlord shall furnish to Tenant reasonably detailed invoices or statements for
all items of Additional Rent paid by Landlord or Lender.
(c) Notwithstanding anything in this Paragraph 7 to the contrary,
Tenant shall not be responsible for paying any costs of Landlord and/or any
Lender incurred with respect to any sale, transfer, or financing of the Leased
Premises by Landlord unless Tenant purchases the Leased Premises from Landlord
pursuant to any provision of this Lease which requires Tenant to pay such costs.
8. NET LEASE; NON-TERMINABILITY.
(a) This is a net lease and all Monetary Obligations shall be paid
without notice or demand and without set-off, counterclaim, recoupment,
abatement, suspension, deferment, diminution, deduction, reduction or defense
(collectively, a "SET-OFF").
(b) Except as otherwise expressly provided herein, this Lease and the
rights of Landlord and the obligations of Tenant hereunder shall not be affected
by any event or for any reason, including the followings (i) any damage to or
theft, loss or destruction of any of the Leased Premises, (ii) any Condemnation,
(iii) the prohibition, limitation or restriction of Tenant's use of any of the
Leased Premises, (iv) any eviction by paramount title or otherwise, (v) Tenant's
acquisition of ownership of any of the Leased Premises other than pursuant to an
express provision of this Lease, (vi) any default on the part of Landlord
hereunder or under any Note, Mortgage, Assignment by Landlord or any other
agreement, (vii) any latent or other defect in any of the Leased Premises,
(viii) the breach of any
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pay (collectively, the "IMPOSITIONS"); provided, however, that nothing herein
shall obligate Tenant to pay (A) income, excess profits or other taxes of
Landlord (or Lender) which are determined on the basis of Landlord's (or
Lender's) net income or net worth (unless and only to the extent that such taxes
are in lieu of or a substitute for any other tax, assessment or other charge
upon or with respect to the Leased Premises which, if it were in effect, would
be payable by Tenant under the provisions hereof or by the terms of such tax,
assessment or other charge), (B) any estate, inheritance, succession, gift or
similar tax imposed on Landlord, (C) any capital gains tax imposed on Landlord
in connection with the sale of the Leased Premises to any Person, (D)
installments of principal and/or interest payable by Landlord on any Loan, (E)
property management fees payable by Landlord or (F) increases in real estate
taxes which result from a transfer of the Leased Premises during the first three
(3) years of the Initial Term or from a transfer of the Leased Premises at any
time to any affiliate of Landlord or of Corporate Property AssociateS 11
Incorporated or Corporate Property Associates 12 Incorporated. If any Imposition
may be paid in installments without interest or penalty, Tenant shall have the
option to pay such Imposition in installments; in such event, Tenant shall be
liable only for those installments which accrue or become due and payable during
the Term. Tenant shall prepare and file all tax reports required by governmental
authorities which relate to the Impositions. Tenant shall deliver to Landlord
(1) copies of all settlements and notices pertaining to the Impositions which
may be issued by any governmental authority within ten (10) days after Tenant's
receipt thereof, (2) receipts for payment of all taxes required to be paid by
Tenant hereunder within thirty (30) days after the due date thereof and (3)
receipts for payment of all other Impositions within ten (10) days after
Landlord's request therefor.
(b) At any time following the occurrence of a Monetary Event of
Default or at any time following a draw on the Letter of Credit, Landlord shall
have the right to require Tenant to pay to Landlord an additional monthly sum
(each an "ESCROW PAYMENT") sufficient to pay the Escrow Charges (as hereinafter
defined) as they become due on an annual basis and in the amounts actually
payable. As used herein, "ESCROW CHARGES" shall mean real estate taxes on the
Leased Premises or payments in lieu thereof and premiums on any property and
general liability insurance required by this Lease. Landlord shall determine the
amount of the Escrow Charges and of each Escrow Payment. If the Escrow Payments
are held by Lender, the Escrow Payments may be commingled with other funds of
Lender. If the Escrow Payments are held by Landlord, the Escrow Payments shall
not be commingled with other funds of Landlord, shall be invested and interest
thereon shall accrue to the benefit of Tenant. Landlord shall apply the Escrow
Payments to the payment of the Escrow Charges in such order or priority as
Landlord shall determine or as required by law. If at any time the
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Violation exists in violation of Law or if Landlord is required to conduct a
Site Assessment by any governmental agency or in order to monitor an existing
Environmental Violation. Provided that no Monetary Event of Default shall have
occurred and be continuing, Tenant shall have the right to consent to the
selection of the Site Reviewers, which consent shall not be unreasonably
withheld or delayed. If a Monetary Event of Default exists, Tenant shall not
have any right to consent to the selection of the site Reviewers so long as the
Site Reviewers shall be a nationally recognized firm of licensed engineers with
an office in San Diego County, experienced in handling environmental matters in
such county and who specialize in (i) conducting environmental site assessments
to determine whether specific properties are in compliance with Environmental
Laws and (ii) formulating, implementing and managing the remediation of the
discharge or release of Hazardous Substances.
(d) If an Environmental Violation occurs or is found to exist and, in
Landlords reasonable judgment, the cost of remediation of the same is likely to
exceed $500,000, Tenant shall provide to Landlord, within ten (10) days after
Landlord's request therefor, reasonable financial assurances that Tenant will
effect such remediation in accordance with applicable Environmental Laws. Such
financial assurances shall not exceed the financial assurances that would be
required by an applicable governmental agency.
(e) Notwithstanding any other provision of this Lease, if an
Environmental Violation occurs or is found to exist and the Term would otherwise
terminate or expire, then, at the option of Landlord, the Term shall be
automatically extended beyond the date of termination or expiration and this
Lease shall remain in full force and effect beyond such date until the earlier
to occur of (i) the completion of all remedial action in accordance with
applicable Environmental Laws or (ii) the date specified in a written notice
from Landlord to Tenant terminating this Lease.
(f) Tenant shall notify Landlord immediately after becoming aware of
any Environmental Violation (or receipt of formal notice of any alleged
Environmental Violation) or noncompliance with any of the covenants contained in
this Paragraph 10 and shall forward to Landlord immediately upon receipt thereof
copies of all orders, reports, notices, permits, applications or other
communications relating to any such violation or noncompliance.
(g) All future leases, subleases or concession agreements relating to
the Leased Premises entered into by Tenant shall require the other Person
thereto to comply with all Environmental Laws with respect to its use and
occupancy of the Leased Premises.
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preservation and safety of the Leased Premises. Tenant shall promptly make all
Alterations of every kind and nature, whether foreseen or unforeseen, which may
be required to comply with the foregoing requirements of this Paragraph 12(a).
Landlord shall not be required to make any Alteration, whether foreseen or
unforeseen, or to maintain any of the Leased Premises or Adjoining Property in
any way, and Tenant hereby expressly waives any right which may be provided for
in any Law now or hereafter in effect to make Alterations at the expense of
Landlord or to require Landlord to make Alterations. Any Alteration made by
Tenant pursuant to this Paragraph 12 shall be made in conformity with the
provisions of Paragraph 13.
(b) Except for Permitted Encroachments, if any Improvement, now or
hereafter constructed, shall (i) encroach upon any setback or any property,
street or right-of-way adjoining the Leased Premises, (ii) violate the
provisions of any restrictive covenant affecting the Leased Premises, (iii)
hinder or obstruct any easement or right-of-way to which any of the Leased
Premises is subject or (iv) impair the rights of others in, to or under any of
the foregoing, Tenant shall, promptly after receiving notice or otherwise
acquiring knowledge thereof, either (A) obtain from all necessary parties
waivers or settlements of all claims, liabilities and damages resulting from
each such encroachment, violation, hindrance, obstruction or impairment, whether
the same shall affect Landlord, Tenant or both, or (B) take such action as shall
be necessary to remove all such encroachments, hindrances or obstructions and to
end all such violations or impairments, including, if necessary, making
Alterations.
13. ALTERATIONS AND IMPROVEMENTS.
(a) In addition to Alterations required by Paragraphs 12 and 17
Tenant shall have the right, without having to obtain the prior written consent
of Landlord and Lender, to (i) make any Alterations to the Structures for a cost
of not more than [INTENTIONALLY OMITTED] in any one instance, or (ii) install
Building Systems Equipment in the Structures or accessions to the Building
Systems Equipment the cost of which as to such Building Systems Equipment or
series of related Building Systems Equipment, does not exceed [INTENTIONALLY
OMITTED]. The consent of Landlord and Lender shall be required (A) if a Monetary
Event of Default exists, or (B) if the Alterations (or a series of related
Alterations) exceeds [INTENTIONALLY OMITTED], or (C) if Tenant desires to remove
and not upgrade or replace during the Term any Tenant Improvements which had an
initial cost in the aggregate in excess of [INTENTIONALLY OMITTED], or (D) if
Tenant desires to construct upon the Land any additional Improvements, provided
that, with respect to (C) and (D) above, such consent shall not be unreasonably
withheld or delayed. In any event, the consent of Landlord and Lender will not
be withheld on the basis of the type of Alterations (I.E., laboratory or office
space) to be constructed.
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14. PERMITTED CONTESTS.
(a) Notwithstanding any other provision of this Lease, Tenant shall
not be required to (a) pay any Imposition, (b) comply with any Legal
Requirement, (c) discharge or remove any lien referred to any Paragraph of this
Lease except Paragraph 21 or (d) take any action with respect to any
encroachment, violation, hindrance, obstruction or impairment referred to in
Paragraph 12(b) (such non-compliance with the terms hereof being hereinafter
referred to collectively as "PERMITTED VIOLATIONS"), so long as at the time of
such contest no Monetary Event of Default or Covenant Event of Default exists
and so long an Tenant shall contest, in good faith, the existence, amount or
validity thereof, the amount of the damages caused thereby, or the extent of its
or Landlord's liability therefor by appropriate proceedings which shall operate
during the pendency thereof to prevent or stay (i) the collection of, or other
realization upon, the Permitted Violation so contested, (ii) the sale,
forfeiture or loss of any of the Leased Premixes or any Rent to satisfy or to
pay any damages caused by any Permitted Violation, (iii) any interference with
the use or occupancy of any of the Leased Premises, (iv) any interference with
the payment of any Rent, (v) the cancellation or increase in the rate of any
insurance policy or a statement by the carrier that coverage will be denied or
(vi) the enforcement or execution of any injunction, order or Legal Requirement
with respect to the Permitted Violation.
(b) Tenant shall provide Landlord security which is satisfactory, in
Landlord's reasonable judgment, to assure that such Permitted Violation is
corrected, including all Costs, interest and penalties that may be incurred or
become due in connection therewith. If such security it in the form of a cash
deposit, interest thereon shall accrue for the benefit of Tenant, and Landlord
shall not commingle any such cash security provided by Tenant with other funds
of Landlord. While any proceedings which comply with the requirements of this
Paragraph 14 are pending and the required security is held by Landlord, Landlord
shall not have the right to correct any Permitted Violation thereby being
contested unless Landlord is required by law to correct such Permitted Violation
and Tenants contest does not prevent or stay such requirement as to Landlord.
Each such contest shall be promptly and diligently prosecuted by Tenant to a
final conclusion, except that Tenant, so long as the conditions of this
Paragraph 14 are at all times complied with, shall have the right to attempt to
settle or compromise such contest through negotiations. Tenant shall pay any and
all losses, judgments, decrees and Costs in connection with any such contest and
shall, promptly after the final determination of such contest, fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed or be
determined to be payable therein or in connection therewith, together with all
penalties, fines, interest and Costs thereof or in connection
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prompt notice of any such claim and Tenant is prejudiced as a result of
Indemnitee's delay, Tenant shall not be obligated to indemnify Indemnitee to the
extent Tenant is thereby prejudiced. Upon receipt of notice from any Indemnitee,
Tenant shall, subject to the preceding sentence, resist or defend such action or
proceeding by retaining counsel reasonably satisfactory to such Indemnitee, and
such Indemnitee will cooperate and assist in the defense of such action or
proceeding it reasonably requested so to do by Tenant. Any Indemnitee may
retain separate counsel to represent Indemnitee, but only at such Indemnitee's
sole cost and expense.
