<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1998
REGISTRATION NO. 333-51029
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 4
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
FILED PURSUANT TO RULE 424(A)
REGISTRATION NO. 333-51029
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 Common Stock
has been approved for quotation on the Nasdaq National Market under the symbol
"CLTX," subject to official notice of issuance.
------------------------
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.
<PAGE>
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 the Company 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. According to the
American Heart Association, during 1998 an estimated 1.1 million patients will
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 $171 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 5,165 1,140 1,454
General and administrative......................... 271 951 1,768 388 759
----- --------- --------- --------- ---------
Total operating expenses............................. 669 2,094 6,933 1,528 2,213
----- --------- --------- --------- ---------
Loss from operations................................. (669) (414) (1,286) (713) (1,224)
Interest (expense) income, net....................... (10) 24 167 13 81
----- --------- --------- --------- ---------
Net loss............................................. $ (679) $ (390) $ (1,119) $ (700) $ (1,143)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Pro forma net loss per share (Basic and Diluted)
(1)................................................ $ (0.18) $ (0.15)
--------- ---------
--------- ---------
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..................................................................... (3,331) (3,331)
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 $3.3
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 clinical trials, and other product development and
commercialization activities, scale back or terminate
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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 other licensing arrangements, any revenues
received by the Company will be dependent on the efforts of
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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 government
control of pricing and profitability. In addition, increasing emphasis on
managed healthcare
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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 liability insurance
for its Phase I/II human clinical trial for GENERX and intends to obtain
insurance for
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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 significant influence over all matters requiring
stockholder approval, including the election of directors and
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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
3,391,220, 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..................................................... 10,083 10,081 46,440
Deferred compensation.......................................................... (812) (812) (812)
Note receivable secured by common stock........................................ (150) (150) (150)
Accumulated deficit............................................................ (3,331) (3,331) (3,331)
--------- ----------- ---------
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 5,165 1,140 1,454
General and administrative.......................... 271 951 1,768 388 759
------ --------- --------- --------- ---------
Total operating expenses.......................... 669 2,094 6,933 1,528 2,213
------ --------- --------- --------- ---------
Loss from operations.................................. (669) (414) (1,286) (713) (1,224)
Interest (expense) income, net........................ (10) 24 167 13 81
------ --------- --------- --------- ---------
Net loss.............................................. $ (679) $ (390) $ (1,119) $ (700) $ (1,143)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Pro forma net loss per share (Basic and Diluted)
(1)................................................. $ (0.18) $ (0.15)
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) (2,188) (3,331)
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 $1.5
million compared to $1.1 million for the three months ended March 31, 1997; the
increase resulted from increased expenses associated with additional personnel,
amortization of deferred compensation related to stock options, 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 $759,000 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, increased expenses for
personnel to support expanded research efforts, and amortization of deferred
compensation related to stock options.
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 $5.2 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, additions of research and
development personnel to support expanded research and development programs, and
amortization of deferred compensation related to stock options. General and
administrative expenses increased to $1.8 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, and
amortization of deferred compensation related to stock options. 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
23
<PAGE>
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 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" and
"Business--Collaborative and Licensing Arrangements." The Company is also
required to make aggregate payments of approximately $552,000 over the next five
years under non-cancelable research and development contracts. See
"Business--Collaborative and Licensing Arrangements." The Company's core
technologies are focused on the development of gene therapies that promote
angiogenesis, myocardial adrenergic signaling and heart muscle regeneration. The
Company has in-licensed certain technology covering proprietary methods of gene
therapy and a portfolio of therapeutic genes for use with such methods of gene
therapy (see "Business--Collaborative and Licensing Arrangements"). The Company
evaluates on an ongoing basis the safety, efficacy and commercialization of the
therapeutic genes it has licensed and, based on such evaluations, the Company
designates certain genes for use in the development of each of the Company's
cardiovascular gene therapy products. While research is continuing, the Company
has currently designated one gene (FGF-4) for use in the development of two
angiogenic gene therapy products: (1) GENERX, as a treatment for coronary artery
disease and (2) GENVASCOR, as a treatment for peripheral vascular disease. These
are the only products currently in development by the Company for which a
specific gene has been designated. Upon any successful commercialization of
these two angiogenic gene therapy products using this designated gene, the total
financial milestone obligations, licensing fees and other related amounts
payable by the Company pursuant to license agreements with New York University
and the University of California could total up to $4,950,000, including
$725,000 which has already been paid by the Company as of March 31, 1998. In
addition, upon any successful commercialization of such products, the Company
would be required to make, pursuant to the terms of the license agreements,
royalty payments on net sales of products that utilize such gene. See
"Business--Collaborative and Licensing Arrangements--University of California
License Agreements; New York University Research and License Agreement."
However, the Company may, in its sole discretion, change such designated gene at
any time and the license agreement covering such designated gene could be
terminated by the Company and all future financial obligations with respect to
such gene would cease. In addition to GENERX and GENVASCOR, the Company has two
other products, GENEVX and GENECOR, which have progressed beyond the research
stage. See "Business--Collateral's Product Development Programs" and the chart
therein. The angiogenic genes to be designated by the Company for use in
development of GENEVX and
24
<PAGE>
GENECOR will not be finalized until the Company has progressed further along in
its evaluation process. Based on the Company's currently existing agreements
covering in-licensed technology, including methods of gene therapy and
therapeutic genes, and the successful commercialization of its gene therapy
products, the Company's total financial obligations pursuant to licensing
agreements with respect to all four of its products which are currently beyond
the research stage could range from between $6,800,000 to $13,750,000, of which
$2,150,000 has been paid through March 31, 1998, depending on the selections of
therapeutic genes for use in the Company's angiogenic gene therapy products,
GENEVX and GENECOR. In addition, the Company would be required to pay a royalty
on worldwide net sales of products that utilize in-licensed technology. The
information set forth above with respect to potential fees payable by the
Company for in-licensed technology involves many variables and is subject to a
high degree of potential variation. See "Business--Collaborative and Licensing
Arrangements." The Company may be required to secure the license rights to
certain other methods of gene therapy and therapeutic genes based on product
development and commercialization requirements.
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. Under the Schering Agreement, the Company may
receive: (i) up to $5.0 million annually to support the Company's research and
development pursuant to the Schering Agreement for an Initial Product (as
defined therein), which amount may be adjusted to support research and
development for additional products within the field of angiogenic gene therapy,
(ii) 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
(iii) a royalty rate based on worldwide net sales of each product and 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. 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 all of its
research and development expenses in the angiogenic gene therapy field as it
relates to an Initial Product 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. 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 incurred in
fields other than angiogenic gene therapy or are otherwise not reimbursable
under the current arrangement with Schering AG, the Company intends to use
proceeds from the Offering to cover such expenses. See "Use of Proceeds."
25
<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.
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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 was incorporated in California in April 1995 and reincorporated
in Delaware in 1998. The period from April 1995 to December 1995 represented the
start-up phase of the Company, during which the Company initiated efforts to
establish infrastructure, build a personnel base, secure initial funding, and
pursue limited research. In 1995, the Company obtained initial loans of $500,000
from Schering AG, consisting of two promissory notes to fund operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources." During this period, the Company
also entered into an agreement with the University of California to license
certain technology relating to angiogenic gene therapy.
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<PAGE>
During the period from January 1996 to April 1996, the Company continued
limited research and development activities and also initiated discussions with
Schering AG to expand the funding relationship with respect to the field of
angiogenic gene therapy. In May 1996, the Company entered into a strategic
collaboration with Schering AG, covering angiogenic gene therapy products (the
"Schering Agreement"). See "-Collaborative and Licensing Arrangements."
With the additional funding obtained from Schering AG, the Company continued
to expand its research and development efforts and entered into additional
licensing arrangements. The Company secured the license rights to several
therapeutic angiogenic genes in March 1997 and, as set forth above, 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.
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. Under the Schering Agreement, 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 "--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 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 $171
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
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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 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 in 1998 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.
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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 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 animal 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. No
longer term studies were conducted. 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
30
<PAGE>
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-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
31
<PAGE>
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.
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
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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; 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
33
<PAGE>
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.
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 FOLLOWING SECTION DESCRIBING CERTAIN COLLABORATIVE AND LICENSING
ARRANGEMENTS BETWEEN THE COMPANY AND THIRD PARTIES CONTAINS CERTAIN INFORMATION
CONCERNING THE POTENTIAL FEES PAYABLE BY THE COMPANY UNDER SUCH ARRANGEMENTS.
THE COMPANY CONTINUALLY EVALUATES THE SAFETY, EFFICACY AND POSSIBLE
COMMERCIALIZATION OF ITS THERAPEUTIC GENES AND METHODS OF GENE THERAPY. ON THE
BASIS OF SUCH EVALUATIONS, THE COMPANY MAY ALTER ITS CURRENT RESEARCH AND
DEVELOPMENT PROGRAMS. ACCORDINGLY, THE COMPANY MAY ELECT TO CANCEL, FROM TIME TO
TIME, ONE OR MORE OF THESE ARRANGEMENTS WITH THIRD PARTIES, SUBJECT TO ANY
APPLICABLE ACCRUED LIABILITIES AND, IN CERTAIN CASES, TERMINATION FEES.
ALTERNATIVELY, THE PARTY TO SUCH ARRANGEMENT MAY, IN CERTAIN CIRCUMSTANCES, BE
ENTITLED TO TERMINATE THE ARRANGEMENT. FURTHER, THE AMOUNTS PAYABLE UNDER
CERTAIN OF THE COMPANY'S ARRANGEMENTS DEPEND ON THE NUMBER OF PRODUCTS OR
INDICATIONS FOR WHICH ANY PARTICULAR TECHNOLOGY LICENSED UNDER SUCH ARRANGEMENT
IS USED BY THE COMPANY. THUS, ANY STATEMENT OF POTENTIAL FEES PAYABLE BY THE
COMPANY UNDER EACH AGREEMENT IS SUBJECT TO A HIGH DEGREE OF POTENTIAL VARIATION
FROM THE AMOUNTS INDICATED HEREIN.
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
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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" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
SCHERING AG COLLABORATION, LICENSE AND ROYALTY AGREEMENT
In May 1996, the Company entered into the Schering Agreement 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) up to $5.0 million annually to support the Company's research and
development pursuant to the Schering Agreement for an Initial Product (as
defined therein), which amount may be increased to support research and
development for additional products within the field of angiogenic gene therapy;
(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, on a country-by-country basis from the first commercial sale until
the later of 10 years following the first sale in such country or until the
expiration of the last to expire patent covering technology licensed or
developed under the agreement which has valid claims in such country. 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.
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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.
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 clinical trials, and other product development and
commercialization activities, 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. See "Risk Factors--Reliance on Collaborative Relationships."
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"). The agreement may be canceled by the Company at any
time on 60 days notice, following which the Company would continue to be
responsible only for obligations and liabilities accrued prior to termination.
Under the agreement, the Company is obligated to pay a non-refundable $550,000
licensing fee payable in installments. Should the Company pursue development of
products incorporating technology licensed under this agreement, the Company
could be obligated to pay (1) an annual royalty fee based on net sales of
products incorporating the technology licensed under the agreement and (2) a
minimum annual royalty fee (which is offsettable against the aforesaid net
sales-based royalty fee) which, for the period from 2003 through 2007, could
aggregate up to $2.15 million in minimum annual royalty fees and, in each
succeeding calendar year after 2007, $750,000 for the life of the agreement.
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
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heart failure based on myocardial adrenergic responsiveness, based on scientific
discovery research conducted at the laboratory of Dr. Hammond. The agreement may
be canceled by the Company at any time on 60 days notice, following which the
Company would continue to be responsible only for obligations and liabilities
accrued prior to termination. Under the agreement, the Company is obligated to
pay a non-refundable $650,000 licensing fee payable in installments. Should the
Company pursue development of products incorporating technology licensed under
this agreement, the Company could be obligated to pay (1) an annual royalty fee
based on net sales of products incorporating the technology licensed under the
agreement and (2) a minimum annual royalty fee (which is offsettable against the
aforesaid net sales-based royalty fee) which, for the period from 2004 through
2008, could aggregate up to $2.15 million in minimum annual royalty fees and, in
each succeeding calendar year after 2008, $750,000 for the life of the
agreement.
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. The agreement may be canceled by the Company
at any time on 60 days notice, following which the Company would continue to be
responsible only for obligations and liabilities accrued prior to termination.
Under the agreement, the Company is obligated to pay a non-refundable $325,000
licensing fee payable in installments. Should the Company pursue development of
products incorporating technology licensed under this agreement, the Company
could be obligated to pay (1) an annual royalty fee based on net sales of
products incorporating the technology licensed under the agreement and (2) a
minimum annual royalty fee (which is offsettable against the aforesaid net
sales-based royalty fee) which, for the period from 2005 through 2009, could
aggregate up to $700,000 in minimum annual royalty fees and, in each succeeding
calendar year after 2009, $300,000 for the life of the agreement.
The University of California licensing agreements formed the initial basis
for the Company's technology regarding methods of gene therapy and were entered
into with regard to the Company's present efforts to develop gene therapy
products.
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. 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.
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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 of $71,969 of which
all but $7,197 has already been paid. 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 filed in the United States
and in foreign countries. Pursuant to such agreement, the Company has agreed to
pay NYU license fees through the completion of the first full year of sales of
licensed product which, if made through the year 2002, would aggregate up to
$225,000. Should the Company pursue development of licensed products under this
agreement, the Company could be obligated to pay up to an aggregate amount of
$1.8 million for each product in milestone payments. In addition, beginning in
the year in which the Company completes one full year of sales of licensed
products and continuing thereafter until the agreement terminates or expires,
the Company could also be obligated to pay minimum annual royalty fees of up to
$500,000 offsettable against annual royalty fees based on net sales of licensed
products during each calendar year. 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. In connection with this research program, the
Company is obligated to pay up to $675,000 in research funding, of which
$200,000 had been paid as of March 31, 1998.
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
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AMRAD/Ludwig a one-time license fee of $1.15 million. Should the Company pursue
development of products incorporating technology licensed under this agreement,
the Company could also be obligated to pay up to an aggregate amount of $4.75
million in milestone payments based on the Company's successful achievement of
certain product development benchmarks and $1.0 million for each additional
medical indication. In addition, on January 1, 2002, and upon each successive
anniversary, the Company could be obligated to pay a license fee of up to $1.5
million to be offset against any annual royalties based on net sales of licensed
products payable to AMRAD under the agreement. 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, one of which the Company has
exercised. 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 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.
Should the Company pursue development of products or processes incorporating
technology licensed under this agreement, then, in addition to a $16,000
non-refundable license fee, the Company would be obligated for up to an
aggregate of $450,000 in milestone payments per product or process upon
successful achievement of certain product development benchmarks and, beginning
the later of (a) the year 2004 or (b) the issuance in the United States and/or
the European Union of a patent covering certain patentable material licensed to
the Company under the agreement, the Company could be obligated to pay minimum
annual royalties up to an aggregate amount of $1.2 million through the year
2008. In each succeeding calendar year after 2008, the Company could be
obligated to pay a minimum annual royalty of $500,000 for the life of the
agreement. These minimum annual royalties are offsettable against annual royalty
fees payable by the Company based on net sales of any products covered by any
patents that may issue. 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.
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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.
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. Under this
agreement, the Company could be obligated to pay up to an aggregate amount of
$176,789 in funding support of which $59,999 has been paid as of March 31, 1998.
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
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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. On June 11, 1998, the Company and the University of Missouri amended
this agreement to extend the term of the agreement through December 31, 1998.
Either party may terminate this agreement at any time upon 30 days prior written
notice. Under this agreement, the Company could be obligated to pay up to an
aggregate funding amount of $76,083 of which $45,650 has been paid as of March
31, 1998.
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 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
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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.
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."
42
<PAGE>
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 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
43
<PAGE>
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, 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
44
<PAGE>
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 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."
45
<PAGE>
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 6,000 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.
46
<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
47
<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 July 1994, Dr. Hammond has been
Associate Professor of Medicine at UCSD. From 1987 to June 1994, Dr. Hammond was
Clinical Assistant 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-
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<PAGE>
Leonardi's regulatory affairs responsibilities in Sweden included work with
conventional biologics and 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. Mr. Hale received a B.A. in Biology and
Chemistry from Jacksonville State University.
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."
49
<PAGE>
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. 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
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<PAGE>
other time will not become the property of the Company. The scientific advisor
and consulting agreements contain confidentiality and non-use provisions.
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
51
<PAGE>
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 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."
52
<PAGE>
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
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
53
<PAGE>
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 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
54
<PAGE>
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 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
55
<PAGE>
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 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
56
<PAGE>
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 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
57
<PAGE>
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 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)................................................ 601,857 7.2% 5.1%
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).................................................... 5,695,045 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
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<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 288,060 shares covered by
vested options outstanding, which are not considered to be outstanding shares.
Of the outstanding shares, approximately 3,391,220 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 122,461 additional shares of Common Stock
(including approximately 35,644 additional shares covered by options which will
vest 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.
63
<PAGE>
At the end of such 180-day period, approximately 8,682,508 shares of Common
Stock (including approximately 389,935 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 218,540 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.
64
<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
65
<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,
except for the issuance by the Company of shares of Common Stock pursuant to the
Purchase Plan or pursuant to the exercise of options outstanding under the 1998
Plan at the time of the closing of the Offering (provided that the Company will
only so issue shares to persons who are not, at the time of the closing of the
Offering, officers or directors of the Company or stockholders having beneficial
ownership of at least 1% of the outstanding Common Stock of the Company), 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.
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<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.
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<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 9,900,789 10,081,749 10,080,650
Deferred compensation..................................... -- (838,206) (811,834) (811,834)
Note receivable secured by common stock................... -- (150,000) (150,000) (150,000)
Accumulated deficit....................................... (1,069,477) (2,188,073) (3,331,446) (3,331,446)
---------- ---------- ----------- -------------
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 5,164,982 1,140,053 1,454,615
General and administrative........... 270,852 951,239 1,767,632 388,063 759,260
----------------- ----------- ----------- ----------- -----------
Total operating expenses............... 669,333 2,093,908 6,932,614 1,528,116 2,213,875
----------------- ----------- ----------- ----------- -----------
Loss from operations................... (669,333) (414,446) (1,285,425) (713,384) (1,224,497)
Interest income (expense), net......... (10,136) 24,438 166,829 13,739 81,124
----------------- ----------- ----------- ----------- -----------
Net loss............................... $ (679,469) $ (390,008) $(1,118,596) $ (699,645) $(1,143,373)
----------------- ----------- ----------- ----------- -----------
----------------- ----------- ----------- ----------- -----------
Pro forma net loss per share (Basic and
Diluted)............................. $ (0.18) $ (0.15)
----------- -----------
----------- -----------
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.............. -- -- -- -- 1,157,410 (1,157,410) -- --
Amortization of
deferred
compensation......... -- -- -- -- -- 319,204 -- --
Note receivable secured
by Common Stock...... -- -- -- -- -- -- (150,000) --
Net loss............... -- -- -- -- -- -- -- (1,118,596)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
Balance at December 31,
1997................... 1,221,540 1,222 5,971,647 5,972 9,900,789 (838,206) (150,000) (2,188,073)
Deferred compensation
related to stock
options
(unaudited).......... -- -- -- -- 180,960 (180,960) -- --
Amortization of
deferred compensation
(unaudited).......... -- -- -- -- -- 207,332 -- --
Net loss (unaudited)... -- -- -- -- -- -- -- (1,143,373)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
Balance at March 31, 1998
(unaudited)............ 1,221,540 $ 1,222 5,971,647 $ 5,972 $10,081,749 $ (811,834) $ (150,000) $(3,331,446)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
<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......... 319,204
Note receivable secured
by Common Stock...... (150,000)
Net loss............... (1,118,596)
-------------
Balance at December 31,
1997................... 6,731,704
Deferred compensation
related to stock
options
(unaudited).......... --
Amortization of
deferred compensation
(unaudited).......... 207,332
Net loss (unaudited)... (1,143,373)
-------------
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) $(1,118,596) $(699,645) $(1,143,373)
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...... -- -- 319,204 -- 207,332
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) $(1,118,596) $(699,645) $(1,143,373)
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) $ (0.24) $ (0.17) $ (0.22)
------------ --------- ---------- ----------- ----------
------------ --------- ---------- ----------- ----------
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)....................................... $ (0.18) $ (0.15)
---------- ----------
---------- ----------
</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) up to $5.0 million annually to support the Company's
research and development pursuant to the Schering Agreement for an Initial
Product (as defined therein), which amount may be adjusted to support research
and development for additional products within the field of angiogenic gene
therapy; (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
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)
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.
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 $552,000
on research and development contracts, of which $277,000 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) $ (1,125,255) $ (700,797) $ (1,145,959)
Adjusted pro forma net loss
per share (Basic and Diluted)...... $ (0.11) $ (0.18) $ (0.17) $ (0.15)
</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 $1,157,410 and
$180,960, respectively, and related amortization expense totaled $319,204 and
$207,332 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........................................ 27
Management...................................... 47
Certain Transactions............................ 59
Principal Stockholders.......................... 60
Description of Capital Stock.................... 61
Shares Eligible for Future Sale................. 63
Underwriting.................................... 65
Legal Matters................................... 67
Experts......................................... 67
Additional Information.......................... 67
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, as
amended.
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, as amended.
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. 4 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
24th 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 24, 1998
(Jack W. Reich) Officer)
Director, Chief Operating
* And Chief Financial
- ------------------------------ Officer (Principal June 24, 1998
(Christopher J. Reinhard) Financial and Accounting
Officer)
* Director And Secretary
- ------------------------------ June 24, 1998
(Craig S. Andrews)
* Director, Vice President,
- ------------------------------ Medical Director June 24, 1998
(Robert L. Engler)
* Director, Vice President,
- ------------------------------ Research June 24, 1998
(H. Kirk Hammond)
* Director
- ------------------------------ June 24, 1998
(Elise G. Klein)
* Director
- ------------------------------ June 24, 1998
(David F. Hale)
* Director
- ------------------------------ June 24, 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, as
amended.
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, as amended.
</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>
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 Common Stock
has been approved for quotation on the Nasdaq National Market under the symbol
"CLTX," subject to official notice of issuance.
------------------------
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 INTERNATIONAL LIMITED
RAYMOND JAMES & ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
The date of this Prospectus is , 1998
<PAGE>
NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR
ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR
POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION
FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO
WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY AND THE
UNDERWRITERS TO INFORM THEMSELVES ABOUT, AND TO OBSERVE ANY RESTRICTIONS AS TO,
THE OFFERING OF THE COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.
------------------------
THE UNDERWRITERS HAVE EACH REPRESENTED AND AGREED THAT (A) IT HAS NOT
OFFERED OR SOLD AND WILL NOT OFFER OR SELL ANY SHARES OF COMMON STOCK IN THE
UNITED KINGDOM EXCEPT TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN
ACQUIRING, HOLDING, MANAGING, OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR
AGENT) FOR THE PURPOSES OF THEIR BUSINESSES OR OTHERWISE IN CIRCUMSTANCES WHICH
HAVE NOT RESULTED AND WILL NOT RESULT IN AN OFFER TO THE PUBLIC IN THE UNITED
KINGDOM WITHIN THE MEANING OF THE PUBLIC OFFERS OF SECURITIES REGULATIONS (1995)
(THE "REGULATIONS"); (B) IT HAS COMPLIED AND WILL COMPLY WITH ALL APPLICABLE
PROVISIONS OF THE FINANCIAL SERVICES ACT 1986 AND THE REGULATIONS WITH RESPECT
TO ANYTHING DONE BY IT IN RELATION TO THE SHARES OF COMMON STOCK OFFERED HEREBY
IN, FROM, OR OTHERWISE INVOLVING THE UNITED KINGDOM; AND (C) IT HAS ONLY ISSUED
OR PASSED ON AND WILL ONLY ISSUE OR PASS ON TO ANY PERSON IN THE UNITED KINGDOM
ANY DOCUMENT RECEIVED BY IT IN CONNECTION WITH THE ISSUE OF THE SHARES OF COMMON
STOCK IF THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL
SERVICES ACT 1986, (INVESTMENT ADVERTISEMENT) (EXEMPTIONS) ORDER 1996, OR IS A
PERSON TO WHOM SUCH DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON.
------------------------
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a discussion of the material United States federal income
tax consequences of the ownership and disposition of shares of Common Stock
applicable to Non-U.S. Holders. In general, a "Non-U.S. Holder" is any holder
other than (i) a citizen or an individual considered under the U.S. tax laws to
be a resident of the U.S., (ii) a corporation or partnership created or
organized in the U.S. or under the laws of the U.S. or any State (or the
District of Columbia), (iii) an estate whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source or (iv) a
trust for which a court within the U.S. is able to exercise primary supervision
over the administration of the trust, and for which one or more U.S. fiduciaries
have the authority to control all substantial decisions of the trust. The
discussion is based on current law, which is subject to change retroactively or
prospectively, and is for general information only. The discussion does not
address all aspects of U.S. federal income taxation and does not address any
aspects of U.S. federal estate taxation or of state, local or foreign tax laws.
The discussion does not consider any specific facts or circumstances that may
apply to a particular Non-U.S. Holder (including the fact that in the case of a
Non-U.S. Holder that is a partnership, the U.S. tax consequences of holding and
disposing of shares of Common Stock may be affected by certain determinations
made at the partner level). Accordingly, prospective investors are urged to
consult their tax advisors regarding the U.S. federal, state, local and non-U.S.
income, estate and other tax consequences of holding and disposing of shares of
Common Stock.
DIVIDENDS. Dividends, if any (see "Dividend Policy"), paid to a Non-U.S.
Holder generally will be subject to United States withholding tax at a 30% rate
(or a lower rate as may be prescribed by an applicable tax treaty) unless the
dividends are effectively connected with a trade or business of the Non-U.S.
Holder within the U.S.
Dividends effectively connected with a trade or business will generally not
be subject to withholding (if the Non-U.S. Holder complies with applicable U.S.
Internal Revenue Service ("IRS") reporting requirements) and generally will be
subject to U.S. federal income tax on a net income basis at regular graduated
rates. In the case of a Non-U.S. Holder which is a corporation, such effectively
connected income also may be subject to the branch profits tax (which is
generally imposed on a foreign corporation on the deemed repatriation from the
U.S. of effectively connected earnings and profits) at a 30% rate or, if
available, a lower treaty rate.