(c) The obligations of Tenant under this Paragraph 15 shall survive
any termination or expiration of this Lease.
16. INSURANCE.
(a) Tenant shall maintain the following insurance on or in connection
with the Leased Premises:
(i) Insurance against physical loss or damage to the
Improvements as provided under a standard "All Risk" property policy including
but not limited to flood (if the Leased Premises are in a flood zone) and
earthquake coverage. The amount of coverage shall not be less than the actual
replacement cost of the Improvements, except for the Flood and Earthquake
insurance which shall be provided with limits of $5,000,000 and $10,000,000
respectively. Such policies shall contain deductibles of not more than $100,000,
except for Flood and Earthquake Insurance which shall have the customary
deductibles reasonably available for such properties.
(ii) Commercial General Liability Insurance against claims for
personal and bodily injury, death or property damage occurring on, in or as A
result of the use of the Leased Premises, in an amount not less than $10,000,000
per occurrence/annual aggregate, including but not limited to Garagekeepers
Liability, Host Liquor Liability, and all other coverage extensions that are
usual and customary for properties of this size and type.
(iii) Worker's Compensation Insurance covering all of the Tenants
employees for claims for death, disease or bodily injury that may be asserted
against Tenant. In lieu of such Worker's Compensation Insurance, a program of
self-insurance complying with the rules, regulations and requirements of the
appropriate agency of the State.
(iv) Comprehensive Boiler and Machinery Insurance including but
not limited to Service Interruption, Expediting Expenses, Ammonia Contamination
in an amount not less than $5,000,000 for damage to property resulting from such
covered perils as found in a standard Comprehensive Boiler and Machinery
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proceeds are received by Landlord and Debt Rent received by Lender on behalf of
Landlord. Each insurance policy referred to in clauses (i), (iv), (v) and (vi)
of Paragraph 16(a) shall contain standard non-contributory mortgagee clauses in
favor of and acceptable to Lender. Each policy required by any provision of
Paragraph 16(a), except clause (iii) thereof, shall provide that it may not be
canceled except after thirty (30) days' prior notice to Landlord and Lender.
Each such policy shall also provide that any loss otherwise payable thereunder
shall be payable notwithstanding (i) any act or omission of the Landlord or
Tenant which might, absent such provision, result in a forfeiture of all or a
part of such insurance payment, (ii) the occupation or use of any of the Leased
Premises for purposes more hazardous than those permitted by the provisions of
such policy, (iii) any foreclosure or other action or proceeding taken by Lender
pursuant to any provision of the Mortgage, Note, Assignment by Landlord or other
document evidencing or securing the Loan upon the happening of an event of
default therein or (iv) any change in title to or ownership of any of the Leased
Premises.
(d) Tenant shall pay as they become due all premiums for the
insurance required by Paragraph 16(a), shall renew or replace each policy and
deliver to Landlord and Lender evidence of the payment of the full premium
therefor or installment then due at least thirty (30) days prior to the
expiration date of such policy, and Tenant shall deliver evidence of insurance
acceptable to Landlord and Lender or, if requested by Landlord or Lender,
certified copies of all policies required within thirty (30) days prior to the
expiration date of such policy.
(e) Anything in this Paragraph 16 to the contrary notwithstanding,
any insurance which Tenant is required to obtain pursuant to Paragraph 16(a) may
be carried under a "blanket" or umbrella policy or policies covering other
properties or liabilities of Tenant. The amount of the total insurance
allocated to the Leased Premises, which amount shall be not less than the
amounts required pursuant to this Paragraph 16, shall be specified either (i) in
each such "blanket" or umbrella policy or (ii) in a written statement, which
Tenant shall deliver to Landlord, from the insurer thereunder.
(f) Tenant shall promptly comply with and conform to (i) all
provisions of each insurance policy required by this Paragraph 16 and (ii) all
requirements of the insurers thereunder applicable to any of the Leased Premises
or to the use, manner of use, occupancy, possession, operation, maintenance,
alteration or repair of any of the Leased Premises, even if such compliance
necessitates Alterations or results in interference with the use or enjoyment of
any of the Leased Premises.
(g) Tenant shall not carry separate insurance concurrent in form or
contributing in the event of a Casualty
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all such claims equal to or in excess of Fifty Thousand Dollars ($50,000), and
Landlord and Lender shall have the right to join with Tenant therein. Any
adjustment, settlement or compromise of any such claim equal to or in excess of
Fifty Thousand Dollars ($50,000) shall be subject to the prior written approval
of Landlord and Lender, and Landlord and Lender shall have the right to
prosecute or contest, or to require Tenant to prosecute or contest, any such
claim, adjustment, settlement or compromise. Each insurer is hereby authorized
and directed to make payment under said policies in excess of Fifty Thousand
Dollars ($50,000), directly to Landlord or, If required by the Mortgage, to
Lender Instead of to Landlord and Tenant jointly. Tenant hereby appoints each of
Landlord and Lender as Tenant's attorneys-in-fact to endorse any draft for
payments to be made to Landlord and/or Lender. Any payment of a Net Award of
Fifty Thousand Dollars ($50,000) or less shall be paid directly to Tenant by the
insurance company.
(c) Tenant, immediately upon receiving a Condemnation Notice, shall
notify Landlord and Lender thereof. If Landlord receives a Condemnation Notice,
Landlord shall give Tenant and Lender prompt notice thereof. Except as
specifically provided in the following sentence, Landlord and Lender are
authorized to collect, settle and compromise, in their discretion (and, if no
Monetary Event of Default exists, upon notice to Tenant), the amount of any Net
Award. Provided that no Monetary Event of Default has occurred and is
continuing, Tenant shall be entitled to participate with Landlord and Lender in
any Condemnation proceeding or negotiations under threat thereof and to contest
the Condemnation or the amount of the Net Award therefor. No agreement with any
condemner in settlement or under threat of any Condemnation shall be made by
Tenant without the written consent of Landlord and Lender. Subject to the
provisions of this Paragraph 17(c), Tenant hereby irrevocably assigns to
Landlord any award or payment to which Tenant is or may be entitled by reason of
any Condemnation, whether the same shall be paid or payable for Tenant's
leasehold interest hereunder or otherwise. Nothing in this Lease shall, however,
impair Tenant's right to any award or payment on account of Tenant's Equipment,
moving expenses or loss of business, if available, to the extent that and so
long as (i) Tenant shall have the right to make, and does make, a separate claim
therefor against the condemner and (ii) such claim does not in any way reduce
either the amount of the award otherwise payable to Landlord for the
Condemnation of Landlord's fee interest in the Leased Premises or the amount of
the award (if any) otherwise payable for the Condemnation of Tenant's leasehold
interest hereunder.
(d) If any Partial Casualty (whether or not insured against) or
Partial Condemnation shall occur, this Lease shall continue, notwithstanding
such event, and there shall be no abatement or reduction of any Monetary
Obligations, except as provided in Paragraph 17(e) and 19(c). Promptly after
such Partial Casualty or Partial Condemnation, Tenant, as required in
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(b) An Early Termination Notice shall contain (i) notice of Tenant's
intention to terminate this Lease on the first Basic Rent Payment Date (the
"EARLY TERMINATION DATE") which occurs at least sixty (60) days after the date
of receipt ("NOTICE RECEIPT DATE") by Landlord of the Early Termination Notice,
(ii) a binding and irrevocable offer of Tenant to pay the Early Termination
Amount and (iii) if the Early Termination Event is an event described in
Paragraph 18(a)(ii), the certification and covenants described in the foregoing
Paragraph 18(a) and a certified resolution of the Board of Directors of Tenant
authorizing the same (unless Tenant elects to pay an Early Termination Amount
equal to [INTENTIONALLY OMITTED].
(c) If Landlord shall reject such offer to terminate this Lease by
written notice to Tenant (a "REJECTION"), which Rejection shall contain the
written consent of Lender, not later than forty-five (45) days following the
Notice Receipt Date, then this Lease shall terminate as of the Early Termination
Date; provided, however, that, if Tenant has not satisfied all Monetary
Obligations and all other obligations and liabilities under this Lease which
have arisen on or prior to the Early Termination Date (collectively, "REMAINING
OBLIGATIONS") on the Early Termination Date, then Landlord may, at its option,
extend the date on which this Lease may terminate to a date which is no later
than the first Basic Rent Payment Date after the Early Termination Date on which
Tenant has satisfied all Remaining Obligations. Upon such termination (i) all
obligations of Tenant hereunder shall terminate except for any Surviving
Obligations, (ii) Tenant shall immediately vacate and shall have no further
right, title or interest in or to any of the Leased Premises and (iii) the Net
Award shall be retained by Landlord. Notwithstanding anything to the contrary
hereinabove contained, if Tenant shall have received a Rejection and, on the
date when this Lease would otherwise terminate as provided above, Landlord shall
not have received the full amount of the Net Award payable by reason of the
applicable Early Termination Event due to any action by Tenant, then the date on
which this Lease is to terminate automatically shall be extended to the first
Basic Rent Payment Date after the receipt by Landlord of the full amount of the
Net Award; provided, however, that, if Tenant has not satisfied all Remaining
Obligations on such date, then Landlord may, at its option, extend the date on
which this Lease may terminate to a date which is no later than the first Basic
Rent Payment Date after such date on which Tenant has satisfied all such
Remaining Obligations.
(d) Unless Tenant shall have received a Rejection not later than the
forty-fifth (45th) day following the Notice Receipt Date, Landlord shall be
conclusively presumed to have accepted such offer. If such offer is accepted by
Landlord then, on the Early Termination Date, Tenant shall pay to Landlord the
Early Termination Amount and all Remaining Obligations and, if requested by
Tenant, Landlord and Lender shall (i) convey to Tenant the Leased Premises or
the remaining
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(v) the Restoration Fund shall be held in separate account and
invested in any of the following investments and for such maturities as Landlord
and Tenant shall agree: obligations of the United States, its agencies, or
United States Government sponsored enterprises or obligations, the principal of
and interest on which are guaranteed by the United States or its agencies or
obligations of a state, a territory, or a possession of the United States, or
any political subdivision of any of the foregoing or of the District of
Columbia, which investment shall be graded in the highest three (3) mayor grades
as determined by at least one (1) national rating service, or banker's
acceptances, commercial accounts, certificates of deposit, or depository
receipts issued by a bank, trust company, savings and loan association, savings
bank, credit union or other financial institution whose deposits are, as
appropriate, insured be the Federal Deposit Insurance Corporation or the
National Credit Union Administration or any successor entity, which investment
shall be rated at the time of purchase within the two (2) highest
classifications established by at least one (1) national rating service, and
which matures within one hundred eighty (180) days; and
(vi) such other reasonable conditions as Landlord or Lender may
impose.
(b) Prior to commencement of restoration and at any time during
restoration, if the estimated cost of completing the restoration work free and
clear of all liens, as determined by Landlord, exceeds the amount of the Net
Award available for such restoration, the Tenant shall provide to Landlord and
Lender assurances reasonably satisfactory to Landlord and Lender of the
availability of funds necessary to complete such restoration work. Any sums
deposited by Tenant in the Restoration Fund which remain in the Restoration Fund
upon completion of restoration shall be refunded to Tenant. For purposes of
determining the source of funds with respect to the disposition of funds
remaining after the completion of restoration, the Net Award shall be deemed to
be disbursed prior to any amount added by Tenant.