(CONTINUED ON INSIDE BACK COVER)
<PAGE>
(CONTINUED FROM INSIDE FRONT COVER)
Under currently effective U.S. Treasury Regulations, dividends paid to an
address outside the U.S. are presumed to be paid to a Non-U.S. Holder. Such
presumption should also apply for purposes of determining whether a reduced rate
of withholding tax is available to such Non-U.S. Holder under an applicable tax
treaty. If such a reduced rate of withholding tax is available, Non-U.S. Holders
receiving dividends at addresses outside the U.S. should not be currently
required to file tax forms to obtain the benefit of an applicable treaty rate.
Recently finalized U.S. Treasury Regulations (the "Final Regulations")
applicable to dividends paid after December 31, 1999 provide for new and more
detailed requirements (including new certification requirements) for obtaining
the benefits of a reduced treaty rate of withholding. Prospective investors who
are Non-U.S. Holders should consult with their tax advisors regarding the
application of and compliance with the Final Regulations. The Final Regulations
also provide special rules to determine whether, for purposes of determining the
applicability of a tax treaty and for purposes of the 30% withholding tax
described above, dividends paid to a Non-U.S. Holder that is an entity should be
treated as paid to the entity or those holding an interest in that entity.
SALES OR OTHER DISPOSITIONS OF COMMON STOCK. Generally, a Non-U.S. Holder
will not be subject to U.S. federal income tax on any gain realized upon the
sale or other disposition of such holder's shares of Common Stock unless (i) the
gain is effectively connected with a trade or business carried on by the Non-
U.S. Holder within the U.S. (in which case the branch profits tax may also
apply); (ii) the Non-U.S. Holder is an individual who holds the shares of Common
Stock as a capital asset and is present in the U.S. for 183 days or more in the
taxable year of the sale or other disposition and with respect to whom such gain
is U.S. source; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain former U.S. citizens or
residents; or (iv) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes (which the Company does not believe
that it is or is likely to become) at any time during the five-year period
ending on the date of the sale or other disposition (or such shorter period that
such shares were held).
BACKUP WITHHOLDING AND INFORMATION REPORTING
DIVIDENDS. The Company must report annually to the IRS and to each Non-U.S.
Holder the amount of dividends paid to and the tax withheld, if any, with
respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced by an applicable tax treaty.
Copies of these information returns may also be available under the provisions
of a specific treaty or agreement with the tax authorities in the country in
which the Non-U.S. Holder resides. Dividends that are subject to U.S.
withholding tax at the 30% statutory rate or at a reduced tax treaty rate and
dividends that are effectively connected with the conduct of a trade or business
in the U.S. (if certain certification and disclosure requirements are met) are
exempt from backup withholding of U.S. federal income tax. In general, backup
withholding at a rate of 31% and information reporting will apply to other
dividends paid on shares of Common Stock to holders that are not "exempt
recipients" and fail to provide in the manner required certain identifying
information (such as the holder's name, address and taxpayer identification
number). Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. For dividends paid
after December 31, 1999, the Final Regulations provide certain presumptions and
other rules under which Non-U.S. Holders may be subject to backup withholding
and related information reporting in the absence of required certifications.
DISPOSITIONS OF COMMON STOCK. Non-U.S. Holders who do not provide
appropriate certifications and otherwise comply with applicable regulations may
be subject to backup withholding and information reporting with respect to sales
or other dispositions of shares of Common Stock through a broker. Non-U.S.
Holders should consult with their tax advisors prior to any sale regarding the
certifications which may be required in connection with a sale or other
disposition of the Common Stock.
Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS. Non-U.S. Holders should consult
their tax advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom and the procedures for
obtaining such an exemption, if available.
<PAGE>
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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........................................ 27
Management...................................... 47
Certain Transactions............................ 59
Principal Stockholders.......................... 60
Description of Capital Stock.................... 61
Shares Eligible for Future Sale................. 63
Underwriting.................................... 65
Legal Matters................................... 67
Experts......................................... 67
Additional Information.......................... 67
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 INTERNATIONAL LIMITED
RAYMOND JAMES & ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 1.1
3,330,000 Shares of Common Stock
Collateral Therapeutics, Inc.
UNDERWRITING AGREEMENT
----------------------
[Date]
BEAR, STEARNS & CO. INC.
RAYMOND JAMES & ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167
Ladies and Gentlemen:
Collateral Therapeutics, Inc., a corporation organized and existing
under the laws of Delaware (the "Company"), proposes, subject to the terms and
conditions stated herein, to issue and sell to the several underwriters named in
Schedule I hereto (the "Underwriters") an aggregate of 3,330,000 shares (the
"Firm Shares") of its common stock, par value $0.001 per share (the "Common
Stock"), and, for the sole purpose of covering over-allotments in connection
with the sale of the Firm Shares, at the option of the Underwriters, up to an
additional 499,500 shares (the "Additional Shares") of Common Stock. The Firm
Shares and any Additional Shares purchased by the Underwriters are referred to
herein as the "Shares." The Shares are more fully described in the Registration
Statement referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations of
the Commission thereunder (the "Regulations") a registration statement, and may
have filed an amendment or amendments thereto, on Form S-1 (No. 333-51029), for
the registration of the Shares under the Act. All of the Shares have been duly
registered
<PAGE>
under the Act pursuant to the initial registration statement, or if an
abbreviated registration statement has been, or is proposed to be, filed
pursuant to Rule 462(b) of the Regulations (the "Rule 462 Registration
Statement"), all of the Shares have been or will be, on the date of this
Agreement, duly registered under the Act pursuant to the initial registration
statement and the Rule 462 Registration Statement. Such registration statement,
including the prospectus, financial statements and schedules, exhibits and all
other documents filed as a part thereof, as amended at the time of effectiveness
of the registration statement, including any information deemed to be a part
thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A
or Rule 434 of the Regulations, is herein called the "Registration Statement"
and the prospectus, in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations or filed as part of the Registration Statement at the
time of effectiveness if no Rule 424(b) or Rule 434 filing is required, is
herein called the "Prospectus". If the Company has filed or proposes to file a
Rule 462 Registration Statement, then any reference herein to the term
"Registration Statement" shall include such Rule 462 Registration Statement.
The term "preliminary prospectus" as used herein means a preliminary prospectus
as described in Rule 430 of the Regulations.
(b) At the time of the effectiveness of the Registration
Statement or the effectiveness of any post-effective amendment to the
Registration Statement, when the Prospectus is first filed with the Commission
pursuant to Rule 424(b) or Rule 434 of the Regulations, when any supplement to
or amendment of the Prospectus is filed with the Commission and at the Closing
Date and the Additional Closing Date, if any (as hereinafter respectively
defined), the Registration Statement and the Prospectus and any amendments
thereof and supplements thereto complied or will comply in all material respects
with the applicable provisions of the Act and the Regulations and does not or
will not contain an untrue statement of a material fact and does not or will not
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein (i) in the case of the Registration
Statement, not misleading and (ii) in the case of the Prospectus, in light of
the circumstances under which they were made, not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed as
part of the registration statement for the registration of the Shares or any
amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any
amendment thereof or supplement thereto was first filed with the Commission,
such preliminary prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. No representation and warranty is
made in this subsection (b), however, with respect to any information contained
in or omitted from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment thereof or supplement thereto in
reliance upon and in conformity with information furnished in
2
<PAGE>
writing to the Company by or on behalf of any Underwriter through you as herein
stated expressly for use in connection with the preparation thereof. If Rule
434 is used, the Company will comply with the requirements of Rule 434.
(c) Ernst & Young, LLP, who have certified the financial
statements and supporting schedules included in the Registration Statement, are
independent public accountants as required by the Act and the Regulations.
(d) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, except
as set forth in the Registration Statement and the Prospectus, there has been
no material adverse change in the business, prospects (as of the date of this
Agreement), properties, operations, condition (financial or other) or results
of operations of the Company ("Material Adverse Change"), whether or not
arising from transactions in the ordinary course of business, and since the
date of the latest balance sheet presented in the Registration Statement and
the Prospectus, the Company has not incurred or undertaken any liabilities or
obligations, direct or contingent, which are material to the Company, except
for liabilities or obligations which are reflected in the Registration
Statement and the Prospectus.
(e) This Agreement and the transactions contemplated herein
have been duly and validly authorized by the Company, and this Agreement has
been duly and validly executed and delivered by the Company and is
enforceable against the Company in accordance with its terms, except as
rights to indemnity may be limited by federal or state securities laws
relating thereto and except as enforcement (i) may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights and remedies generally and (ii) is subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or law).
(f) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not (i) conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event which with notice or
lapse of time, or both, would constitute a default) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company pursuant to, any agreement, instrument, franchise,
license or permit to which the Company is a party or by which it or any of
its properties or assets may be bound, which breach, default, lien, charge or
encumbrance could result in a Material Adverse Effect (as that term is
hereinafter defined) or (ii) violate or conflict with any provision of the
certificate of incorporation or the by-laws of the Company or any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company or any of its properties or assets. No consent, approval,
authorization, order, registration, filing, qualification, license or permit
of or with any court or any public, governmental or regulatory agency or body
3
<PAGE>
having jurisdiction over the Company or any of its properties or assets is
required for the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, including the issuance,
sale and delivery of the Shares to be issued, sold and delivered by the
Company hereunder, except the registration under the Act of the Shares and
such consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state
securities or Blue Sky laws or foreign equivalents of such regulations or
statutes, where applicable, in connection with the purchase and distribution
of the Shares by the Underwriters.
(g) Upon the sale of the Firm Shares on the Closing Date:
(i) the only shares of capital stock of the Company issued and
outstanding (other than the Shares) will be 8,292,573 shares of Common
Stock;
(ii) all such outstanding shares of Common Stock will be duly and
validly authorized and issued, fully paid and nonassessable and are not
issued in violation of or subject to any preemptive right; and
(iii) except for options to purchase shares of Common Stock, all of
which are accurately described in the Registration Statement and the
Prospectus, there are not outstanding (nor is there any agreement to issue)
any options, warrants, subscriptions or other rights to acquire, or
securities convertible into or exercisable for, any shares of capital stock
of the Company.
The Shares to be delivered on the Closing Date have been duly and validly
authorized and, when delivered by the Company in accordance with this Agreement,
will be duly and validly issued, fully paid and nonassessable and will not have
been issued in violation of or subject to any preemptive right. The Company
had, at March 31, 1998, an authorized and outstanding capitalization as set
forth in the section of the Registration Statement and the Prospectus entitled
"Capitalization" (after giving effect to the assumptions set forth in the first
paragraph of such section). As of the Closing Date, the capital stock of the
Company conforms to the description thereof contained in the Registration
Statement and the Prospectus.
(h) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of its jurisdiction
of incorporation. The Company is duly qualified to transact business and is
in good standing as a foreign corporation in each jurisdiction in which the
nature of its properties or conduct of its business makes such qualification
necessary, except where the failure to so qualify would have a material
adverse effect (considered individually or when aggregated with other such
instances) on the business, prospects (as of the date of this Agreement),
properties, operations, condition (financial or other) or results of
operations of the Company (a "Material Adverse Effect"). The
4
<PAGE>
Company has all requisite power and authority and, except as described in the
Registration Statement and Prospectus, all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and permits
of and from all public, regulatory or governmental agencies and bodies, to
own, lease and operate its properties and conduct its business as now being
conducted and as described in the Registration Statement and the Prospectus,
and no such consent, approval, authorization, order, registration,
qualification, license or permit contains a materially burdensome restriction
not adequately disclosed in the Registration Statement and the Prospectus.
The Company is in compliance with all applicable laws, orders, rules,
regulations, ordinances and directives, except where the failure to be in
compliance could not have a Material Adverse Effect. The Company does not
have any subsidiaries as defined in Rule 405 of the Regulations. The Company
does not presently own or control, directly or indirectly, any interest in
any other corporation, association or other business entity.
(i) The Company is not in violation of any provision of its
certificate of incorporation or of its by-laws or in breach of, or in default
under (nor has any event occurred that with notice, lapse of time, or both,
would constitute a breach of, or default under), except where such breach or
default would not have a Material Adverse Effect, any provision of any
agreement, instrument, franchise, license or permit to which the Company is a
party or by which any of its properties or assets may be bound or effected or
any judgment, decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body having jurisdiction over
the Company or any of its properties or assets.
(j) Except as described in the Registration Statement and the
Prospectus, there is no litigation, arbitration, proceeding, investigation or
claim to which the Company is a party or to which any property or assets of the
Company is subject or which is pending or, to the knowledge of the Company,
threatened or contemplated against the Company which might result in any
Material Adverse Effect or any development involving a Material Adverse Effect
or which is required to be disclosed in the Registration Statement and the
Prospectus.
(k) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Shares or a violation of Regulation M under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(l) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the financial position of the Company as of the dates indicated
and the results of its operations for the periods specified; said financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent
5
<PAGE>
basis; and the supporting schedules included in the Registration Statement
present fairly the information required to be stated therein.
(m) Except as described in the Registration Statement and the
Prospectus and except for rights that have been effectively waived in writing
(complete and accurate copies of which have been provided to the Underwriters
prior to the date of this Agreement), which waivers are in full force and
effect, no holder of securities of the Company has any rights to cause the
Company to issue to it, or register pursuant to the Act, any securities of the
Company because of the filing of the Registration Statement, in connection with
the sale of the Shares contemplated hereby or otherwise, nor does any holder of
securities of the Company have preemptive rights or other rights to purchase any
of the Shares.