(c) If any sum remains in the Restoration Fund after completion of
the restoration and any refund to Tenant pursuant to Paragraph 19(b), such sum
(the "REMAINING SUM") shall be retained by Landlord or, if required by a Note or
Mortgage, paid by Landlord to a Lender. If the Remaining Sum is (i) retained by
Landlord, that portion of each installment of Basic Rent payable on or after the
Retention Date shall be reduced by the amount, if any, of the Remaining Sum not
required to be paid to Lender, or (ii) paid to Lender, then each installment of
Basic Rent thereafter payable shall be reduced in the same amount as payments
are reduced under any Note if the Loan corresponding to such Note is reamortized
to reflect such payment, in each case until such Remaining Sum has been applied
in full or until the Term has expired, whichever occurs first. Upon the
expiration
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(A) its credit history;
(B) its capital structure, net worth and unsecured senior debt
rating;
(C) its management and real estate management record;
(D) its operating history;
(E) its intended use of the Leased Premises; and
(F) other factors associated with the proposed assignee's
business as it relates to the use of the Leased Premises, including potential
environmental concerns and liabilities.
(ii) In exercising its right of approval under this Paragraph
21(c) with respect to a sublease which is not a Preapproved Sublet, Landlord
shall limit its consideration to whether or not the proposed sublessee, by
virtue of its business, is significantly more likely to expose the Leased
Premises to a higher risk of Environmental Violation than Tenant in Tenant's use
of the Leased Premises prior to the date of such subletting.
(d) Any Preapproved Assignee or other assignee under any assignment
to which Landlord has consented shall expressly assume all the obligations of
Tenant hereunder pursuant to a written instrument delivered to Tenant at the
time of such assignment. In addition, within ten (10) days after execution of
any assignment, Tenant shall deliver to Landlord and Lender a conformed copy
thereof.
(e) No sublease or assignment entered into in accordance with the
provisions of this Paragraph 21 shall or reduce any obligations of Tenant or
rights of Landlord hereunder, and all obligations of Tenant hereunder shall
continue in full effect as the obligations of a principal and not a guarantor or
surety, as though no subletting or assignment had been made.
(f) With respect to any Preapproved Assignment or Preapproved Sublet,
Tenant shall provide to Landlord information reasonably required by Landlord to
establish that any proposed Preapproved Assignment or Preapproved Sublet
satisfies the criteria set forth above, it being agreed that Tenant shall not be
obligated to disclose to Landlord any confidential or proprietary information.
(g) As of the date hereof, portions of the Structures are subject to
certain leases ("EXISTING LEASES") described in EXHIBIT "F". Tenant covenants
and agrees that it has provided
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writing the obligations of Landlord hereunder and Third Party Purchaser and
Landlord notify Tenant in writing of such transfers. At the request of
Landlord, Tenant will execute such documents confirming the agreement referred
to above and such other agreements as Landlord may reasonably request, provided
that such agreements do not increase the liabilities and obligations of Tenant
hereunder.
22. EVENTS OF DEFAULT.
(a) The occurrence of any one or more of the following (after expiration
of any applicable cure period as provided in Paragraph 22(c)) shall, at the sole
option of Landlord, constitute an "EVENT OF DEFAULT" under this Lease:
(i) Subject to the provisions of Paragraph 29(a), a failure by Tenant
to make any payment of any Monetary Obligation, regardless of the reason for
such failure;
(ii) Subject to the provisions of Paragraph 14, a failure by Tenant
duly to perform and observe, or a violation or breach of, any other provision
hereof in any material respect not otherwise specifically mentioned in this
Paragraph 22(a); provided, however, that any failure to provide the insurance
required by Paragraph 16 (except earthquake and flood insurance if such
coverages are not available in the Southern California area) or any uncured
Environmental Violation with respect to the Leased Premises shall be deemed to
be material;
(iii) any representation or warranty made by Tenant herein or in any
certificate, demand or request made pursuant hereto proves to be incorrect, now
or hereafter, in any material respect;
(iv) a default beyond any applicable cure period by Tenant in any
payment of principal or interest on any obligations for borrowed money having an
original principal balance of $10,000,000 or more in the aggregate, or in the
performance of any other provision contained in any instrument under which any
such obligation is created or secured (including the breach of any covenant
thereunder), if an effect of such default is to cause, or permit any Person to
cause, such obligation to become due prior to its stated maturity;
(v) a default by Tenant beyond any applicable cure period in the
payment of rent or any other monetary obligation under any other leases in the
United States with rental obligations over the terms thereof of $5,000,000 or
more in the aggregate;
(vi) a final, non-appealable judgment or judgments for the payment of
money in excess of $15,000,000 in the aggregate shall be rendered against Tenant
and the same
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(xv) an Event of Default (as defined in the Construction Management
Agreement) shall exist under the Construction Management Agreement beyond any
applicable cure period;
(xvi) Tenant shall fail to restore any amounts drawn under the Letter
of Credit within one hundred twenty (120) days following the date of such draw
or shall fail to deliver to Landlord any Letter of Credit required under
Paragraph 29 within the applicable time period specified therein; or
(xvii) The Initial Lender shall draw all of the Letter of Credit
following the occurrence of any of the events set forth in Paragraph 37(a)(i),
(ii), (iii), (iv) or (v).
(b) No notice or cure period shall be required in any one or more of
the following events:
(A) the occurrence of an Event of Default under clause (i)
(except as otherwise set forth below), (iii), (iv), (v), (vi), (vii), (viii),
(ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi) or (xvii) of Paragraph 22(a);
or
(B) the default consists of a failure to provide any insurance
required by Paragraph 16 except for the failure to provide earthquake or flood
insurance if the same is not available or an assignment or sublease entered into
in violation of Paragraph 21; or
(C) the default is such that any delay in the exercise of a
remedy by Landlord would reasonably be expected to cause irreparable harm to
Landlord.
(c) If the default consists of the failure to pay any Monetary
Obligation under clause (i) of Paragraph 22(a), the applicable cure period shall
be five (5) Business Days from the date on which notice is given, but Landlord
shall not be obligated to give notice of, or allow any cure period for, any such
default more than twice during the Term. Subject to the limitation set forth in
the following sentence, if the default consists of a default under clause (ii)
of Paragraph 22 (a), other than the events specified in clauses (B) and (C) of
Paragraph 22(b), the applicable cure period shall be thirty (30) days from the
date on which notice is given or, if the default cannot be cured within such
thirty (30) day period and delay in the exercise of a remedy would not (in
Landlord's reasonable judgment) cause any material adverse harm to Landlord or
any of the Leased Premises, the cure period shall be extended for the period
required to cure the default (but such cure period, including any extension,
shall not in the aggregate exceed sixty (60) days, provided that Tenant shall
commence to cure the default within the said thirty-day period and shall
actively, diligently and in good faith proceed with and continue the curing of
such default. Notwithstanding anything in this
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<PAGE>
rent as it becomes due under this Lease. Acts of maintenance or preservation or
efforts to relet the Leased Premises or the appointment of a receiver upon
initiative of Landlord to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession.
(d) If Landlord elects, pursuant to Paragraph 23(b), to terminate
this Lease upon a default by Tenant, Landlord may collect from Tenant damages
computed in accordance with the following provisions in addition to Landlord's
other remedies under this Lease:
(i) the worth at the time of award of any unpaid Rent which has
been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which any
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided, plus
(iv) any other Cost necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom including, without limitation, brokerage commissions, the cost
of repairing and reletting the Leased Premises and reasonable attorneys' fees;
plus
(v) at Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by applicable
state law. Damages shall be due and payable from the date of termination.
For the purposes of clauses (i) and (ii) of this paragraph, the "worth
at the time of awards shall be computed by adding interest at the Default Rate
(as specified in Paragraph 7(a)(iv)) to the past due Rent, For the purposes of
clause (iii) of this Paragraph 23(d), the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award, plus one percent (1%).
(e) If, in the Event of a Default by Tenant, Landlord elects to keep
the Lease in effect, Landlord may, to the extent permitted by applicable Law,
declare by notice to Tenant the entire Basic Rent (in the amount of Basic Rent
then in effect) for the remainder of the then current Term to be immediately due
and payable. Tenant shall immediately pay to Landlord all such
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<PAGE>
(i) Landlord shall not be required mitigate any of its damages
hereunder unless required to by applicable Law. If any Law shall validly limit
the amount of any damages provided for herein to an amount which is less than
the amount agreed to herein, Landlord shall be entitled to the maximum amount
available under such Law.
(j) No termination of this Lease, repossession or reletting of the
Leased Premises, exercise of any remedy or collection of any damages pursuant to
this Paragraph 23 shall relieve Tenant of any Surviving Obligations.
(k) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF LANDLORD HEREUNDER,
TENANT WAIVES ANY RIGHT TO A TRIAL BY JURY.
(l) Upon the occurrence of any Event of Default, Landlord shall have
the right (but no obligation) to perform any act required of Tenant hereunder
and, if performance of such act requires that Landlord enter the Leased
Premises, Landlord may enter the Leased Premises for such purpose.
(m) No failure of Landlord (i) to insist at any time upon the strict
performance of any provision of this Lease or (ii) to exercise any option,
right, power or remedy contained in this Lease shall be construed as a waiver,
modification or relinquishment thereof. A receipt by Landlord of any sum in
satisfaction of any Monetary Obligation with knowledge of the breach of any
provision hereof shall not be deemed waiver of such breach, and no waiver by
Landlord of any provision hereof shall be deemed to have been made unless
expressed in a writing signed by Landlord.
(n) Tenant hereby waives and surrenders, for itself and all those
claiming under it, including creditors of all kinds, (i) any right and privilege
which it or any of them may have under any present or future Law to redeem any
of the Leased Premises or to have a continuance of this Lease after termination
of this Lease or of Tenant's right of occupancy or possession pursuant to any
court order or any provision hereof, and (ii) the benefits of any present or
future Law which exempts property from liability for debt or for distress for
rent.
(o) Except as otherwise provided herein, all remedies are cumulative
and concurrent and no remedy is exclusive of any other remedy. Each remedy may
be exercised at any time an Event of Default has occurred and is continuing and
may be exercised from time to time. No remedy shall be exhausted by any exercise
thereof.
24. NOTICES. All notices, demands, requests, consents, approvals, offers,
statements and other instruments or communications required or permitted to be
given pursuant to the provisions of this Lease shall be in writing and shall be
deemed to have been given for all purposes when delivered in person or
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<PAGE>
any damage caused by such removal. Property of Tenant or such third party not so
removed shall become the property of Landlord, and Landlord may thereafter cause
such property to be removed from the Leased Premises, The cost of removing and
disposing of such property and repairing any damage to any of the Leased
Premises caused by such removal shall be paid by Tenant to Landlord upon demand.
Landlord shall not in any manner or to any extent be obligated to reimburse
Tenant for any such property which becomes the property of Landlord pursuant to
this Paragraph 26.
27. NO MERGER OF TITLE. There shall be no merger of the leasehold estate
created by this Lease with the fee estate in any of the Leased Premises by
reason of the fact that the same Person may acquire or hold or own, directly or
indirectly, (a) the leasehold estate created hereby or any part thereof or
interest therein and (b) the fee estate in any of the Leased Premises or any
part thereof or interest therein, unless and until all Persons having any
interest in the interests described in clauses (a) and (b) above which are
sought to be merged shall join in a written instrument effecting such merger and
shall duly record the same.