(n) The Company is not, and upon consummation of the
transactions contemplated hereby and the application of the proceeds therefrom
as described in the Prospectus will not be, subject to registration as an
"investment company" under the Investment Company Act of 1940.
(o) The Common Stock of the Company, including the Shares,
have been approved for quotation on the National Association of Securities
Dealers Automated Quotation National Market System.
(p) The Company owns or possesses valid and enforceable
licenses or other rights to use all inventions, patents, patent applications,
trademarks, service marks, trade names, copyrights, technology, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) proprietary techniques
(including processes and substances) and other intellectual property rights used
in, or necessary to conduct, the business now conducted by the Company or
presently contemplated to be conducted as described in the Registration
Statement and the Prospectus ("Intellectual Property"); other than as described
in the Registration Statement and the Prospectus: (i) there are no third
parties who have any rights in the Intellectual Property that could preclude the
Company from conducting its business as currently conducted or as presently
contemplated to be conducted as described in the Registration Statement and the
Prospectus; (ii) there are no pending or, to the Company's knowledge, threatened
actions, suits, proceedings, investigations or claims by others challenging the
rights of the Company or (if the Intellectual Property is licensed) the licensor
thereof in any Intellectual Property owned or licensed to the Company; (iii) the
Company and (if the Intellectual Property is licensed) to the Company's
knowledge the licensor thereof has not infringed, or received any notice of
infringement of or conflict with, any rights of others with respect to the
Intellectual Property; and (iv) there is, to the knowledge of the Company, no
dispute between it or any licensor with respect to any Intellectual Property.
True and correct copies of all licenses and other agreements between the Company
and any third party relating to the Intellectual Property, and all amendments
and supplements thereto, have been provided to the Underwriters.
6
<PAGE>
(q) The Company has timely filed all federal, state and
foreign income and franchise tax returns and reports required to be filed and
has paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the Company's knowledge, might be asserted against the Company that might have a
Material Adverse Effect; and all tax liabilities are adequately provided for on
the books of the Company.
(r) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts (i)
generally deemed adequate for its business and consistent with insurance
coverage maintained by similar companies in similar businesses and (ii) required
under any of the Company's agreements, licenses or other contracts, all of which
insurance is in full force and effect; the Company has no reason to believe that
it will not be able to renew its existing insurance as and when such coverage
expires or to obtain similar insurance adequate and customary for its business
and sufficient to satisfy any requirements of its contracts at a cost that would
not have a Material Adverse Effect.
(s) Except where it would not have a Material Adverse
Effect, (i) the Company is not in violation of any federal, state, local or
foreign laws, regulations, rules, ordinances, orders or directives relating
to pollution or (in connection therewith) protection of human health and
safety, the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) or wildlife,
including, without limitation, laws and regulations relating to the release
or threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"); (ii) to the
Company's knowledge, no material expenditures are or will be required to
comply with the Environmental Laws, and the Company holds all material
permits and licenses required to conduct its business thereunder; (iii) to
the Company's knowledge, all properties and assets leased or owned,
including, without limitation, all structures, contents, soil, subsoil and
groundwater, do not contain Hazardous Materials; and (iv) to the Company's
knowledge, the Company has no liability or obligation, whether to any
governmental authority or to any other person or entity, for damages, claims,
penalties, forfeitures or otherwise, as a consequence of the generation,
transportation or disposal of any Hazardous Materials or otherwise under the
Environmental Laws.
(t) As of the date of this Agreement and except as described
in the Registration Statement and the Prospectus, the Company is not required to
file or obtain any registration, application, license, request for exemption,
permit or other regulatory authorization with the U.S. Food and Drug
Administration (the "FDA") or any state or local regulatory body in order to
conduct its business as described in the Registration Statement and Prospectus.
7
<PAGE>
(u) The human clinical trials, animal studies and other
preclinical tests conducted by or on behalf of the Company that are described
in the Registration Statements and the Prospectus (the "Company Studies"),
have been and will continue to be conducted in accordance with experimental
protocols, procedures and controls generally used by qualified experts in
preclinical or clinical trials; the descriptions of the results of such
Company Studies contained in the Registration Statements and Prospectus are
accurate and complete in all material respects, and the Company has no
knowledge of any other trials, studies or tests, the results of which
reasonably call into question the results described or referred to in the
Registration Statements and Prospectus.
(v) Except as disclosed in the Registration Statement and the
Prospectus, the Company has good and marketable title to all properties (real
and personal) owned by the Company, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any kind
except such as do not, singly or in the aggregate, materially affect the value
of such property and do not materially interfere with the use made and proposed
to be made of such property by the Company; and all properties held under lease
or license by the Company are held under valid, subsisting and enforceable
leases or licenses.
(w) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general and specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorizations, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) No material labor dispute with the employees of the
Company is pending, or, to the Company's knowledge, is imminent; and the Company
is not aware of any existing, threatened or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors that
could result in any Material Adverse Effect.
(y) There are no contracts or other documents which are
required to be described in the Registration Statement and the Prospectus or
filed as exhibits to the Registration Statement by the Act or by the Regulations
which have not been described in the Registration Statement and the Prospectus
or filed as exhibits to the Registration Statement.
(z) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers, stockholders,
customers or
8
<PAGE>
suppliers of the Company on the other hand, which is required to be described
in the Registration Statement and the Prospectus that is not so described.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $_______, the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus any additional
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of
certificates for, the Firm Shares shall be made at the office of Brobeck,
Phleger & Harrison LLP, Suite 1300, 550 West C Street, San Diego, CA 92101, or
at such other place as shall be agreed upon by you and the Company, at 10:00
A.M. on the third or fourth business day (as permitted under Rule 15c6-1
under the Exchange Act) (unless postponed in accordance with the provisions
of Section 9 hereof) following the date of the effectiveness of the
Registration Statement (or, if the Company has elected to rely upon Rule 430A
of the Regulations, the third or fourth business day (as permitted under Rule
15c6-1 under the Exchange Act) after the determination of the initial public
offering price of the Shares), or such other time not later than ten business
days after such date as shall be agreed upon by you and the Company (such
time and date of payment and delivery being herein called the "Closing
Date"). Payment shall be made to the Company by wire transfer of immediately
available funds, against delivery to you for the respective accounts of the
Underwriters of certificates for the Firm Shares to be purchased by them.
Certificates for the Firm Shares shall be registered in such name or names
and in such authorized denominations as you may request in writing at least
two full business days prior to the Closing Date. The Company will permit
you to examine and package such certificates for delivery at least one full
business day prior to the Closing Date.
(c) In addition, the Company hereby grants to the Underwriters
the option to purchase up to 499,500 Additional Shares at the same purchase
price per share to be paid by the Underwriters to the Company for the Firm
Shares as set forth in this Section 2, for the sole purpose of covering
over-allotments in the sale of Firm Shares by the Underwriters. This option may
be exercised at any time, in whole or in part, on or before the thirtieth day
following the date of the Prospectus, by written notice by you to the Company.
Such notice shall set forth the aggregate number of Additional Shares as to
which the option is being exercised and the date and time, as reasonably
determined by you, when the Additional Shares are to be delivered (such date and
time being herein sometimes referred to as the "Additional Closing Date");
PROVIDED, HOWEVER, that the Additional Closing Date shall not be earlier than
the
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Closing Date or earlier than the second full business day after the date on
which the option shall have been exercised nor later than the eighth full
business day after the date on which the option shall have been exercised
(unless such time and date are postponed in accordance with the provisions of
Section 9 hereof). Certificates for the Additional Shares shall be
registered in such name or names and in such authorized denominations as you
may request in writing at least two full business days prior to the
Additional Closing Date. The Company will permit you to examine and package
such certificates for delivery at least one full business day prior to the
Additional Closing Date.
(d) The number of Additional Shares to be sold to each
Underwriter shall be the number which bears the same ratio to the aggregate
number of Additional Shares being purchased as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or such number
increased as set forth in Section 9 hereof) bears to the 3,330,000 Firm Shares
being purchased from the Company, subject, however, to such adjustments to
eliminate any fractional shares as you in your sole discretion shall make.
(e) Payment for the Additional Shares shall be made by wire
transfer of immedidately available funds at the offices of Brobeck, Phleger &
Harrison LLP, Suite 1300, 550 West C Street, San Diego, CA 92101, or such other
location as may be mutually acceptable, upon delivery of the certificates for
the Additional Shares to you for the respective accounts of the Underwriters.
3. OFFERING. Upon your authorization of the release of the Firm
Shares, the Underwriters propose to offer the Shares for sale to the public upon
the terms set forth in the Prospectus.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Underwriters that:
(a) If the Registration Statement has not yet been declared
effective the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is otherwise
required under Rule 424(b) or Rule 434, the Company will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to Rule 424(b) or
Rule 434 within the prescribed time period and will provide evidence
satisfactory to you of such timely filing. If the Company elects to rely on
Rule 434, the Company will prepare and file a term sheet that complies with the
requirements of Rule 434.
The Company will notify you immediately (and, if requested by
you, will confirm such notice in writing) (i) when the Registration Statement
and any amendments thereto become effective, (ii) of any request by the
Commission for any amendment of or supplement to the Registration Statement or
the Prospectus or for
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any additional information, (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of the initiation, or the threatening, of
any proceedings therefor and (v) of the receipt of any comments from the
Commission. If the Commission shall propose or enter a stop order at any
time, the Company will make every reasonable effort to prevent the issuance
of any such stop order and, if issued, to obtain the lifting of such order as
soon as possible. The Company will not file any amendment to the
Registration Statement or any amendment of or supplement to the Prospectus
(including the prospectus required to be filed pursuant to Rule 424(b) or
Rule 434) that differs from the prospectus on file at the time of the
effectiveness of the Registration Statement before or after the effective
date of the Registration Statement to which you shall reasonably object in
writing after being timely furnished in advance a copy thereof.
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a result
of which the Prospectus as then amended or supplemented would, in the judgment
of the Underwriters or the Company, include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it shall be necessary at any
time to amend or supplement the Prospectus or Registration Statement to comply
with the Act or the Regulations, the Company will notify you promptly and
prepare and file with the Commission an appropriate amendment or supplement (in
form and substance reasonably satisfactory to you) which will correct such
statement or omission and will use its best efforts to have any amendment to the
Registration Statement declared effective as soon as possible.
(c) The Company will promptly deliver to you three signed
copies of the Registration Statement, as initially filed with the Commission,
and all amendments thereto (including exhibits) and will maintain in the
Company's files manually signed copies of such documents for at least five years
from the date of filing. The Company will promptly deliver to each of the
Underwriters such number of copies of any preliminary prospectus, the
Prospectus, the Registration Statement, and all amendments of and supplements to
such documents, if any, as you may reasonably request.
(d) The Company will endeavor in good faith, in cooperation
with you, at or prior to the time of effectiveness of the Registration
Statement, to qualify the Shares for offering and sale under the securities laws
relating to the offering or sale of the Shares of such jurisdictions as you may
designate and to maintain such qualification in effect for so long as required
for the distribution thereof; except that in no event shall the Company be
obligated in connection therewith to qualify as a foreign corporation or to
execute a general consent to service
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of process. The Company will promptly advise you of the receipt by the
Company of any notification with respect to suspension of the qualification
of the Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose and will use every reasonable effort to
obtain the withdrawal of any order of suspension as soon as possible.
(e) The Company will make generally available (within the
meaning of Section 11(a) of the Act) to its security holders and to you as soon
as practicable, but not later than 45 days after the end of its fiscal quarter
in which the first anniversary date of the effective date of the Registration
Statement occurs, an earning statement (in form complying with the provisions of
Rule 158 of the Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.
(f) During the period of 180 days from the effective date
of the Registration Statement, (i) the Company will not, without the prior
written consent of Bear, Stearns & Co. Inc., issue, sell, offer or contract
to 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 Common Stock (or any
securities convertible into, exercisable for or exchangeable for shares of
Common Stock), except for the issuance by the Company of shares of Common
Stock pursuant to the 1998 Employee Stock Purchase Plan or pursuant to the
exercise of options outstanding under the 1998 Stock Incentive Plan at the
time of the closing of the sale of the Firm Shares on the Closing Date
(provided that the Company shall only so issue shares during such 180 days to
persons who are not, at the time of the closing of the sale of the Firm
Shares on the Closing Date, officers or directors of the Company or
stockholders having beneficial ownership of a least 1% of the outstanding
Common Stock of the Company), and (ii) the Company will obtain the
undertaking of each of its officers and directors and all of its stockholders
having beneficial ownership at least 1% of the outstanding Common Stock of
the Company, as of the time of the closing of the sale of the Firm Shares
hereunder on the Closing Date, not to engage in any of the aforementioned
transactions on their own behalf, other than the Company's sale of Shares
hereunder.
(g) During a period of three years from the effective date of
the Registration Statement, the Company will furnish to you and, upon request,
to each of the other Underwriters (i) copies of any reports or other
communications that the Company shall send to its stockholders or shall from
time to time publish or publicly disseminate, (ii) copies of all reports,
financial statements and proxy or information statements filed by the Company
with the Commission or any national securities exchange or automated quotation
system, and (iii) such other information as you may reasonably request regarding
the Company, subject to the provisions of any written agreement that, in the
opinion of outside counsel to the Company, prohibit the Company from furnishing
such information under any circumstances including,
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without limitation, an agreement by you to be subject to the provisions of
such written agreement.
(h) The Company will apply the proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will use its best efforts to cause the Shares
to be included in the National Association of Securities Dealers Automated
Quotation National Market System.
(j) The Company will file with the Commission in its periodic
reports pursuant to Section 13 or 15 of the Exchange Act such information as may
be required pursuant to Rule 463 of the Regulations.
(k) The Company, during the period when the Prospectus is
required to be delivered under the Act or the Exchange Act, will file all
documents required to be filed with the Commission pursuant to Section 13, 14 or
15 of the Exchange Act within the time periods required by the Exchange Act and
the rules and regulations thereunder.
5. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated in this Agreement are consummated or this Agreement is
terminated, the Company hereby agrees to pay all costs and expenses incident
to the performance of the obligations of the Company hereunder, including
those in connection with (i) preparing, printing, duplicating, filing and
distributing the Registration Statement, as originally filed and all
amendments thereof (including all exhibits thereto), any preliminary
prospectus, the Prospectus and any amendments or supplements thereto
(including, without limitation, fees and expenses of the Company's
accountants and counsel), the underwriting documents (including this
Agreement, the Master Agreement Among Underwriters and the Master Selling
Agreement) and all other documents related to the public offering of the
Shares (including those supplied to the Underwriters in quantities as
hereinabove stated), (ii) the issuance, transfer and delivery of the Shares
to the Underwriters, including any transfer or other taxes payable thereon,
(iii) the qualification of the Shares under state or foreign securities or
Blue Sky laws or regulations, including the costs of printing and mailing a
preliminary and final "Blue Sky Survey" and the fees of counsel for the
Underwriters and such counsel's disbursements in relation thereto, (iv)
quotation of the Shares on the National Association of Securities Dealers
Automated Quotation National Market System, (v) filing fees of the Commission
and the National Association of Securities Dealers, Inc., (vi) the cost of
printing certificates representing the Shares and (vii) the cost and charges
of any transfer agent or registrar for the Shares.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties
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of the Company herein contained, as of the date hereof and as of the Closing
Date (for purposes of this Section 6 "Closing Date" shall refer to the
Closing Date for the Firm Shares and any Additional Closing Date, if
different, for the Additional Shares), to the absence from any certificates,
opinions, written statements or letters furnished to you or to Coudert
Brothers ("Underwriters' Counsel") pursuant to this Section 6 of any
misstatement or omission, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective
not later than, if pricing pursuant to Rule 430A, 5:30 P.M., New York time,
on the date of this Agreement, if pricing pursuant to a pricing amendment,
12:00 Noon, New York time, on the date an amendment to the Registration
Statement containing the public offering price has been filed with the
Commission, or at such later time and date as shall have been consented to in
writing by you; if the Company shall have elected to rely upon Rule 430A or
Rule 434 of the Regulations, the Prospectus shall have been filed with the
Commission in a timely fashion in accordance with Section 4(a) hereof; and,
at or prior to the Closing Date, no stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment thereof shall
have been issued and no proceedings therefor shall have been initiated or
threatened by the Commission.
(b) At each Closing Date you shall have received the
opinion of Brobeck, Phleger & Harrison LLP, counsel for the Company, dated
the date of such Closing Date addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. The Company is duly qualified and in
good standing as a foreign corporation in each jurisdiction in which
the nature of its properties or the conduct of its business makes such
qualification necessary, except for those failures to be so qualified
or in good standing which will not in the aggregate have a material
adverse effect on the Company. The Company has all requisite
corporate authority to own, lease and operate its properties and
conduct its business as now being conducted and as described in the
Registration Statement and the Prospectus. To such counsel's knowledge,
the Company does not have any subsidiaries as defined in Rule 405 of the
Regulations.
(ii) Upon the sale of Shares on such Closing Date,
a. all outstanding shares of Common Stock
outstanding immediately prior to the issuance of such Shares are
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duly and validly authorized and issued, are non-assessable and were issued
free of any preemptive rights arising under the Certificate of
Incorporation of the Company or the Delaware General Corporation Law; and
b. to such counsel's knowledge, except for
options to purchase shares of Common Stock described in the Registration
Statement and the Prospectus, there are not outstanding (nor is there any
agreement to issue) any options, warrants, or other rights to acquire, or
securities convertible into or exercisable for, any shares of capital
stock of the Company.
The Shares to be delivered on such Closing Date have been duly and
validly authorized and, when issued and delivered by the Company to the
Underwriters against payment therefor in accordance with this Agreement,
will be duly and validly issued, fully paid and nonassessable and will
have been issued free of (A) any preemptive rights arising under the
Second Restated Certificate of Incorporation of the Company (which is
the currently effective certificate of incorporation of the Company) or
the Delaware General Corporation Law or (B) to such counsel's knowledge,
similar rights that entitle or will entitle any person to acquire any
shares of capital stock of the Company upon the issuance and sale of the
Shares by the Company. The Company has, at March 31, 1998, an
authorized and outstanding equity capitalization as set forth in the
section of the Registration Statement and the Prospectus entitled
"Capitalization" (after giving effect to the assumptions set forth in the
first paragraph of such section). The statements set forth in the
sections of the Registration Statement and Prospectus entitled
"Description of Capital Stock", insofar as such statements purport to
describe the capital stock of the Company, provide for a fair Summary
section.
(iii) The Shares have been approved (upon issuance as
contemplated by the Underwriting Agreement) for quotation in the Nasdaq
National Market System.
(iv) This Agreement has been duly and validly authorized,
executed and delivered by the Company.
(v) To such counsel's knowledge, there is no litigation,
arbitration, proceeding, investigation or claim pending or threatened
against, or to which the properties or assets of the Company are
subject, which is of a character required to be disclosed in the
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Registration Statement and the Prospectus or any amendment thereof or
supplement thereto which has not been properly disclosed therein.
(vi) To such counsels' knowledge, all agreements, instruments,
franchises, licenses or permits required to be described in the
Registration Statement and the Prospectus or required to be filed as
exhibits to the Registration Statement have been so described and so
filed. The execution, delivery, and performance of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby do not and will not (A) to such counsel's knowledge,
result in a breach of any of the terms and provisions of, or constitute a
default (or an event which with notice or lapse of time, or both, would
constitute a default) under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the
Company pursuant to, any agreement, instrument, franchise, license or
permit which is described in the Registration Statement and the Prospectus
or which is filed as an exhibit to the Registration Statement and to
which the Company is a party or by which it or any of its properties or
assets may be bound, which breach, default, lien, charge or incumbrance
(individually or if aggregated with other such breaches, defaults,
liens, charges, encumbrances) is material to the business, properties,
operations, condition (financial or otherwise) or results of operations
of the Company, or (B) violate or conflict with any provision of the
Second Restated Certificate of Incorporation or the Amended and Restated
By-laws of the Company (which are the currently effective By-laws of the
Company) or other organizational documents, or, to the knowledge of such
counsel, any judgment, decree, or order, or any statute, rule or
regulation (not including any state securities or Blue Sky laws or
regulations or, if applicable, any foreign securities laws or regulations)
of any court or any public, governmental or regulatory agency or body
having jurisdiction over the Company or any of its properties or assets.
No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental, or regulatory agency or body having jurisdiction over the
Company or any of its properties or assets is required for the
execution, delivery and performance of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby,
including the issuance, sale and delivery of the Shares to be issued,
sold and delivered by the Company hereby, except for (1) such as may be
required under state securities or Blue Sky laws or regulations (or
foreign securities laws or regulations, if applicable) in connection
with the purchase and distribution of the Shares by the Underwriters (as
to which such counsel need express no opinion) and (2) such as have been
made or obtained under the Act.
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(vii) The Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the financial
statements and notes and schedules thereto and other financial and
statistical data derived therefrom, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Regulations.
(viii) The Registration Statement is effective under the Act,
and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereof has been issued and no proceedings therefor are
pending before or contemplated by the Commission and all filings
required by Rule 424(a) and Rule 424(b) of the Regulations have been
made.
In addition, such opinion shall contain a statement that (A) such
counsel has participated in conferences with certain officers and
representatives of the Company, the independent public accountants, the
Underwriters and the Underwriters' counsel at which the contents of the
Registration Statement and the Prospectus and related matters were discussed
(provided, however, that such opinion may also indicate that, notwithstanding
the foregoing, such counsel has not necessarily checked or verified the
accuracy, completeness or fairness of, and is not passing upon or assuming
responsibility for, each particular item of information contained in the
Registration Statement and the Prospectus, and is not acting in an expert
capacity on patent, FDA, or health care regulatory issues) and (B) after
giving effect to such participation in such conferences no facts have come to
the attention of such counsel which would lead such counsel to believe that
the Registration Statement at the time it became effective (including the
information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b) or Rule 434, if applicable), or any
amendment thereof made prior to the Closing Date as of the date of such
amendment, contained an untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus as of its date
(or any amendment thereof or supplement thereto made prior to the Closing
Date as of the date of such amendment or supplement) and as of the Closing
Date contained or contains an untrue statement of a material fact or omitted
or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (it being understood that such counsel
need express no belief or opinion with respect to the financial statements,
including the notes and schedules thereto and other financial and statistical
data derived therefrom).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and
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to the extent specified in such opinion, if at all, upon an opinion or
opinions (in form and substance reasonably satisfactory to Underwriters'
Counsel) of other counsel reasonably acceptable to Underwriters' Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company and
certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and its subsidiaries. The opinion
of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and, in their opinion,
you and they are justified in relying thereon.
(c) At the Closing Date, you shall have received the opinion
of Lyon & Lyon, patent counsel for the Company, dated the Closing Date addressed
to the Underwriters and in the form and substance satisfactory to the
Underwriters' Counsel, to the effect that:
(i) The statements contained in the material 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" of the
Prospectus and Registration Statement (the "Reviewed Portions") to
such counsel's knowledge after Investigation (as defined herein) are
accurate statements regarding the matters set forth therein.
(ii) To such counsel's knowledge after Investigation, there
are no pending adverse legal, governmental or administrative agency
proceedings relating to the Patent Applications (as that term is defined
in a letter of even date herewith among the Company and you) and to such
counsel's knowledge after Investigation, no such proceedings are threatened
or contemplated by such agencies or others.
(iii) To such counsel's knowledge after Investigation, there
are no documents or related litigation of a character required to be
filed as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus relating to
the Patent Applications which are not filed or described.
(iv) To such counsel's knowledge after Investigation, the
Company is the licensee of, or is listed in the records of the
appropriate Patent Office(s) as the owner of record of, the Patent
Applications, and the licensor of Patent Applications to the Company
have the right to license such subject matter to the Company. The
Company owns no issued patents. To such counsel's knowledge after
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Investigation, for inventions that are the subject of a Patent
Application owned by the Company, the Company has the right to obtain,
and has obtained, an assignment of all right, title, and interest from
all named inventors.
(v) To such counsel's knowledge after Investigation, the
Patent Applications have been prepared and are being pursued by the
Company or its licensor. To such counsel's knowledge after
Investigation, such counsel understands that other than as stated in
the above-referenced portions of the Registration Statement and
Prospectus, no other entity or individual has any rights or claims in
the Patent Applications or any patent sought to be issued therefrom,
other than the licensor or assignors of these applications.
(vi) To such counsel's knowledge, it is the Company's reasonable
belief that it is not violating any existing proprietary rights of
others and it is the Company's reasonable belief that no such existing
rights will materially affect its ability to develop and commercialize
technology within the Patent Applications as described in the
Registration Statement and Prospectus; and,
(vii) To such counsel's knowledge, it is the Company's belief that
it owns or has the rights necessary to develop and commercialize technology
within the Patent Applications as described in the Registration Statement
and Prospectus.
(viii) In addition, such opinion shall also contain a statement that
as of the Closing Date, nothing has come to such counsel's attention that
causes such counsel to believe that the statements made regarding the
Patent Applications or agreements of the Company 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" in the Registration Statement and
Prospectus contain any untrue statement of a material fact, or omit to
state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
In such opinion, the term "Investigation" shall mean (i) review of the
agreements referred to in the Reviewed Portions of the Registration Statement
and Prospectus, (ii) review of the file histories of the Patent Applications,
(iii) review of documents related to the chain of title of the Patent
Applications, and (iv) review of files of the Company, of such counsel and (to
the extent permitted by the licensor) of the licensor of the Company pertaining
to items (i) through (iii) above.
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(d) All proceedings taken in connection with the sale of the
Firm Shares and the Additional Shares as herein contemplated shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and the
Underwriters shall have received from said Underwriters' Counsel a favorable
opinion, dated as of the Closing Date with respect to the issuance and sale of
the Shares, the Registration Statement and the Prospectus and such other related
matters as you may reasonably require, and the Company shall have furnished to
Underwriters' Counsel such documents as they may reasonably request for the
purpose of enabling them to pass upon such matters.