26. BOOKS AND RECORDS. Tenant shall furnish Landlord with the following:
(i) An soon as available and in any event within sixty (60) days after
the end of each quarterly accounting period in each fiscal year of Tenant (with
the exception of the last quarter), Tenant shall furnish copies of a
consolidated balance sheet of Tenant and its consolidated affiliates as of the
last day of such quarterly accounting period, and copies of the related
consolidated statements of income and of changes in shareholders' equity and in
financial position of Tenant and its consolidated affiliates for such quarterly
accounting period and for the elapsed portion of the current fiscal year ended
with the last day of such quarterly accounting period. All such statements shall
be prepared in accordance with GAAP (except that interim quarterly financials
are not required to include notes) and, if Tenant ceases to be a publicly traded
company, certified as complete and correct in all material respects by the chief
financial officer of Tenant (subject to year-end audit adjustments).
(ii) As soon as available and in any event within one hundred twenty
(120) days after the end of each fiscal year of Tenant, Tenant shall furnish
copies of a consolidated balance sheet of Tenant and its consolidated Affiliates
as of the end of such fiscal year, and copies of the related consolidated
statements of income and of changes in shareholders' equity and in financial
position of Tenant and its consolidated affiliates for such fiscal year. All
such statements shall be in reasonable detail and with appropriate notes, if
any, and be prepared in accordance with GAAP and state in comparative form
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<PAGE>
payment by Tenant of the Rent and all other charges or payments to be paid
hereunder and the performance of the covenants and obligations contained herein,
and the Letter of Credit shall be renewed at least thirty (30) days prior to any
expiration thereof. In addition to its other rights and remedies under the
Letter of Credit, Landlord shall have the right to draw on the Letter of Credit
to pay any installment of Basic Rent not paid within three (3) Business Days
after the due date thereof, and, with respect to the first three (3) (but in no
event more than three (3)) such draws so long as the Letter of Credit remains in
effect and Tenant replenishes any amount drawn under the Letter of Credit within
one hundred twenty (120) days (but in any event at least thirty (30) days prior
to the expiration thereof) after such draw no Event of Default shall exist by
reason of any such draw.
[THE REMAINDER OF THIS PARAGRAPH INTENTIONALLY OMITTED]. 30. NON-RECOURSE AS TO
LANDLORD.
(a) Anything contained herein to the contrary notwithstanding, any
claim based on or in respect of any liability of Landlord under this Lease shall
be enforced only against the Leased Premises and not against any other assets,
properties or funds of (a) Landlord or any party thereof, (b) any director,
officer, general partner, shareholder, limited partner, employee or agent of
Landlord or any general partner of Landlord, GENA:11 or GENA:12 or any of its
general partners (or any legal representative, heir, estate, successor or assign
of any thereof), (c) any predecessor or successor partnership or corporation (or
other entity) of Landlord or any of its general partners, shareholders,
officers, directors, employees or agents, either directly or through Landlord or
its general partners, shareholders, officers, directors, employees or agents or
any predecessor or successor partnership or corporation (or other entity), or
(d) any other Person (including Carey Property Advisors, Carey Fiduciary
Advisors, Inc., W. P. Carey & Co. Inc., and any Person affiliated with any of
the foregoing, or any director, officer, employee or agent of any thereof);
provided, however, that Landlord shall at all times maintain an "EQUITY
INTEREST" (as defined below) in the Leased Premises of at least the lesser of
(1) twenty percent (20%) of the Fair Market Value of the Leased Premises or (2)
Landlord's Cash Contribution ("LANDLORD'S MINIMUM EQUITY"). If Landlord fails to
maintain Landlord's Minimum Equity, the provisions of this Paragraph 30 limiting
Tenant's right to recover damages from the Leased Premises as provided above
shall cease to be of any force or effect and Tenant shall have the right to
recover damages from any and all assets of Landlord. The term "EQUITY INTERESTS"
shall mean the difference between the Fair Market Value of the Leased Premises
and the then outstanding principal amount of all Mortgages placed on the Leased
Premises by Landlord. For purposes of this definition of Equity Interest, during
the first five (5) years of the Term the Fair Market Value of the Leased
Premises shall be equal to the Project Cost. In the event that
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<PAGE>
32. SUBORDINATION. Subject to the provisions of Paragraph 31(a), this
Lease and Tenant's interest hereunder shall be subordinate to any Mortgage or
other security instrument hereafter placed upon the Leased Premises by Landlord,
and to any and all advances made or to be made thereunder, to the interest
thereon, and all renewals, replacements and extensions thereof, provided that
the holder of any such Mortgage or other security instrument enters into a
subordination, non-disturbance and attornment agreement with and reasonably
satisfactory to Tenant which recognizes this Lease and all Tenant's rights
hereunder unless and until (i) an Event of Default exists or (ii) Landlord shall
have the right to terminate this Lease pursuant to any applicable provision
hereof.
33. FINANCIAL COVENANTS. [INTENTIONALLY OMITTED].
34. TAX TREATMENT REPORTING. Landlord and Tenant each acknowledge
that each shall treat this transaction as true lease for state law purposes and
shall report this transaction as a true lease for Federal income tax purposes.
For Federal income tax purposes each shall report this Lease with Landlord as
the owner of the Leased Premises, including the Building Systems Equipment, and
Tenant as the lessee of the Leased Premises and Building Systems Equipment,
including: (1) treating Landlord as the owner of the property eligible to claim
depreciation deductions under Section 167 or 168 of the Internal Revenue Code of
1986 (the "CODE") with respect to the Leased Premises and the Building Systems
Equipment, (2) Tenant reporting its Rent payments as rent expense under Section
162 of the Code, and (3) Landlord reporting the Rent payments as rental income.
35. RIGHT OF FIRST REFUSAL. [INTENTIONALLY OMITTED].
36. FINANCING MAJOR ALTERATIONS. [INTENTIONALLY OMITTED].
37. INITIAL LENDER RIGHTS RE: LETTER OF CREDIT. [INTENTIONALLY
OMITTED].
38. MISCELLANEOUS.
(a) The paragraph headings in this Lease are used only for
convenience of reference and are not part of this Lease or to be used in
determining the intent of the parties or otherwise interpreting this Lease.
(b) As used in this Lease, the singular shall include the plural and
any gender shall include all genders as the context requires and the following
words and phrases shall have the following meanings: (i) "including" shall mean
"including without limitation"; (ii) "provisions" shall mean "provisions, terms,
agreements, covenants and/or conditions"; (iii) "lien"
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<PAGE>
successors and assigns. If there is more than one Tenant, the obligations of
each shall be joint and several.
(h) If any one or more of the provisions contained in this Lease
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Lease, but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
(i) This Lease shall be governed by and construed and enforced in
accordance with the Laws of the State.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
duly executed under seal as of the day and year first above written.
LANDLORD:
GENA PROPERTY COMPANY, a
California partnership
ATTEST: By: GENA (CA) QRS 11-25, INC.,
a general partner
By: By:
---------------------------- -------------------------------
Title: Assistant Secretary Title: Executive Vice President
[Corporate Seal]
ATTEST: By: GENA (CA) QRS 12-1, INC.,
a general partner
By: By:
---------------------------- -------------------------------
Title: Assistant Secretary Title: Executive Vice President
[Corporate Seal]
TENANT:
ATTEST: GENSIA, INC.,
a Delaware corporation
By: By:
---------------------------- -------------------------------
Title: Vice President Title: President
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<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
The Land is located In the City of Son Diego, County of San Diego, State of
California and is more particularly described as follows:
PARCEL A:
LOTS 1 AND 3 OF NEXUS TECHNOLOGY CENTRE UNIT NO. 1, IN THE CITY OF SAN DIEGO,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 11876,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, AUGUST 7, 1987.
PARCEL B:
NON-EXCLUSIVE EASEMENTS FOR VEHICULAR AND PEDESTRIAN INGRESS AND EGRESS ON AND
OVER DESIGNATED PEDESTRIAN AND VEHICULAR TRAFFIC CIRCULATION PATTERNS NOW
EXISTING OR CREATED, INCLUDING WITHOUT LIMITATIONS, ALL DRIVEWAYS, ROAD,
STREETS, WALKWAYS, SIDEWALKS AND SURFACE PARTING AREAS; FOR PARKING ON AND
ACROSS ALL SURFACE PARKING AREAS DESIGNATED FOR PARKING BY STRIPPING OR OTHER
MEANS; FOR PRIVATE AND COMMON UTILITIES AND INCIDENTAL THERETO; AND TEMPORARY
EASEMENTS FOR CONSTRUCTION PURPOSES, AS SET FORTH, DESCRIBED, CREATED AND
CONVEYED IN THAT CERTAIN DOCUMENT ENTITLED "RECIPROCAL EASEMENT AGREEMENT" BY
AND BETWEEN GENSIA, INC., A DELAWARE CORPORATION AND GENA PROPERTY COMPANY, A
CALIFORNIA GENERAL PARTNERSHIP, RECORDED ON DECEMBER __, 1993 AS INSTRUMENT NO.
___________________, IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY,
CALIFORNIA.
A-1
<PAGE>
EXHIBIT C
SCHEDULE OF PERMITTED ENCUMBRANCE
C-1
<PAGE>
EXHIBIT E
TENANT'S FINANCIAL COVENANTS
[INTENTION OMITTED]
E-1
<PAGE>
EXHIBIT G
[Form of Letter of Credit]
[INTENTIONALLY OMITTED]
G-1
<PAGE>
Rent under the Lease has been paid for more than thirty (30) days in advance of
its due date.
10. To the best of the knowledge of the undersigned, based on reasonable
injury, Tenant has no defense as to its obligations under the Lease and claims
no set-off or counterclaim against Landlord.
11. To the best knowledge of the undersigned, there are no defaults on the
part of Landlord or Tenant under the Lease, and there are no events currently
existing (or with the passage of time, giving of notice or both, which would
exist) which give Tenant the right to cancel or terminate the Lease.
12. Tenant has no right to any concession (rental or otherwise) or similar
compensation in connection with renting the space it occupies, except as
provided in the Lease.
13. There are no actions, whether voluntary or otherwise, pending against
the undersigned or any guarantor of the undersigned's obligations under the
Lease pursuant to the bankruptcy or insolvency laws of the United States or any
state thereof.
14. It is Tenant's understanding that the present Landlord of the Premises
is __________________________________________
____________________________.
15. Tenant Is address for notices under the terms of the
Lease is: _________________________________________________
________________________________________________________.
16. Tenant hereby acknowledges that Lender intends to make a loan to
Landlord for _______________________________________, that Landlord intends to
assign the Lease to Lender in connection with such financing, and that Lender is
relying upon the representations herein made in funding such loan. Upon such
assignment and upon written request from Lender, Tenant agrees to send all
rents, payments and other amounts due under the Lease and assigned to Lender
pursuant to said financing to such address as may be indicated in writing by
Lender to Tenant. Tenant agrees that no modification, adjustment, revision,
cancellation or renewal of the Lease or amendments thereto shall be effective
unless the written consent of Lender is obtained. Tenant has not received any
notice of any other sale, pledge, transfer or assignment of the Lease or of the
rentals thereunder by Landlord.
17. Tenant shall deliver to Lender a copy of all notices of default or
termination served on or received from Landlord.
18. Lender is hereby given the right to cure Landlord's defaults under the
Lease within thirty (30) days, after receipt of written notice by the
undersigned of Landlords failure so to
H-1
<PAGE>
EXHIBIT "B"
DEMISING PLAN
[To Be Attached]
[DIAGRAM]
<PAGE>
AMENDMENT NO. 1 TO SUBLEASE AGREEMENT
AND FURNITURE RENTAL AGREEMENT
This AMENDMENT NO. 1 TO SUBLEASE AGREEMENT AND FURNITURE RENTAL AGREEMENT
(this "Amendment") is made as of October 31, 1996 by and between GENSIA, INC., a
Delaware corporation ("Sublandlord"), and COLLATERAL THERAPEUTICS, INC., a
California corporation ("Subtenant").