(e) At the Closing Date you shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of the
Company, dated the Closing Date to the effect that (i) the condition set
forth in subsection (a) of this Section 6 has been satisfied, (ii) as of the
date hereof and as of the Closing Date the representations and warranties of
the Company set forth in Section 1 hereof are true and correct, (iii) as of
the Closing Date the obligations of the Company to be performed hereunder on
or prior thereto have been duly performed and (iv) subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, the Company has not sustained any loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding, and there has not been
any Material Adverse Change, or any development involving a Material Adverse
Effect, except in each case as described in or contemplated by the Prospectus.
(f) At the time this Agreement is executed and at the Closing
Date, you shall have received a letter from Ernst & Young LLP, independent
public accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date addressed to the Underwriters and in form
and substance satisfactory to you, to the effect that: (i) they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the Regulations and stating that the answer to Item 10 of the
Registration Statement is correct insofar as it relates to them; (ii) stating
that, in their opinion, the financial statements and schedules of the Company
included in the Registration Statement and the Prospectus and covered by their
opinion therein comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations of the Commission thereunder; (iii) on the basis of procedures
consisting of a reading of the latest available unaudited interim financial
statements of the Company, a reading of the minutes of meetings and consents of
the stockholders and boards of directors of the Company and the committees of
such boards subsequent to December 31, 1997, inquiries of officers and other
employees of the Company who have responsibility for financial and accounting
matters of the Company with respect to transactions and events subsequent to
December 31, 1997 and other specified procedures and inquiries to a date not
more than five days prior to the date of such letter (provided that the letter
delivered on the Closing Date shall use
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a "cut-off" date not earlier than the date hereof); nothing has come to their
attention that would cause them to believe that: (A) the unaudited financial
statements and schedules of the Company presented in the Registration
Statement and the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
applicable published rules and regulations of the Commission thereunder or
that such unaudited financial statements are not fairly presented in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements
included in the Registration Statement and the Prospectus; (B) with respect
to the period subsequent to December 31, 1997 there were, as of the date of
the most recent available monthly financial statements of the Company, if
any, and as of a specified date not more than five days prior to the date of
such letter (provided that the letter delivered on the Closing Date shall use
a "cut-off" date not earlier than the date hereof), any changes in the
capital stock or long-term indebtedness of the Company or any decrease in the
current assets or shareholders' equity of the Company, in each case as
compared with the amounts shown in the most recent balance sheet presented in
the Registration Statement and the Prospectus, except for changes or
decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter; or (C) that
during the period from April 1, 1998 to the date of the most recent available
monthly financial statements of the Company, if any, and to a specified date
not more than five days prior to the date of such letter (provided that the
letter delivered on the Closing Date shall use a "cut-off" date not earlier
than the date hereof), there was any decrease, as compared with the
corresponding period in the prior fiscal year, in revenues under
collaborative research and development agreement with a related party, or
increase in net loss, except for decreases or increases, as the case may be,
which the Registration Statement and the Prospectus disclose have occurred or
may occur or which are set forth in such letter; and (iv) stating that they
have compared specific dollar amounts, numbers of shares, percentages of
revenues and earnings, and other financial information pertaining to the
Company set forth in the Registration Statement and the Prospectus, which
have been specified by you prior to the date of this Agreement, to the extent
that such amounts, numbers, percentages, and information may be derived from
the general accounting and financial records of the Company or from schedules
furnished by the Company, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate
procedures specified by you set forth in such letter, and found them to be in
agreement.
(g) Prior to the Closing Date the Company shall have furnished
to you such further information, certificates and documents as you may
reasonably request.
(h) You shall have received from each person who is a director
or officer of the Company or stockholder beneficially owning at least 1% of the
outstanding Common Stock of the Company, as of the time of the closing of the
sale
21
<PAGE>
of the Firm Shares hereunder at the Closing Date, an agreement to the effect
that such person will not, without the prior written consent of Bear, Stearns
& Co. Inc. on behalf of the Underwriters, during the period commencing on the
effective date of the Registration Statement and ending 180 days thereafter,
(1) 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, whether such shares or any such securities were then owned by
such person or thereafter acquired or with respect to which the undersigned
had or thereafter acquired the power of disposition, (2) enter into any swap
or other agreement, arrangement or transaction that transfers to another, in
whole or in part, directly or indirectly, any of the economic consequences of
ownership of shares of Common Stock or securities convertible into or
exercisable or exchangeable for shares of Common Stock, whether any such
transaction is to be settled by delivery of shares of Common Stock or other
securities, in cash or otherwise or (3) make any demand for, or exercise any
right with respect to the registration of any shares of common stock or any
security convertible into or exercisable for or shares exchangeable for
shares of common stock.
(i) At the Closing Date, the Shares shall have been quoted
on the National Association of Securities Dealers Automated Quotation National
Market System.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
cancelled by you at, or at any time prior to, the Closing Date and the
obligations of the Underwriters to purchase the Additional Shares may be
cancelled by you at, or at any time prior to, the Additional Closing Date.
Notice of such cancellation shall be given to the Company in writing, or by
telephone, telex or telegraph, confirmed in writing.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become
22
<PAGE>
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Shares, as originally filed or any filed amendment
thereof, or any related preliminary prospectus or the Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to
the extent but only to the extent that any such loss, liability, claim,
damage or expense arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Underwriter through you expressly for use
therein. This indemnity agreement will be in addition to any liability which
the Company may otherwise have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to
indemnify and hold harmless the Company, each of the directors of the Company,
each of the officers of the Company who shall have signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any losses, liabilities, claims, damages and expenses whatsoever as incurred
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement for the registration of the Shares, as originally filed or any filed
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through you
expressly for use therein; PROVIDED, HOWEVER, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount and commission applicable to the Shares purchased by such
Underwriter hereunder. This indemnity will be in addition to any liability
which any Underwriter may otherwise have including under this Agreement. The
Company acknowledges that the statements set forth in the last paragraph of the
cover page and in the third,
23
<PAGE>
sixth and eleventh paragraphs and the list of Underwriters and the number of
shares listed opposite their respective names in the first paragraph under the
caption "Underwriting" in the Prospectus constitute the only information
furnished in writing by or on behalf of any Underwriter expressly for use in
the registration statement relating to the Shares, as originally filed or in
any filed amendment thereof, any related preliminary prospectus or the
Prospectus or in any amendment thereof or supplement thereto, as the case may
be.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7, except to the extent (but
only to the extent) such failure prejudices the rights of such indemnifying
party). In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the extent
it may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume
the defense thereof with counsel satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such indemnified
party or parties unless (i) the employment of such counsel shall have been
authorized in writing by one of the indemnifying parties in connection with
the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything
in this subsection to the contrary notwithstanding, an indemnifying party
shall not be liable for any settlement of any claim or action effected
without its written consent; PROVIDED, HOWEVER, that such consent was not
unreasonably withheld.
8. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of
24
<PAGE>
losses, claims, damages, liabilities and expenses suffered by the Company any
contribution received by the Company from persons, other than the
Underwriters, who may also be liable for contribution, including persons who
control the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, officers of the Company who signed the
Registration Statement and directors of the Company) as incurred to which the
Company and one or more of the Underwriters may be subject, in such
proportions as is appropriate to reflect the relative benefits received by
the Company and the Underwriters from the offering of the Shares or, if such
allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault
of the Company and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as (x) the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and (y) the underwriting discounts and
commissions received by the Underwriters, respectively, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
of the Company and of the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by PRO RATA allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 8, (i) in no case shall any Underwriter be liable or responsible for
any amount in excess of the underwriting discount and commission applicable
to the Shares purchased by such Underwriter hereunder, and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding the provisions
of this Section 8 and the preceding sentence, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. For purposes of
this Section 8, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall
have the same rights to contribution as such Underwriter, and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall
25
<PAGE>
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to
clauses (i) and (ii) of this Section 8. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution
may be made against another party or parties, notify each party or parties
from whom contribution may be sought, but the omission to so notify such
party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have under this
Section 8 or otherwise. No party shall be liable for contribution with
respect to any action or claim settled without its consent; PROVIDED,
HOWEVER, that such consent was not unreasonably withheld.
9. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its
or their obligation to purchase Firm Shares or Additional Shares hereunder,
and if the Firm Shares or Additional Shares with respect to which such
default relates do not (after giving effect to arrangements, if any, made by
you pursuant to subsection (b) below) exceed in the aggregate 10% of the
number of Firm Shares or Additional Shares, the Firm Shares or Additional
Shares to which the default relates shall be purchased by the non-defaulting
Underwriters in proportion to the respective proportions which the numbers of
Firm Shares set forth opposite their respective names in Schedule I hereto
bear to the aggregate number of Firm Shares set forth opposite the names of
the non-defaulting Underwriters.
(b) In the event that such default relates to more than 10% of
the Firm Shares or Additional Shares, as the case may be, you may in your
discretion arrange for yourself or for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Additional Shares, as the case may be, to which such default relates
on the terms contained herein. In the event that within five calendar days
after such a default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as provided
in this Section 9, this Agreement or, in the case of a default with respect to
the Additional Shares, the obligations of the Underwriters to purchase and of
the Company to sell the Additional Shares shall thereupon terminate, without
liability on the part of the Company with respect thereto (except in each case
as provided in Sections 5, 7(a) and 8 hereof) or the Underwriters, but nothing
in this Agreement shall relieve a defaulting Underwriter or Underwriters of its
or their liability, if any, to the other Underwriters and the Company for
damages occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to
which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid,
you or the Company shall have the right to postpone the Closing Date or
Additional Closing Date, as the
26
<PAGE>
case may be, for a period, not exceeding five business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and arrangements, and
the Company agrees to file promptly any amendment or supplement to the
Registration Statement or the Prospectus which, in the opinion of
Underwriters' Counsel, may thereby be made necessary or advisable. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Shares and Additional Shares.
10. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All
representations and warranties, covenants and agreements of the Underwriters
and the Company contained in this Agreement, including the agreements
contained in Section 5, the indemnity agreements contained in Section 7 and
the contribution agreements contained in Section 8, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter or any controlling person thereof or by or on
behalf of the Company, any of its officers and directors or any controlling
person thereof, and shall survive delivery of and payment for the Shares to
and by the Underwriters. The representations contained in Section 1 and the
agreements contained in Sections 5, 7, 8 and 11(d) hereof shall survive the
termination of this Agreement, including termination pursuant to Section 9 or
11 hereof.
11. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective upon the later of
when (i) you and the Company shall have received notification of the
effectiveness of the Registration Statement or (ii) the execution of this
Agreement. If either the initial public offering price or the purchase price
per Share has not been agreed upon prior to 5:00 P.M., New York time, on the
fifth full business day after the Registration Statement shall have become
effective, this Agreement shall thereupon terminate without liability to the
Company or the Underwriters except as herein expressly provided. Until this
Agreement becomes effective as aforesaid, it may be terminated by the Company by
notifying you or by you by notifying the Company. Notwithstanding the
foregoing, the provisions of this Section 11 and of Sections 1, 5, 7 and 8
hereof shall at all times be in full force and effect.
(b) You shall have the right to terminate this Agreement at
any time prior to the Closing Date or the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional Closing Date,
as the case may be, if (A) any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, the market for the Company's securities or securities
in general; or (B) if trading on the New York or American Stock Exchanges or on
NASDAQ shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum
27
<PAGE>
ranges for prices for securities shall have been required, on the New York or
American Stock Exchanges or on NASDAQ by the New York or American Stock
Exchanges or NASDAQ or by order of the Commission or any other governmental
authority having jurisdiction; or (C) if a banking moratorium has been
declared by a state or federal authority or if any new restriction materially
adversely affecting the distribution of the Firm Shares or the Additional
Shares, as the case may be, shall have become effective; (D) (i) if the
United States becomes engaged in hostilities or there is an escalation of
hostilities involving the United States or there is a declaration of a
national emergency or war by the United States or (ii) if there shall have
been such change in political, financial or economic conditions if the effect
of any such event in (i) or (ii) in your judgment makes it impracticable or
inadvisable to proceed with the offering, sale and delivery of the Firm
Shares or the Additional Shares, as the case may be, on the terms
contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of
the provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all
out-of-pocket expenses (including the fees and expenses of their counsel)
incurred by the Underwriters in connection herewith.
12. NOTICES. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to
any Underwriter, shall be mailed, delivered, or telexed or telegraphed and
confirmed in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245
Park Avenue, New York, NY 10167, Attention: Equity Syndicate; if sent to the
Company, shall be mailed, delivered, or telegraphed and confirmed in writing
to the Company, 9360 Towne Centre Drive, San Diego, CA 92121, Attention:
Christopher J. Reinhard.
13. PARTIES. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
28
<PAGE>
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
15. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
16. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
29
<PAGE>
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
COLLATERAL THERAPEUTICS, INC.
By
--------------------------
Name:
Title:
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
RAYMOND JAMES & ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
BY BEAR, STEARNS & CO. INC.
By:
----------------------------------------
Name:
Title:
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
30
<PAGE>
SCHEDULE I
Number of Firm
Name of Underwriter Shares to be Purchased
- ------------------- ----------------------
Bear, Stearns & Co. Inc.
Raymond James & Associates, Inc.
Vector Securities International, Inc.
Total. . . . . . . . . . . . . . 3,330,000
=========
<PAGE>
EXHIBIT 10.3
COLLATERAL THERAPEUTICS, INC.
PREFERRED STOCK PURCHASE AGREEMENT
_________________
May 7, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
1. Purchase and Sale of Stock..................................... 1
1.1 Sale and Issuance of Preferred Stock..................... 1
1.2 First Closing............................................ 1
1.3 Second Closing........................................... 1
1.4 Delivery................................................. 1
2. Representations and Warranties of the Company.................. 2
2.1 Organization; Good Standing; Qualification............... 2
2.2 Authorization............................................ 2
2.3 Valid Issuance of Preferred and Common Stock............. 2
2.4 Governmental Consents.................................... 3
2.5 Capitalization and Voting Rights......................... 3
2.6 Subsidiaries............................................. 4
2.7 Contracts and Other Commitments.......................... 4
2.8 Related-Party Transactions............................... 4
2.9 Registration Rights...................................... 4
2.10 Permits.................................................. 4
2.11 Compliance with Other Instruments........................ 5
2.12 Litigation............................................... 5
2.13 Disclosure............................................... 5
2.14 Offering................................................. 6
2.15 Title to Property and Assets; Leases..................... 6
2.16 Financial Statements..................................... 6
2.17 Changes.................................................. 6
2.18 Patents and Trademarks................................... 7
2.19 Proprietary Information and Inventions Agreements........ 7
2.20 Tax Returns, Payments, and Elections..................... 7
2.21 Section 83(b) Elections.................................. 7
2.22 Minute Books............................................. 7
2.23 Real Property Holding Corporation........................ 7
3. Representations and Warranties of Investor..................... 7
3.1 Authorization............................................ 7
3.2 Purchase Entirely for Own Account........................ 8
3.3 Reliance Upon Investors' Representations................. 8
3.4 Receipt of Information................................... 8
3.5 Investment Experience.................................... 8
3.6 Accredited Investor...................................... 9
3.7 Restricted Securities.................................... 10
3.8 Legends.................................................. 10
3.9 Public Sale.............................................. 10
3.10 Non U.S. Persons......................................... 11
i
<PAGE>
4. Conditions of Investor's Obligations at Each Closing........... 11
4.1 Representations and Warranties........................... 11
4.2 Performance.............................................. 11
4.3 Compliance Certificate................................... 11
4.4 Qualifications........................................... 11
4.5 Proceedings and Documents................................ 11
4.6 Due Diligence............................................ 12
4.7 Bylaws................................................... 12
4.8 Board of Directors....................................... 12
4.9 Opinion of Company Counsel............................... 12
4.10 Rights Agreement......................................... 12
4.11 Co-Sale Agreement........................................ 12
4.12 Collaboration Agreement.................................. 12
5. Conditions of the Company's Obligations at Closing............. 12
5.1 Representations and Warranties........................... 12
5.2 Qualifications........................................... 12
5.3 Co-Sale Agreements....................................... 12
5.4 Collaboration Agreement.................................. 13
6. Miscellaneous.................................................. 13
6.1 Entire Agreement......................................... 13
6.2 Survival of Warranties................................... 13
6.3 Successors and Assigns................................... 13
6.4 Governing Law............................................ 13
6.5 Counterparts............................................. 13
6.6 Titles and Subtitles..................................... 13
6.7 Notices.................................................. 13
6.8 Finder's Fees............................................ 14
6.9 Expenses................................................. 14
6.10 Attorneys Fees........................................... 14
6.11 Amendments and Waivers................................... 14
6.12 Severability............................................. 14
6.13 Corporate Securities Law................................. 14
Exhibit A -- Amended and Restated Articles of Incorporation
Exhibit B -- Holders of Common Stock
ii
<PAGE>
COLLATERAL THERAPEUTICS, INC.
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as of
the 7th day of May, 1996, by and between Collateral Therapeutics, Inc., a
California corporation (the "Company"), and Schering Berlin Venture Corp., a
Delaware corporation (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of
State of California on or before the First Closing (as defined below) an Amended
and Restated Articles of Incorporation in the form attached hereto as EXHIBIT A
(the "Restated Articles").
(b) Subject to the terms and conditions of this Agreement, the
Investor agrees to purchase and the Company agrees to sell and issue to the
Investor: (i) 374,532 shares of the Company's Series A Preferred Stock at a
price of $6.675 per share at the First Closing (as defined below); (ii) and
374,532 shares of the Company's Series B Preferred Stock at a price of $6.675
per share at the Second Closing (as defined below). (The Series A Preferred and
Series B Preferred Stock shall hereinafter be referred to as "Preferred Stock.")
1.2 FIRST CLOSING. The purchase and sale of the Series A Preferred
Stock shall take place at the offices of Brobeck, Phleger & Harrison LLP, 550
West C Street, Suite 1200, San Diego, California, at 10:00 a.m., on May 7, 1996,
or at such other time and place as the Company and the Investor shall mutually
agree, either orally or in writing (which time and place are designated as the
"First Closing").
1.3 SECOND CLOSING. The purchase and sale of the Series B Preferred
Stock shall take place within five (5) business days after there has been an
Acceptance of a Qualified Gene by Schering AG, an Affiliate of Investor (as
defined in that certain Collaboration, License and Royalty Agreement dated the
date hereof by and between Schering AG and the Company, the "Collaboration
Agreement") or such condition is waived by the Investor, at such place as the
Company and the Investor shall mutually agree, either orally or in writing
(which time shall be designated as the Second Closing"). (The First Closing and
Second Closing may each be referred to as a "Closing.")
1.4 DELIVERY. At each Closing, the Company shall deliver to the
Investor a certificate representing the shares of Preferred Stock that the
Investor is purchasing at such Closing against payment of the purchase price
therefor by check or wire transfer.
1
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Investor that, except as set forth on a Schedule of
Exceptions furnished Investor and special counsel for Investor, which exceptions
shall be deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION; GOOD STANDING; QUALIFICATION. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver this
Agreement, that certain Investor Rights Agreement dated the date hereof in a
form mutually agreed upon by the Company and the Investor (the "Rights
Agreement") and that certain Co-Sale Agreement dated the date hereof in a form
mutually agreed upon by the Company, the Investor and the shareholders listed
under the heading "Founders" (the "Founders") on EXHIBIT B hereto (the "Co-Sale
Agreement"), to issue and sell the Preferred Stock and the Common Stock issuable
upon conversion thereof, and to carry out the provisions of this Agreement, the
Rights Agreement, the Co-Sale Agreement and the Restated Articles. The Company
is not qualified to do business as a foreign corporation in any jurisdiction and
such qualification is not now required.
2.2 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Rights Agreement and the Co-Sale
Agreement, the performance of all obligations of the Company hereunder and
thereunder at the Closing and the authorization, issuance (or reservation for
issuance), sale, and delivery of the Preferred Stock being sold hereunder and
the Common Stock issuable upon conversion thereof has been taken or will be
taken prior to the First Closing, and this Agreement, the Rights Agreement and
the Co-Sale Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Rights Agreement may be
limited by applicable federal or state securities law.
2.3 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Preferred
Stock that is being purchased by the Investor hereunder, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Rights Agreement, the Co-Sale
Agreement and the Company's Bylaws and under applicable state and federal
securities laws. The Common Stock issuable upon conversion of the Preferred
Stock purchased under this Agreement has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Restated
Articles, will be duly and validly issued, fully paid, and nonassessable and
will be free of restrictions on transfer other than restrictions on transfer
under this Agreement, the Rights Agreement, the Co-Sale Agreement and the
Company's Bylaws and under applicable state and federal securities laws.
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2.4 GOVERNMENTAL CONSENTS. No consent, approval, qualification,
order or authorization of, or filing with, any local, state or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery or performance of this Agreement, the
offer, sale or issuance of the Preferred Stock by the Company or the issuance of
Common Stock upon conversion of the Preferred Stock, except (i) the filing of
the Restated Articles with the Secretary of State of the State of California and
(ii) such filings as have been made prior to the First Closing, except that such
post-closing filings as may be required under applicable state securities laws
which will be timely filed within the applicable periods therefor.
2.5 CAPITALIZATION AND VOTING RIGHTS. The authorized capital
of the Company consists, or will consist prior to the First Closing, of:
(a) PREFERRED STOCK. 749,064 shares of Preferred Stock, no par
value, of which 374,532 shares have been designated Series A Preferred Stock and
374,532 shares have been designated Series B Preferred Stock, up to all of which
will be sold pursuant to this Agreement. The rights, privileges and preferences
of the Preferred Stock will be as stated in the Restated Articles.
(b) COMMON STOCK. 10,000,000 shares of common stock ("Common
Stock"), no par value, of which 2,853,500 shares are issued and outstanding.
(c) The outstanding shares of Common Stock are owned by the
shareholders and in the numbers specified in EXHIBIT B hereto.
(d) The outstanding shares of Common Stock have been issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Securities Act") and any relevant state securities
laws or pursuant to valid exemptions therefrom.
(e) Except for (i) the conversion privileges of the Preferred Stock,
(ii) the rights provided in Sections 2.3 and 3.2 of the Rights Agreement, and
(iii) the rights provided in the Co-Sale Agreement and (iv) currently
outstanding options to purchase 146,500 shares of Common Stock, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights and rights of first refusal) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. In addition to
the previously mentioned options, the Company has reserved an additional 562,359
shares of its Common Stock for restricted stock purchases or for purchases upon
exercise of options to be granted in the future. The Company is not a party or
subject to any agreement or understanding, and, to the best of the Company's
knowledge, there is no agreement or understanding between any persons that
affects or relates to the voting or giving of written consents with respect to
any security or the voting by a director of the Company.
2.6 SUBSIDIARIES. The Company does not own or control, directly or
indirectly, any interest in any other corporation, association or other business
entity. The Company is not a participant in any joint venture, partnership or
similar arrangement.
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2.7 CONTRACTS AND OTHER COMMITMENTS. The Company does not have any
contract, agreement, lease, commitment or proposed transaction, written or oral,
absolute or contingent, other than (i) contracts for the purchase of supplies
and services that were entered into in the ordinary course of business and that
do not involve more than $50,000, and do not extend for more than one (1) year
beyond the date hereof, (ii) sales contracts entered into in the ordinary course
of business, and (iii) contracts terminable at will by the Company on no more
than thirty (30) days notice without cost or liability to the Company and that
do not involve any employment or consulting arrangement and are not material to
the conduct of the Company's business. For the purpose of this paragraph,
employment and consulting contracts and contracts with labor unions, and license
agreements and any other agreements relating to the acquisition or disposition
of the Company's technology, shall not be considered to be contracts entered
into in the ordinary course of business.
2.8 RELATED-PARTY TRANSACTIONS. No employee, officer or director of
the Company or member of his or her immediate family thereof is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the best of the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers or directors of the Company and members
of their immediate families may own stock in publicly traded companies that may
compete with the Company. To the best of the Company's knowledge, no officer or
director or any member of their immediate families is, directly or indirectly,
interested in any material contract with the Company.
2.9 REGISTRATION RIGHTS. Except as provided in the Rights
Agreement, the Company is not obligated to register under the Securities Act
any of its presently outstanding securities or any of its securities that may
subsequently be issued.
2.10 PERMITS. The Company has all governmental franchises,
governmental permits, governmental licenses and any similar governmental
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects or financial condition of the Company and believes it can
obtain, without undue burden or expense, any similar authority for the conduct
of its business as planned to be conducted. The Company is not in default in any
material respect under any of such governmental franchises, governmental
permits, governmental licenses or other similar governmental authority.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws or in any material respect of any provision of any mortgage,
indenture, agreement, instrument or contract to which it is a party or by which
it is bound or, to the best of its knowledge, of any federal or state judgment,
order, writ, decree, statute, rule or regulation applicable to the Company. The
execution, delivery and performance by the Company of this Agreement, the Rights
Agreement and the Co-Sale Agreement, and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
material
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conflict with or constitute, with or without the passage of time or giving of
notice, either a material default under any such provision or an event that
results in the creation of any material lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any material permit, license, authorization or approval applicable
to the Company, its business or operations, or any of its assets or properties.
2.12 LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that questions
the validity of this Agreement, the Rights Agreement or the Co-Sale Agreement or
the right of the Company to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse change in the assets,
business properties, prospects or financial condition of the Company, or in any
material change in the current equity ownership of the Company. The foregoing
includes, without limitation, any action, suit, proceeding or investigation
pending or currently threatened involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, their obligations under any agreements with prior employers, or
negotiations by the Company with potential backers of, or investors in, the
Company or its proposed business. The Company is not a party to, or to the best
of its knowledge, named in any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit or
proceeding by the Company currently pending or that the Company currently
intends to initiate.
2.13 DISCLOSURE. The Company has provided Investor with all the
information reasonably available to it without undue expense that Investor has
requested for deciding whether to purchase the Preferred Stock and all
information which the Company believes is reasonably necessary to enable
Investor to make such decision. To the best of the Company's knowledge after
reasonable investigation, neither this Agreement nor any other written
statements or certificates made or delivered in connection herewith contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading.
2.14 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Preferred Stock as contemplated by this Agreement are exempt
from the registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.15 TITLE TO PROPERTY AND ASSETS; LEASES. Except (i) for liens for
current taxes not yet delinquent, (ii) for liens imposed by law and incurred in
the ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, materialmen and the like, (iii) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation, or
(iv) for minor defects in title, none of which, individually or in the aggregate
materially interferes with the use of such property, the Company owns its
tangible property and tangible assets free and clear of all mortgages, liens,
claims and encumbrances.