RECITALS
A. Sublandlord and Subtenant are currently parties to that certain
Sublease Agreement dated as of June 15, 1995 (the "Sublease") and that certain
Furniture Rental Agreement of even date therewith (the "Furniture Rental
Agreement"), covering certain premises (the "Sublease Premises") located at 9360
Towne Centre Drive, Suite 230, San Diego, California 92122, as more particularly
described in the Sublease and the Furniture Rental Agreement, as applicable. All
defined terms used in this Amendment, unless otherwise indicated herein, shall
have the meanings ascribed to them in the Sublease and the Furniture Rental
Agreement, as applicable.
B. Sublandlord and Subtenant wish to hereby modify certain terms and
provisions under the Sublease and the Furniture Rental Agreement, as applicable,
and are executing this Amendment to effectuate said modifications.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants hereafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AMENDMENTS TO SUBLEASE. The Sublease is hereby amended as follows:
a. TERM. The Sublease Expiration Date shall be December 31, 1997.
Provided Subtenant is not in default under the Sublease at the time of the
exercise thereof, Subtenant shall have one (1) option to extend the Sublease
("Option to Extend"). The Option to Extend shall be for an additional one (1)
year period (the "Extension Period"). The Option to Extend shall be exercisable
by Subtenant upon delivery of prior written notice (the "Exercise Notice")
thereof to Sublandlord. The Exercise Notice shall be given not later than ninety
(90) days prior to the expiration of the Term. In the event Subtenant shall
exercise the Option to Extend pursuant to the provisions set forth herein, the
Term of the Sublease shall be extended by the Extension Period and
<PAGE>
the Sublease Expiration Date shall be deemed to be the expiration date of such
extended Term of the Sublease. Such extended Term shall be on all the terms and
conditions of the Sublease, as applicable.
b. TELEPHONE SYSTEM. Notwithstanding the provisions of
Section 4(c)(ii) of the Sublease, Subtenant's use of Sublandlord's
telephone/voice/data system in connection with Subtenant's sublease of the
Sublease Premises shall automatically terminate effective January 1, 1997 and
Subtenant shall have no right to any further use of such system from and after
said date. Any replacement system which Subtenant desires to effect or install
in the Sublease Premises shall be subject to Sublandlord's prior consent and
shall comply with all requirements of the Sublease with respect to Subtenant's
use and occupancy of the Sublease Premises.
c. SIGNAGE. Notwithstanding the provisions of Section 6 of the
Sublease, Subtenant may install one identification sign on the existing
secondary monument sign (identified as approximately 28 inches x 70 inches in
dimension) located on the exterior grounds of the Master Premises approximately
100 feet west of the main monument sign located at the corner of Executive Drive
and Towne Centre Drive. The size, location and appearance of such sign. shall
be subject to the prior approval of Sublandlord in its sole discretion.
Subtenant shall be responsible for all costs and necessary government approvals
with respect to such sign. The provisions of Section 6 of the Sublease shall
govern Subtenant's obligations to maintain and remove the sign and Subtenant
shall have no right to modify said sign as approved by Sublandlord without the
further consent of Sublandlord thereto.
d. PARKING. Notwithstanding the provisions of Section 7 of the
Sublease, Subtenant shall be entitled to the use of twenty (20) parking spaces,
on a non-reserved basis, with respect to its use and occupancy of this Sublease
Premises. Subtenant's use of such spaces shall be subject to all other
provisions of Section 7 of the Sublease.
2. AMENDMENTS TO FURNITURE RENTAL AGREEMENT. The Furniture Rental
Agreement is hereby amended to provide that an additional eight (8) cubicles
shall be included within the terms of the Furniture Rental Agreement as
Furniture. The Rental Fee shall be increased to the aggregate amount of $990.18
per month. Such cubicles shall be of a size, nature and condition as those that
are currently subject to the Furniture Rental Agreement and located in the
Sublease Premises. Subtenant as "Lessee" under the Furniture Rental Agreement,
hereby reaffirms and reacknowledges each and every representation, warranty,
waiver and indemnity obligation set forth in the Furniture Rental Agreement.
3. EFFECT OF AMENDMENT. Except as expressly amended under this
Amendment, all provisions of the Sublease and the Furniture
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<PAGE>
Rental Agreement, as applicable, shall remain in full force and effect. In the
event of any conflict between this Amendment and the Sublease and the Furniture
Rental Agreement, as applicable, this Amendment shall control to the extent of
such conflict.
4. ENTIRE AGREEMENT. This Amendment constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and the
final, complete and exclusive expression of the terms and conditions thereof.
All prior agreements, representations, negotiations and understandings of the
parties hereto, oral or written, express or implied, are hereby superseded and
merged herein. This Amendment may be executed in one or more counterparts, each
of which shall be deemed an original, and all of which shall constitute one and
the same binding agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 to
Sublease Agreement and Furniture Rental Agreement as of the date first written
above.
SUBLANDLORD:
GENSIA, INC., a Delaware corporation
By: /s/ illegible
---------------------------------
Its: VP Finance
--------------------------------
SUBTENANT:
COLLATERAL THERAPEUTICS, INC.,
a California corporation
By: /s/ Christopher Reinhard
-------------------------------------
Its: Chief Operating & Financial Officer
------------------------------------
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<PAGE>
AMENDMENT NO. 2 TO SUBLEASE AGREEMENT
AND FURNITURE RENTAL AGREEMENT
This AMENDMENT NO. 2 TO SUBLEASE AGREEMENT AND FURNITURE RENTAL AGREEMENT
(this "Amendment") is made as of November _, 1996 by and between GENSIA, INC., a
Delaware corporation ("Sublandlord") and COLLATERAL THERAPEUTICS, INC., a
California corporation ("Subtenant").
RECITALS
A. Sublandlord and Subtenant are currently parties to that certain
Sublease Agreement dated as of June 15, 1995 (the "Sublease") and that certain
Furniture Rental Agreement of even date therewith (the "Furniture Rental
Agreements"), each as amended pursuant to a certain Amendment No. 1 to Sublease
Agreement and Furniture Rental Agreement dated as of October 31, 1996, covering
certain premises (the "Sublease Premises") located at 9360 Towne Centre Drive,
Suite 230, San Diego, California 92122, as more particularly described in the
Sublease and the Furniture Rental Agreement, as applicable. All defined terms
used in this Amendment, unless otherwise indicated herein, shall have the
meanings ascribed to them in the Sublease and the Furniture Rental Agreement, as
applicable.
B. Sublandlord and Subtenant wish to hereby modify certain terms and
provisions under the Sublease and the Furniture Rental Agreement, as applicable,
and are executing this Amendment to effectuate said modifications.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants hereafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AMENDMENTS TO SUBLEASE. The Sublease is hereby amended as follows:
a. INSURANCE. Subtenant shall be required to maintain comprehensive
liability insurance in the minimum policy amount of $1,000,000 under
Section 8(c) of the Sublease. All other insurance requirements of Subtenant
under the Sublease shall remain in full force and effect.
2. EFFECT OF AMENDMENT. Except as expressly amended under this
Amendment, all provisions of the Sublease and the Furniture Rental Agreement, as
applicable, shall remain in full force and effect. In the event of any conflict
between this Amendment and
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<PAGE>
the Sublease and the Furniture Rental Agreement, as applicable, this Amendment
shall control to the extent of such conflict.
3. ENTIRE AGREEMENT. This Amendment constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and the
final, complete and exclusive expression of the terms and conditions thereof.
All prior agreements, representations, negotiations and understandings of the
parties hereto, oral or written, express or implied, are hereby superseded and
merged herein. This Amendment may be executed in one or more counterparts, each
of which shall be deemed an original, and all of which shall constitute one and
the same binding agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2 to
Sublease Agreement and Furniture Rental Agreement as of the date first written
above.
SUBLANDLORD:
GENSIA, INC., a Delaware corporation
By: /s/ illegible
---------------------------------
Its: VP Finance
--------------------------------
SUBTENANT:
COLLATERAL THERAPEUTICS, INC.,
a California corporation
By: /s/ Kathy Rooney
---------------------------------
Its: VP Administration
--------------------------------
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<PAGE>
AMENDMENT NO. 3 TO SUBLEASE AGREEMENT
AND FURNITURE RENTAL AGREEMENT
This AMENDMENT NO. 3 TO SUBLEASE AGREEMENT AND FURNITURE RENTAL AGREEMENT
(this "Amendment") is made as of May 11, 1998 by and between GENSIA SICOR INC.,
a Delaware corporation ("Sublandlord") and COLLATERAL THERAPEUTICS, INC., a
California corporation ("Subtenant").
RECITALS
A. Sublandlord and Subtenant are currently parties to that certain
Sublease Agreement dated as of June 15, 1995 (the "Sublease") and that certain
Furniture Rental Agreement of even date therewith (the "Furniture Rental
Agreement"), each as amended pursuant to a certain Amendment No. 1 to Sublease
Agreement and Furniture Rental Agreement dated as of October 31, 1996, and a
certain Amendment No. 2 to Sublease Agreement and Furniture Rental Agreement
dated as of November 1, 1996, covering certain premises (the "Sublease
Premises") located at 9360 Towne Centre Drive, Suite 230, San Diego, California
92121, as more particularly described in the Sublease and the Furniture Rental
Agreement, as applicable. All defined terms used in this Amendment, unless
otherwise indicated herein, shall have the meanings ascribed to them in the
Sublease and the Furniture Rental Agreement, as applicable.
B. Sublandlord and Subtenant wish to hereby modify certain terms and
provisions under the Sublease and the Furniture Rental Agreement, as applicable,
and are executing this Amendment to effectuate said modifications.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants hereafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AMENDMENTS TO SUBLEASE. The Sublease is hereby amended as follows:
a. EXPANSION OF SUBLEASED PREMISES. Effective as of May 11, 1998,
the Sublease Premises shall be expanded to include the entirety of the space
shown as cross-hatched on the attached Exhibit "A" and comprising in the
aggregate 1426 rentable square feet of space (the "Expansion Area"). The
Expansion Area shall be delivered to Subtenant in its "as-is" condition, without
any obligation on the part of Sublandlord to prepare the Expansion Area for
Subtenant's use or occupancy. Subtenant's use and occupancy of the Expansion
Area shall be on all the terms and conditions of the Sublease, including payment
of Base Rental therefor, for the remainder of the Term, at the rate specified in
Paragraph l(b) below.
b. MODIFICATION OF BASE RENTAL. Effective as of the date of this
Amendment, monthly installments of Base Rental payable by Subtenant to
Sublandlord with respect to the
<PAGE>
Expansion Area shall be calculated at the rate of $1.80 per rentable square foot
of the Expansion Area.
2. EFFECT OF AMENDMENT. Except as expressly amended under this
Amendment, all provisions of the Sublease and the Furniture Rental Agreement, as
applicable, shall remain in full force and effect. In the event of any conflict
between this Amendment and the Sublease and the Furniture Rental Agreement, as
applicable, this Amendment shall control to the extent of such conflict.
3. ENTIRE AGREEMENT. This Amendment constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and the
final, complete and exclusive expression of the terms and conditions thereof.
All prior agreements, representations, negotiations and understandings of the
parties hereto, oral or written, express or implied, are hereby superseded and
merged herein. This Amendment may be executed in one or more counterparts, each
of which shall be deemed an original, and all of which shall constitute one and
the same binding agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 3 to
Sublease Agreement and Furniture Rental Agreement as of the date first written
above.
SUBLANDLORD:
-----------
GENSIA SICOR INC.,
a Delaware corporation
By: /s/ illegible
----------------------------
Its:
---------------------------
SUBTENANT:
---------
COLLATERAL THERAPEUTICS, INC.,
a California corporation
By:/s/ Christopher Reinhard
----------------------------
Its: COO & CFO
---------------------------
<PAGE>
Collateral Expansion
[PICTURE]
<PAGE>
EXHIBIT 10.42
[LOGO]
IMPERIAL BANK
Member FDIC
CREDIT AGREEMENT
This Agreement is made by and between Collateral Therapeutics, Inc.
("Borrower") and Imperial Bank, a California banking corporation, ("Bank").
In consideration of mutual covenants and conditions hereof, the parties
hereto agree as follows:
1. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
1.01 EXISTENCE AND RIGHTS. Borrower is a corporation duly organized
and existing and in good standing under the laws of California, without limit as
to the duration of its existence and is authorized and in good standing to do
business in the State of California; Borrower has corporate powers and adequate
authority, rights and franchises to own its property and to carry on its
business as now conducted, and is duly qualified and in good standing in each
State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and Borrower has the
power and adequate authority to make and carry out this Agreement
1.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of
this Agreement are duly authorized and do not require the consent or approval of
any governmental body or other regulatory authority; are not in contravention of
or in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, as the case may be, and this Agreement is
the valid, binding and legally enforceable obligation of Borrower in accordance
with its terms; subject only to bankruptcy, insolvency or similar laws affecting
creditors rights generally.
1.03 NO CONFLICT. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any of
its property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by reason
thereof.
1.04 LITIGATION. There is no litigation or other proceeding pending
or threatened against or affecting Borrower which if determined adversely to
Borrower or its interest would have a material adverse effect on the financial
condition of Borrower, and Borrower is not in default with respect to any order,
writ, injunction, decree or demand of any court or other governmental or
regulatory authority.
<PAGE>
1.05 FINANCIAL CONDITION. The audited financial statements of
Borrower as of December 31, 1997, a copy of which has heretofore been delivered
to Bank by Borrower, and all other statements and data submitted in writing by
Borrower to Bank in connection with this request for credit are true and
correct, except that the Bank understands that certain forward looking
statements were provided, upon the Bank's request, and acknowledges that such
statements are only predictions and that actual results may vary. The balance
sheet within the audited financial statements truly presents the financial
condition of Borrower as of the date thereof, and has been prepared in
accordance with generally accepted accounting principles on a basis consistently
maintained. Since such date, there have been no material adverse changes in the
financial condition or business of Borrower. Borrower has no knowledge of any
liabilities, contingent or otherwise, at such date not reflected in said balance
sheet and related notes, and Borrower has not entered into any special
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which may
have a materially adverse effect upon its financial condition, operations or
business as now conducted.
1.06 TITLE TO ASSETS. Borrower has good title to its assets, and the
same are not subject to any liens or encumbrances other than those permitted by
Section 3.03 hereof.
1.07 TAX STATUS. Borrower has no liability for any delinquent state,
local or federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
1.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses
all necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
1.09 REGULATION U. None of the proceeds of any loan from the Bank to
Borrower shall be used to purchase or carry margin stock (as defined within
Regulation U of the Board of Governors of the Federal Reserve system).
2. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under
borrowings, or other indebtedness, it will, unless Bank shall otherwise consent
in writing:
2.01 RIGHTS AND FACILITIES. Maintain and preserve all rights,
franchises and other authority adequate for the conduct of its business;
maintain its properties, equipment and facilities in good order and repair;
conduct its business in an orderly manner without voluntary interruption and, if
a corporation or partnership, maintain and preserve its existence.
-2-
<PAGE>
2.02 INSURANCE. Maintain public liability, property damage and
workers' compensation insurance and insurance on all its insurable property
against fire and other hazards with responsible insurance carriers to the extent
usually maintained by similar businesses and/or in the exercise of good business
judgment and as to property insurance have Bank named as loss payee in an
Lenders "Loss Payable" Endorsement Form 438BFU or equivalent.
2.03 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so long as:
a. The same are being contested in good faith and by
appropriate proceedings in such manner as not to cause any materially
adverse effect upon its financial condition or the loss of any right
of redemption from any sale thereunder; and
b. It shall have set aside on its books reserves (segregated to
the extent required by generally accepted accounting practice) deemed
by it adequate with respect thereto.
2.04 FINANCIAL COVENANTS. All financial covenants and financial
information referenced herein shall be interpreted and prepared in accordance
with generally accepted accounting principals applied on a basis consistent with
previous years. Compliance with financial covenants shall be calculated and
monitored on a quarterly basis.
Borrower agrees that so long as any loans, obligations or liabilities
remain outstanding or unpaid to Bank, it will maintain "Liquid
Assets," equal to the greatest of (i) two and one half times (2.5x)
Borrower's most recent quarterly "burn rate," (ii) two times (2.0x)
Borrower's total liabilities, or (iii) $1,775,000. Following the
expiration of the standby letter of credit Borrower to maintain
"Liquid Assets," equal to the greatest of (i) two and one half times
(2.5x) Borrower's most recent quarterly "burn rate," (ii) two times
(2.0x) Borrower's its Total liabilities, or $1,000,000. "Liquid
Assets" will be defined as cash, cash equivalents, short term
investments. "Burn Rate" will be defined as the decrease in cash,
cash equivalents and short term investments during the quarter. The
"burn rate" covenant will be measured quarterly, however if the
coverage falls below three times (3x) the most recent quarterly burn
rate, the covenant will then be measured monthly.
-3-
<PAGE>
2.05 RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times and
upon reasonable notice during normal business hours; and furnish Bank:
a. QUARTERLY FINANCIAL STATEMENT. Within thirty (30) days,
forty five (45) days if the company becomes a publicly traded company,
after the close of each quarter end of each fiscal year of Borrower,
commencing with the month next ending, a balance sheet, profit and
loss statement and cash flow statement as of the close of such period
and covering operations for the portion of Borrower's fiscal year
ending on the last day of such period, all in reasonable detail,
prepared in accordance with generally accepted accounting principles
on a basis consistently maintained by Borrower and certified by an
appropriate officer of Borrower. If cash and cash equivalents fall
below $2,000,000, Borrower to report monthly financial statements
within 30 days of each month end;
b. ANNUAL FINANCIAL STATEMENT. As soon as available, and in
any event within ninety (90) days after the close of each fiscal year
of Borrower, a report of Company as of the close of and for each
fiscal year, all in reasonable detail, prepared on an audited basis by
an independent certified public accountant selected by Borrower and
reasonably acceptable to Bank, in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower
and certified by an appropriate officer of Borrower;
c. OTHER INFORMATION. Such other information relating to the
affairs of Borrower as the Bank reasonably may request from time to
time;
d. MANAGEMENT LETTER. In connection with each fiscal year end
financial statement furnished to Bank hereunder, any management letter
of Borrower's independent certified public accountant.
2.06 NOTICE OF DEFAULT. Promptly notify Bank in writing of the
occurrence of any Event of Default hereunder or any event which upon notice and
lapse of time would be an Event of Default.
2.07 OPERATING ACCOUNTS. Maintain all operating accounts with Bank
during the term of any loans from Bank to Borrower. Borrower shall maintain, or
cause to be maintained, on deposit with Imperial Bank, non-interest bearing
demand deposit balances sufficient to compensate Bank for all services provided
by Bank. Balances shall be calculated
-4-
<PAGE>
after reduction for the reserve requirement of the Federal Reserve Board and
uncollected funds. Any deficiencies shall be charged directly to the Borrower
on a monthly basis.
2.08 ATTORNEY'S FEES. Pay promptly to Bank without demand after
notice, with interest thereon from the date of expenditure at the rate
applicable to any loans from Bank to Borrower, reasonable attorneys' fees and
all costs and expenses paid or incurred by Bank in collecting or compromising
any such loan after the occurrence of an Event of Default, whether or not suit
is filed. If suit is brought to enforce any provision of this Agreement, the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
court costs in addition to any other remedy or recovery awarded by the court.
2.09 FACILITY FEE. Borrower to pay a facility fee of $4,000.00 upon
execution of documentation.
3. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, it will
not, without Bank's written consent:
3.01 TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the
character of its business; or make any substantial change in its overall
executive management.
3.02 OUTSIDE INDEBTEDNESS. Other than in the ordinary course of
business and consistent with past practices, create, incur, assume or permit to
exist any indebtedness for borrowed moneys, other than loans from the Bank,
except obligations now existing as shown in the financial statement dated
December 31, 1997, excluding those obligations being refinanced by Bank.
3.03 LIENS AND ENCUMBRANCES. Other than in the ordinary course of
business and consistent with past practices, create, incur, or assume any
mortgage, pledge, encumbrance, lien or charge of any kind upon the Collateral as
defined in the General Security Agreement, other than liens for taxes not
delinquent and liens in Bank's favor, except for those already existing as of
December 31, 1997.
3.04 LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or
advances to any person or other entity other than in the ordinary and normal
course of its business and consistent with past practices or make any investment
in the securities of any person or other entity other than the United States
Government; or guarantee or otherwise become liable upon the obligation of any
person or other entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its business and
consistent with past practices.
-5-
<PAGE>
3.05 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Except
in the ordinary course of business, or for the betterment of the business,
purchase or otherwise acquire the assets or business of any person or other
entity; or liquidate, dissolve, merge or consolidate, or commence any
proceedings therefor; or sell any assets except in the ordinary course of its
business consistent with past practices; or except in the ordinary course of
business or for the betterment of the business, sell, lease assign or transfer
any substantial part of its business or fixed assets, or any property or other
assets necessary for the continuance of its business as now conducted, including
without limitation the selling of any dividends, property or other asset
accompanied by the leasing back of the same.
4. EVENTS OF DEFAULT
The occurrence of any of the following events (each an "Event of
Default") shall, at Bank's option, terminate Bank's commitment to lend and make
all sums of principal and interest then remaining unpaid on all Borrower's
indebtedness to Bank immediately due and payable, all without demand,
presentment or notice, all of which are hereby expressly waived:
4.01 FAILURE TO PAY. Failure to pay any installment of principal or
interest on any indebtedness of Borrower to Bank.
4.02 BREACH OF COVENANT. Failure of Borrower to perform any other
term or condition of this Agreement binding upon Borrower.
4.03 BREACH OF WARRANTY. Any of Borrower's representations or
warranties made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or misleading
in any respect.
4.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become
insolvent; or admit its inability to pay its debts as they mature; or make an
assignment for the benefit of creditors; or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business.
4.05 JUDGMENTS, ATTACHMENTS. Any material money judgment, writ or
warrant of attachment, or similar process shall be entered or filed against
Borrower or any of its assets and shall remain unvacated, unbonded or unstayed
for a period later than five days prior to the date of any proposed sale
thereunder. A material judgment, writ, or warrant of attachment means any
judgment over $500,000.
4.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief
-6-
<PAGE>
of debtors shall be instituted by or against Borrower and, if instituted against
it, shall be consented to.
5. MISCELLANEOUS PROVISIONS
5.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of Bank or any holder of any note issued by Borrower to Bank, in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege. All rights and remedies existing under this Agreement or
any note issued in connection with a loan that Bank may make hereunder, are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
5.02 ADDITIONAL REMEDIES. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in addition
to all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
5.03 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower.
5.04 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California, to the jurisdiction
of whose courts the parties hereby agree to submit.
5.05 SEVERABILITY. Should any one or more provisions of the Agreement
be determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
5.06 TIME OF THE ESSENCE. Time is hereby declared to be of the
essence of this Agreement and of every part hereof.
5.07 ACCOUNTING. All accounting terms shall have the meanings applied
under generally accepted accounting principles unless otherwise specified.
5.08 MODIFICATION. This Agreement may be modified only by a writing
signed by both parties hereto.
6. GOVERNING LAW; JUDICIAL REFERENCE.
-7-
<PAGE>
6.01 GOVERNING LAW. This Agreement shall be deemed to have been made
in the State of California and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of California, without regard to principles of conflicts of law.
6.02 JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Credit Agreement, any General Security Agreement executed by
Borrower in favor of Bank or any Note executed by Borrower in favor of Bank
(collectively in this Section 6.02, the "Agreement") which controversy, dispute
or claim is not settled in writing within thirty (30) days after the "CLAIM
DATE" (defined as the date on which a party subject to this Agreement gives
written notice to all other parties that a controversy, dispute or claim
exists), will be settled by a reference proceeding in California in accordance
with the provisions of Section 638 ET SEQ. of the California Code of Civil
Procedure, or their successor section ("CCP"), which shall constitute the
exclusive remedy for the settlement of any controversy, dispute or claim
concerning this Agreement, including whether such controversy, dispute or claim
is subject to the reference proceeding and except as set forth above, the
parties waive their rights to initiate any legal proceedings against each other
in any court or jurisdiction other than the Superior Court in the County where
the Real Property, if any, is located or Los Angeles County if none (the
"Court"). The referee shall be a retired Judge of the Court selected by mutual
agreement of the parties, and if they cannot so agree within forty-five (45)
days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP Section 170.6. The referee shall (a) be requested to set the
matter for hearing within sixty (60) days after the date of selection of the
referee and (b) try any and all issues of law or fact and report a statement of
decision upon them, if possible, within ninety (90) days of the Claim Date. Any
decision rendered by the referee will be final, binding and conclusive and
judgment shall be entered pursuant to CCP Section 644 in any court in the State
of California having jurisdiction. Any party may apply for a reference
proceeding at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Section 6.02 shall
be completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in
-8-
<PAGE>
the event of a party's refusal to provide requested discovery for any reason
whatsoever, including, without limitation, legal objections raised to such
discovery or unavailability of a witness due to absence or illness. No party
shall be entitled to "priority" in conducting discovery. Depositions may be
taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten (10) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided
herein, the Superior Court is empowered to issue temporary and/or provisional
remedies, as appropriate.
(b) Except as expressly set forth in this Section 6.02, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the
referee, except for trial, shall be conducted without a court reporter except
that when any party so requests, a court reporter will be used at any hearing
conducted before the referee. The party making such a request shall have the
obligation to arrange for and pay for the court reporter. The costs of the
court reporter at the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the
close of the reference proceeding which shall dispose of all of the claims of
the parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this provision.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
-9-
<PAGE>
This Agreement is executed on behalf of the parties by duly authorized
representatives as of April 6, 1998.
IMPERIAL BANK ("BANK")
By: /s/ Tim Bubnack
-----------------------------
Tim Bubnack, Vice President
Date:
COLLATERAL THERAPEUTICS, INC.
("BORROWED")
By: /s/ Christopher Reinhard
-----------------------------
Date: 4/30/98
-----------------------------
-10-
<PAGE>
[LOGO] GENERAL SECURITY AGREEMENT
IMPERIAL BANK (TANGIBLE AND INTANGIBLE PERSONAL PROPERTY)
Member FDIC
This Agreement is executed on APRIL 6, 1998, by COLLATERAL THERAPEUTICS, INC.
(hereinafter called "Obligor"). In consideration of financial accommodations
given, to be given, or continued, the Obligor grants to IMPERIAL BANK
(hereinafter called "Bank") a security interest in (a) all property (i)
delivered to Bank by Obligor, (ii) which shall be in Bank's possession or
control in any matter or for any purpose, (iii) described below, (iv) now owned
or hereafter acquired by Obligor of the type or class described below and/or any
supplementary schedule hereto, or in any financing statement filed by Bank and
executed by or on behalf of Obligor; (b) all deposits accounts of Obligor at
Bank and (c) the proceeds, increase and products of such property, all
accessions thereto, and all property which Obligor may receive on account of
such collateral which Obligor will immediately deliver to Bank (collectively
referred to as "Collateral") to secure payment and performance of all of
Obligor's present or future debts or obligations to Bank, whether absolute or
contingent (hereafter referred to as "Debt"). Unless otherwise defined, words
used herein have the meanings given them in the California Uniform Commercial
Code.
Collateral:
A. VEHICLE, VESSEL, AIRCRAFT:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Identification License or
Year Make/Manufacturer Model and Serial No. Registration No. New or Used
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
</TABLE>
Engine or other equipment:
-----------------------------------------------------
(FOR AIRCRAFT - ORIGINAL INK SIGNATURE ON COPY TO FAA)
B. DEPOSIT ACCOUNTS:
Type Account Number Amount $
--------------- ------------------- ---------------
In name of Depository
----------------------------- ----------------------------
AND ALL EXTENSIONS OR RENEWALS THEREOF.
C. ACCOUNTS, INTANGIBLES AND OTHER: (DESCRIBE)
ALL EQUIPMENT PURCHASED FROM FEBRUARY 15, 1998 THROUGH NOVEMBER 15, 1998
WITH THE PROCEEDS OF LOANS FROM BANK, AND ALL PROCEEDS INCLUDING, WITHOUT
LIMITATION, INSURANCE PROCEEDS.
The collateral not in Bank's possession will be located at: 9360
TOWNE CENTER DRIVE #110, SAN DIEGO, CA 92121
[ ] If checked, the Obligor is executing this Agreement as an Accommodation
Debtor only and the Obligor's liability is limited to the security interest
granted in the Collateral described herein. The party being accommodated is
("Borrower").
All the terms and provisions on page 2 hereof are incorporated herein as though
set forth in full, and constitute a part of this Agreement.
<TABLE>
<CAPTION>
Signature
Name (indicate title, if applicable) Address
<S> <C> <C>
9360 Town Center Drive #110
COLLATERAL THERAPEUTICS, INC. BY: /s/ Chrisptopher Reinhard San Diego, CA 92121
- ------------------------------- -------------------------------- ------------------------------
Christopher Reinhard, COO/CFO
- ------------------------------- -------------------------------- ------------------------------
- ------------------------------- -------------------------------- ------------------------------
</TABLE>
<PAGE>
SECURITY AGREEMENT (CONTINUED)
Obligor represents and warrants and agrees:
1. Obligor will immediately pay (a) any Debt when due, (b) Bank's costs
of collecting the Debt, of protecting, insuring or realizing on Collateral, and
any expenditure of Bank pursuant hereto, including attorneys' fees and expenses,
with interest at the rate of 24% per year, or the rate applicable to the Debt,
whichever is less, from the date of expenditure, and (c) any deficiency after
realization of Collateral.
2. Obligor will use the proceeds of any loan that becomes Debt
hereunder for the purpose indicated on the application therefore, and will
promptly contract to purchase and pay the purchase price of any property which
becomes Collateral hereunder from the proceeds of any loan made for that
purpose.
3. As to all Collateral in Obligor's possession (unless specifically
otherwise agreed to by Bank in writing), Obligor will:
(a) Have, or has, possession of the Collateral at the location disclosed
to Bank and will not remove the Collateral from the location.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair it if
necessary, clean, feed, shelter, water, medicate, fertilize, cultivate,
irrigate, prune and otherwise deal with the Collateral in all such ways as
are considered good practice by owners of like property, use it lawfully
and only as permitted by insurance policies, and permit Bank to inspect the
Collateral at any reasonable time.
(d) Not sell, contract to sell, lease, encumber or transfer the
Collateral (other than inventory Collateral) until the Debt has been paid,
even though Bank has a security interest in proceeds of such Collateral.
4. DELETED
5. As to Collateral which are accounts, chattel paper, general
intangibles and proceeds described in 4(c) above, Obligor warrants, represents
and agrees:
(a) All such Collateral is genuine, enforceable in accordance with its
terms, free from default, prepayment, defense and conditions precedent
(except as disclosed to and accepted by Bank in writing), and is supported
by consecutively numbered invoices to, or rights against, the debtors
thereon. Obligor will supply Bank with duplicate invoices or other
evidence of Obligor's rights on Bank's request;
(b) All persons appearing to be obligated on such Collateral have
authority and capacity to contract;
(c) All chattel paper is in compliance with law as to form, content and
manner of preparation and execution and has been properly registered,
recorded, and/or filed to protect Obligor's interest/hereunder;
(d) If an account debtor shall also be indebted to Obligor on another
obligation, any payment made by him not specifically designated to be
applied on any particular obligation shall be considered to be a payment on
the account in which Bank has a security interest. Should any remittance
include a payment not on an account, it shall be delivered to Bank and, if
no event of default has occurred, Bank shall pay Obligor the amount of such
payment;
(e) Obligor agrees not to compromise, settle or adjust any account or
renew or extend the time of payment thereof without Bank's prior written
consent.
6. Obligor owns all Collateral absolutely, and no other person has or
claims any interest in any Collateral, except as disclosed to and accepted by
Bank in writing Obligor will defend any proceeding which may affect title to or
Bank's security interest in any Collateral, and will indemnify and hold Bank
free and harmless from all costs and expenses of Bank's defense.
7. Obligor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, the
realty on which the Collateral is located.
8. Obligor will insure the Collateral with Bank as loss payee in form
and amounts with companies, and against risks and liability satisfactory to
Bank, and hereby assigns such policies to Bank, agrees to deliver them to Bank
at Bank's request, and authorizes Bank to make any claim thereunder, to cancel
the insurance on Obligor's default, and to receive payment of and endorse any
instrument in payment of any loss or return premium. If Obligor should fail to
deliver the required policy or policies to the Bank, Bank may, following notice
to Obligor, at Obligor's cost and expense, without any duty to do so, get and
pay for insurance naming as the insured, at Bank's option, either both Obligor
and Bank, or only Bank, and the cost thereof shall be secured by this Security
Agreement, and shall be repayable as provided in Paragraph 1 above.
9. Obligor will give Bank any information it requires. All information
at any time supplied to Bank by Obligor (including, but not limited to, the
value and condition of Collateral, financial statements, financing statements,
and statements made in documentary Collateral) is correct and complete, and
Obligor will notify Bank of any adverse change in such information. Obligor
will promptly notify Bank of any change of Obligor's residence, chief executive
office or mailing address.
10. Bank is irrevocably appointed Obligor's attorney-in-fact to do any
act which Obligor is obligated hereby to do, to exercise such rights as Obligor
may exercise, to use such equipment as Obligor might use, to enter Obligor's
premises to give notice of Bank's security interest, and to collect Collateral
and proceeds and to execute and file in Obligor's name any financing statements
and amendments thereto required to perfect Bank's security interest hereunder,
all to protect and preserve the Collateral and Bank's rights hereunder. Bank
may:
(a) Endorse, collect and receive delivery or payment of instruments and
documents constituting Collateral;
(b) Make extension agreements with respect to or affecting Collateral,
exchange it for other Collateral, release persons liable thereon or take
security for the payment thereof, and compromise disputes in connection
therewith;
(c) Use or operate Collateral for the purpose of preserving Collateral
or its value and for preserving or liquidating Collateral.
11. If more than one Obligor signs this Agreement, their liability is
joint and several. Any Obligor who is married agrees that recourse may be had
against separate property for the Debt. Discharge of any Obligor except for full
payment, or any extension, forbearance, change of rate of interest, or
acceptance, release or substitution of Collateral or any impairment or
suspension of Bank's rights against an Obligor, or any transfer of an Obligor's
interest to another shall not affect the liability of any other Obligor. Until
the Debt shall have been paid or performed in full, Bank's rights shall continue
even if the Debt is outlawed. All Obligors waive: (a) any right to require Bank
to proceed against any Obligor before any other, or to pursue any other remedy;
(b) presentment, protest and notice of protest, demand and notice of nonpayment,
demand or performance, notice of sale, and advertisement of sale; (c) any right
to the benefit of or to direct the application of any Collateral until the Debt
shall have been paid; (d) and any right of subrogation to Bank until Debt shall
have been paid or performed in full.
l2. Upon default, at Bank's option, all or any part of the Debt shall
immediately become due. Bank shall have all rights given by law, and may sell,
in one or more sales, Collateral in any county where Bank has an office. Bank
may purchase at such sale. Sales for cash or on credit to a wholesaler,
retailer or user of the Collateral, or at public or private auction, are all to
be considered commercially reasonable. Bank may require Obligor to assemble the
Collateral and make it available to Bank at the entrance to the location of the
Collateral, or a place designated by Bank.
Defaults shall include:
(a) Obligor's failure to pay or perform this or any agreement with Bank
or breach of any warranty herein, or Borrower's failure to pay or perform
any agreement with Bank.
(b) Any change in Obligor's or Borrower's financial condition which in
Bank's judgment impairs the prospect of Borrower's payment or performance.
(c) Any actual or reasonably anticipated deterioration of the Collateral
or in the market price thereof which causes it, in Bank's judgment, to
become unsatisfactory as security.
(d) Any levy or seizure against Borrower or any of the Collateral.
(e) Death, termination of business, assignment for creditors,
insolvency, appointment of receiver, or the filing of any petition under
bankruptcy or debtor's relief laws of, by or against Obligor or Borrower or
any guarantor of the Debt.
(f) Any warranty or representation which is false or is believed in good
faith by Bank to be false.
13. Bank's acceptance of partial or delinquent payments or the failure
of Bank to exercise any right or remedy shall not waive any obligation of
Obligor or Borrower or right of Bank to modify this Agreement, or waive any
other similar default.
14. On transfer of all or any part of the Debt, Bank may transfer all or
any part of the Collateral. Bank may deliver all or any part of the Collateral
to any Obligor at any time. Any such transfer or delivery shall discharge Bank
from all liability and responsibility with respect to such Collateral
transferred or delivered. This Agreement benefits Bank's successors and assigns
and binds Obligor's heirs, legatees, personal representatives, successors and
assigns. Obligor agrees not to assert against any assignee of Bank any claim or
defense that may exist against Bank. Time is of the essence. This Agreement
and supplementary schedules hereto contain the entire security agreement between
Bank and Obligor. Obligor will execute any additional agreements, assignments
or documents reasonably required by Bank to carry this Agreement into effect.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, to the jurisdiction of whose courts the
Obligor hereby agrees to submit. Obligor agrees that service of process may be
accomplished by any means authorized by California law. All words used herein
in the singular shall be considered to have been used in the plural where the
context and construction so require.
16. DELETED
<PAGE>
[LOGO]
IMPERIAL BANK INTER-CREDITOR AGREEMENT
Member FDIC
San Diego, California March 4, 1998
The undersigned (hereinafter referred to as "Lender") and IMPERIAL BANK
(hereinafter referred to as "Bank") have each entered into or are about to enter
into a security agreement(s) and have filed or intend to file Financing
Statement(s) pursuant to the provisions of the Uniform Commercial Code of
California ("Code"), giving notice of possible security interest(s) in:
ALL EQUIPMENT PURCHASED FROM FEBRUARY 15, 1998 THROUGH NOVEMBER 15,
1998 WITH THE PROCEEDS OF LOANS FROM BANK, AND ALL PROCEEDS INCLUDING,
WITHOUT LIMITATION, INSURANCE PROCEEDS.
Prior to advancing money to Collateral Therapeutics, the bank will require
copies of invoices or other appropriate documents to identify the equipment
being financed. No portion of the loan proceeds will be provided to
Collateral Therapeutics prior to the bank receiving appropriate
documentation.
of Collateral Therapeutics, Inc.
(hereinafter referred to as "Debtor").
The parties desire to avoid any possible conflict of security interest(s)
arising from the execution of their respective security agreement(s) and the
filing of the Financing Statement(s).
In consideration of the mutual covenants and conditions hereof, the parties
agree as follows:
1. Lender hereby subordinates its security interest(s) whether now
existing or hereafter arising, to the security interest(s) of Bank, whether now
existing or hereafter arising, with respect to the above referenced personal
property of Debtor.
2. Except as herein otherwise provided, the priorities between the
other parties shall be determined in accordance with the provisions of the Code.
3. This Agreement shall remain in effect until it is terminated by
written notice of termination given by either of the parties to the other,
provided, however, that no notice of termination shall impair the rights or
priorities created or acquired hereunder by either of the parties hereto prior
to the receipt of such notice of termination.
4. This Agreement shall be binding on the successors and assigns of the
parties and may be assigned by either party in connection with any assignment or
transfer of the above-referenced interest(s).
5. All notices required or desired to be given hereunder shall be sent
by certified mail, return receipt requested, postage prepaid and shall be
considered to have been received on the second day after mailing.
IMPERIAL BANK "BANK" SCHERING AKTIENGESELLSCHAFT "LENDER"
----------------------------
ppa. ppa.
By /S/ Tim Bubnack By /s/ Klaus Kuhn /s/ Frank Alburg
----------------------- ----------------------------------------------
Tim Bubnack Klaus Kuhn Frank Alburg
Title: Vice President Title: Head of Finance Head of Corporate Finance
--------------------- -----------------------------------------
The undersigned Debtor hereby acknowledges and confirms the above
Inter-Creditor Agreement and agrees to be bound by its provisions.
Dated Collateral Therapeutics, Inc. "DEBTOR"
--------------------- -------------------------------
By /s/ Christopher Reinhard 5/7/98
-------------------------------------------
Christopher Reinhard
Title COO/CFO
-------------------------------
<PAGE>
[LOGO]
IMPERIAL BANK
Member FDIC
NOTE
$ 400,000.00 San Diego, California April 6, 1998
On April 4, 2003, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its San Diego Regional office, the principal sum of
$400,000.00 or such sums up to the maximum if so stated, as the Bank may now
or hereafter advance to or for the benefit of the undersigned in accordance
with the terms hereof, together with interest from date of disbursement or
N/A, whichever is later, on the unpaid principal balance [ ] at the rate of
% per year [X] at the rate of 1.250% per year in excess of the rate
of interest which Bank has announced as its prime lending rate (the "Prime
Rate"), which shall vary concurrently with any change in such Prime Rate, or
$250.00, whichever is greater. Interest shall be computed at the above rate
on the basis of the actual number of days during which the principal balance
is outstanding, divided by 360, which shall, for interest computation
purposes, be considered one year.
Interest shall be payable [X] monthly [ ] quarterly [ ] included with
principal [X] in addition to principal [ ] beginning May 4, 1998, and if not so
paid shall become a part of the principal. All payments shall be applied first
to any late charges owing, then to interest and the remainder, if any, to
principal. [X] (if checked), Principal shall be payable in installments of
$_______ or more, each installment on the 4th day of each month, beginning
November 4, 1998. Advances not to exceed any unpaid balance owing at any one
time equal to the maximum amount specified above, may be made at the option of
the Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining to
this note, at the option of the holder hereof and without notice or demand, the
entire balance of principal and accrued interest in remaining unpaid shall (a)
become immediately due and payable, and (b) thereafter bear interest, until paid
in full, at the increased rate of 5% per year in excess of the rate provided for
above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of maker(s) to
pay principal or interest when due; the filing as to each person obligated
hereon, whether as maker, co-maker, endorser or guarantor (individually or
collectively referred to as the "Obligor") of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act; the issuance of any
attachment or execution against any asset of any Obligor; the death of any
Obligor; or any deterioration of the financial condition of any Obligor which
results in the holder hereof considering itself, in good faith, insecure.
If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent ten or more days, Obligor
agrees to pay Bank a late charge in the amount of 5% of the payment so due and
unpaid, in addition to the payment; but nothing in this paragraph is to be
construed as any obligation on the part of the holder of this note to accept
payment of any payment past due or less than the total unpaid principal balance
after maturity.
If this note is not paid when due, each Obligor promises to pay all costs
and expenses of collection and reasonable attorneys fees incurred by the holder
hereof on account of such collection, plus interest at the rate applicable to
principal, whether or not suit is filed hereon. Each Obligor shall be jointly
and severally liable hereon and consents to renewals, replacements and
extensions of time for payment hereof, before, at, or after maturity; consents
to the acceptance, release or substitution of security for this note; and waives
demand and protest and the right to assert any statute of limitations. Any
married person who signs this note agrees that recourse may be had against
separate property for any obligations hereunder. The indebtedness evidenced
hereby shall be payable in lawful money of the United States. In any action
brought under or arising out of this note, each Obligor, including successor(s)
or assign(s) hereby consents to the application of California law, to the
jurisdiction of any competent court within the State of California, and to
service of process by any means authorized by California law.
No single or partial exercise of power hereunder, or under any deed of
trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect to
any of the security. Any delay or omission on the part of the holder hereof in
exercising any right hereunder, or under any deed of trust, security agreement
or other agreement, shall not operate as a waiver of such right, or of any other
right, under this note or any deed of trust, security agreement or other
agreement in connection herewith.
*SEE ATTACHED. THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN
THE CREDIT TERMS AND CONDITIONS AGREEMENT DATED APRIL 6, 1998 AND ANY AMENDMENTS
THERETO AND REPLACEMENT THEREOF.
Collateral Therapeutics, Inc.
- ---------------------------------------- -----------------------------------
By: /s/ Christopher Reinhard
- ------------------------------------ -----------------------------------
Christopher Reinhard, COO/CFO
- ---------------------------------------- -----------------------------------
<PAGE>
ADDENDUM TO NOTE Dated April 6, 1998
Advances under the Note shall be available through October 4, 1998. During
the revolving draw period, interest only shall be due monthly beginning May 4,
1998. On October 4, 1998, the outstanding principal balance of the advances
under the Note shall be payable monthly in 54 equal payments of principal based
on an amortization of 54 periods plus accrued interest beginning November 4,
1998.
All principal and accrued but unpaid interest shall in any event be due and
payable on or before April 4, 2003.
COLLATERAL THERAPEUTICS, INC.
By: /s/ Christopher Reinhard
------------------------------------
Christopher Reinhard, COO/CFO
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 15,
1998, except for Notes 4 and 5, as to which the dates are April 6, 1998 and
May 29, 1998, respectively, in the Registration Statement (Amendment No. 2 to
Form S-1) and related Prospectus of Collateral Therapeutics, Inc. for the
registration of 3,829,500 shares of its common stock.
Ernst & Young LLP
San Diego, California
June 2, 1998
<PAGE>
[LETTERHEAD]
CONSENT FORM
------------
The undersigned hereby consent to the use of our name and the statement
with respect to us that appears under the heading "Experts" contained in the
Registration Statement on Form S-1 and related Prospectus of Collateral
Therapeutics, Inc.
LYON & LYON LLP
/s/ Lyon & Lyon
---------------------------
Dated: 1 June 1998
-------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 5,605,361 5,676,330
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,776,312 6,725,419
<PP&E> 453,296 751,881
<DEPRECIATION> 159,849 192,037
<TOTAL-ASSETS> 8,069,759 7,357,863
<CURRENT-LIABILITIES> 838,055 1,062,200
<BONDS> 0 0
0 0
1,222 1,222
<COMMON> 5,972 5,972
<OTHER-SE> 6,724,510 5,788,469
<TOTAL-LIABILITY-AND-EQUITY> 8,069,759 7,357,863
<SALES> 0 0
<TOTAL-REVENUES> 5,647,189 989,378
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 6,791,241 2,171,662
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (977,223) (1,101,160)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (977,223) (1,101,160)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (977,223) (1,101,160)
<EPS-PRIMARY> (0.16) (0.14)
<EPS-DILUTED> (0.16) (0.14)
</TABLE>