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With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances, subject to clauses (a)-(d)
above.
2.16 FINANCIAL STATEMENTS. The Company has delivered to the Investor
its audited financial statements (balance sheet and profit and loss statement,
statement of shareholders' equity and statement of changes in financial position
including notes thereto) at December 31, 1995 and for the fiscal year then ended
and its unaudited financial statements (balance sheet and profit and loss
statement including notes thereto) as at and for the two-month period ended
February 29, 1996 (the "Financial Statements"). The Financial Statements have
been prepared in accordance with general accepted accounting principles applied
on a consistent basis throughout the periods indicated and with each other,
except that unaudited Financial Statements may not contain all footnotes
required by generally accepted accounting principles. The Financial Statements
fairly present the financial condition and operating results of the Company as
of the dates, and for the periods, indicated therein, subject in the case of
unaudited Financial Statements to normal year-end audit adjustments. Except as
set forth in the Financial Statements, the Company has no material liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to February 29, 1996 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in the
Financial Statements, which, in both cases, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
Except as disclosed in the Financial Statements, the Company is not a guarantor
or indemnitor on any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.17 CHANGES. To the best of the Company's knowledge, since February
29, 1996, there has not been any event or condition of any type that has
materially and adversely affected the business, properties, prospects or
financial condition of the Company.
2.18 PATENTS AND TRADEMARKS. The Company hereby confirms the
representations and warranties made to Schering AG in Sections 12.1(f), (g) and
(h) of the Collaboration Agreement.
2.19 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each
employee and officer of the Company has executed a Proprietary Information and
Inventions Agreement substantially in the form or forms that have been delivered
to special counsel for the Investors.
2.20 TAX RETURNS, PAYMENTS, AND ELECTIONS. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to
be treated as an S corporation or a collapsible corporation pursuant to Section
341(f) of Section 1362(a) of the Code, nor has it made any
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other elections pursuant to the Code (other than elections which relate solely
to methods of accounting, depreciation or amortization) which would have a
material effect on the business, properties, prospects or financial condition of
the Company.
2.21 SECTION 83(B) ELECTIONS. To the best of the Company's
knowledge, all individuals who have purchased shares of the Company's Common
Stock have timely filed elections under Section 83(b) of the Internal Revenue
Code and any analogous provisions of applicable state tax laws.
2.22 MINUTE BOOKS. The copy of the minute books of the Company
provided to Investor's special counsel contain minutes of all meetings of
directors and shareholders and all actions by written consent without a meeting
by the directors and shareholders since the time of incorporation and reflect
all actions by the directors (and any committee of directors) and shareholders
with respect to all transactions referred to in such minutes accurately in all
material respects.
2.23 REAL PROPERTY HOLDING CORPORATION. The Company is not a
real property holding corporation within the meaning of Internal Revenue Code
Section 897(c)(2) and any regulations promulgated thereunder.
3. REPRESENTATIONS AND WARRANTIES OF INVESTOR. Investor hereby
represents and warrants that:
3.1 AUTHORIZATION. Investor represents that it has full power and
authority to enter into this Agreement and that this Agreement constitutes a
valid and legally binding obligation of Investor.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Investor in reliance upon Investor's representation to the Company, which by
Investor's execution of this Agreement Investor hereby confirms, that the
Preferred Stock to be purchased by Investor and the Common Stock issuable upon
conversion thereof (collectively, the "Securities") will be acquired for
investment for Investor's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof,
and that Investor has no present intention of selling, granting any
participation in or otherwise distributing the same. By executing this
Agreement, Investor further represents that Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
3.3 RELIANCE UPON INVESTORS' REPRESENTATIONS. Investor understands
that the Preferred Stock is not, and any Common Stock acquired on conversion
thereof at the time of issuance may not be, registered under the Securities Act
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, and that the Company's reliance on such
exemption is predicated on Investor's representations set forth herein. Investor
realizes that the basis for the exemption may not be present if, notwithstanding
such representations,
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Investor has in mind merely acquiring the Securities for a fixed or determinable
period in the future, or for a market rise, or for sale if the market does not
rise. Investor has no such intention.
3.4 RECEIPT OF INFORMATION. Investor believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Preferred Stock. Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Preferred Stock and the business,
properties, prospects and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of Investor to rely
thereon.
3.5 INVESTMENT EXPERIENCE. Investor represents that it is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Preferred Stock. Investor also represents it has
not been organized for the purpose of acquiring the Preferred Stock.
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3.6 ACCREDITED INVESTOR.
(a) The term "Accredited Investor" as used herein refers to a
person or entity who:
(1) is a director or executive officer of the
Company; or
(2) Any bank as defined in section 3(a)(2) of the Act,
or any savings and loan association or other institution as defined in
section 3(a)(5)(A) of the Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to section 15
of the Securities Exchange Act of 1934; insurance company as defined in
section 2(13) of the Act; investment company registered under the
Investment Company Act of 1940 or a business development company as
defined in section 2(a)(48) of that Act; Small Business Investment Company
licensed by the U.S. Small Business Administration under section 301(c) or
(d) of the Small Business Investment Act of 1958; employee benefit
Retirement Income Security Act of 1974, if the investment decision is made
by a plan fiduciary, as defined in section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has total
assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;
(3) Any private business development company as
defined in section 202(a)(22) of the Investment Advisers Act of 1940;
(4) Any organization described in section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of $5,000,000;
(5) Any natural person whose individual net worth, or
joint net worth with that person's spouse, at the time of his purchase
exceeds $1,000,000;
(6) Any natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in each of those years and
has a reasonable expectation of reaching the same income level in the
current year;
(7) Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective investment;
or
(8) Any entity in which all of the equity owners
are accredited investors.
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(b) Investor further represents to the Company that except as
otherwise disclosed to the Company, in writing, prior to its execution hereof,
Investor is an Accredited Investor and that the capital contribution of the
Investor does not exceed 10% of the Investor's net worth.
3.7 RESTRICTED SECURITIES. Investor understands that the Securities
may not be sold, transferred, or otherwise disposed of without registration
under the Securities Act or an exemption therefrom, and that in the absence of
an effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Securities must be
held indefinitely. In particular, Investor is aware that the Securities may not
be sold pursuant to Rule 144 promulgated under the Securities Act unless all of
the conditions of that Rule are met. Among the conditions for use of Rule 144 is
the availability of current information to the public about the Company. Such
information is not now available and the Company has no present plans to make
such information available.
3.8 LEGENDS. To the extent applicable, each certificate or other
document evidencing any of the Securities shall be endorsed with the legends set
forth below, and Investor covenants that, except to the extent such restrictions
are waived by the Company, Investor shall not transfer the shares represented by
any such certificate without complying with the restrictions on transfer
described in the legends endorsed on such certificate:
(a) "THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH
RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED."
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
3.9 PUBLIC SALE. Investor agrees not to make, without the prior
written consent of the Company, any public offering or sale of the Securities,
or any Common Stock issued upon the conversion thereof, although permitted to do
so pursuant to Rule 144(k) promulgated under the Securities Act, until the
earlier of (i) the date on which the Company effects its initial registered
public offering pursuant to the Securities Act or (ii) the date on which it
becomes a registered company pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended, or (iii) five years after the Closing of the
sale of such Stock to Investor by the Company.
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3.10 NON U.S. PERSONS. If Investor is not a U.S. Person, Investor
hereby represents that it has satisfied itself as to the full observance of the
laws of its jurisdiction in connection with any invitation to subscribe for the
Securities or any use of this Agreement, including (i) the legal requirements
within its jurisdiction for the purchase of the shares of Preferred Stock, (ii)
any foreign exchange restrictions applicable to such purchase, (iii) any
governmental or other consents which may need to be obtained, and (iv) the
income tax and other tax consequences, if any, which may be relevant to the
purchase, holding, redemption, sale or transfer of the Securities. Investor's
subscription and payment for, and its continued beneficial ownership of the
Securities will not violate any applicable securities or other laws of its
jurisdiction.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT EACH CLOSING. The
obligations of Investor under subparagraph 1.1(b) of this Agreement are
subject to the fulfillment on or before the applicable Closing of each of the
following conditions:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
applicable Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing, except, with
respect to the Second Closing, as otherwise set forth on an updated Schedule of
Exceptions.
4.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before each Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to Investor at each Closing a certificate certifying that the conditions
specified in paragraphs 4.1, 4.2, 4.4, 4.7, 4.8, 4.10 and 4.11 have been
fulfilled.
4.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of each Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at each Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor's special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
4.6 DUE DILIGENCE. Investor shall have completed its due
diligence of the Company, to its reasonable satisfaction.
4.7 BYLAWS. Article III, Section 2 of the Bylaws of the Company
shall be amended to provide that the exact number of directors of the Company
presently authorized shall be eight (8).
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4.8 BOARD OF DIRECTORS. Upon the request of the Investor, the
Company shall cause one person chosen by the Investor to be elected to the Board
of Directors of the Company.
4.9 OPINION OF COMPANY COUNSEL. Investor shall have received from
Brobeck, Phleger & Harrison LLP, counsel for the Company, an opinion, dated the
date of each Closing, in form and substance satisfactory to special counsel to
the Investor.
4.10 RIGHTS AGREEMENT. The Company and Investor shall have
entered into the Rights Agreement.
4.11 CO-SALE AGREEMENT. The Company, Investor and each Founder shall
each have entered into a Co-Sale Agreement in a form mutually agreed upon by
those parties.
4.12 COLLABORATION AGREEMENT. The Company and Schering AG shall
have entered into a Collaboration Agreement a form mutually agreed upon by
those parties.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to Investor under this Agreement are subject to
the fulfillment on or before the applicable Closing of each of the following
conditions by Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Investor contained in Section 3 shall be true on and as of the
applicable Closing with the same effect as though such representations and
warranties had been made on and as of such Closing.
5.2 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be duly obtained and effective as of
each Closing.
5.3 CO-SALE AGREEMENTS. The Company, Investor and each Founder shall
each have entered into a Co-Sale Agreement in a form mutually agreed upon by
those parties.
5.4 COLLABORATION AGREEMENT. The Company and Schering AG shall
have entered into a Collaboration Agreement in a form mutually agreed upon by
those parties.
6. MISCELLANEOUS.
6.1 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
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6.2 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement, the First
Closing and the Second Closing.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
permitted transferees of any Securities. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
6.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.6 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.7 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified by hand or
professional courier service or five days after deposit with the United States
Post Office, by registered or certified mail, postage prepaid and addressed to
the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.
6.8 FINDER'S FEES. Each party represents that it neither is
nor will be obligated for any finder's fee or commission in connection with
this transaction.
Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless Investor
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees or
representatives is responsible.
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6.9 EXPENSES. Irrespective of whether the Closings are effected,
each party shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement.
6.10 ATTORNEYS FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the Rights Agreement, the
Co-Sale Agreement or the Restated Articles, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
6.11 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
more than 50% of the Common Stock (that has not been sold to the public) issued
or issuable upon conversion of the Preferred Stock. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding (including
securities into which such securities have been converted), each future holder
of all such securities, and the Company.
6.12 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
6.13 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COLLATERAL THERAPEUTICS, INC.
By: /s/ Jack Reich
----------------------------------
Jack Reich, President
Address: 9360 Towne Center Drive
San Diego, California 92121
SCHERING BERLIN VENTURE CORP.
By: /s/ Illegible
----------------------------------
Its: TREASURER
Address: 110 E. HANOVER AVE
CEDAR KNOLLS, N.J. 07927
[SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
A-1
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF COLLATERAL THERAPEUTICS, INC.,
a California Corporation
The undersigned Jack Reich and Christopher J. Reinhard hereby certify
that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The Articles of Incorporation of said corporation shall be
amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Collateral Therapeutics, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
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 Ten
Million Seven Hundred Forty-Nine Thousand Sixty-Four (10,749,064) shares. Ten
Million (10,000,000) shares shall be Common Stock and Seven Hundred Forty-Nine
Thousand Sixty-Four (749,064) shares shall be Preferred Stock. The Preferred
Stock authorized by these Restated Articles 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.
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 III(B).
<PAGE>
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 and Series B 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, at the rate of $0.334 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 and Series B 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 and (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. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock and Series B
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 Pre- ferred Stock and
Series B 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 shareholders 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
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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
shareholders 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 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.
(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 shareholder'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.
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(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 shareholders' 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, 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 and, with respect to the Series B
Preferred Stock, by 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. 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 as adjusted prior to
issuance as set forth in subsection 3(d)(i)(B); 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).
(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 a majority of the then-outstanding shares
of Preferred Stock.
(c) MECHANICS OF CONVERSION. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he
shall surrender the
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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, 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 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 and Series B Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) (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") and prior to the date four (4) months following the
Series A Purchase Date (the "Series A Ratchet Date"), 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 A Preferred Stock
in effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price equal to the price
paid per share for such Additional Stock. The period of time from the Series A
Purchase Date through the Series A Ratchet Date shall be known as the "Series A
Ratchet Period."
(B) If the corporation shall issue, after the
Series A Purchase Date and prior to the date upon which any shares of Series B
Preferred Stock were first issued (the "Series B Purchase Date"), any Additional
Stock (as defined below) without consideration or for a consideration per share
less than the initial Conversion Price for Series B Preferred Stock, the initial
Conversion Price for such Series B Preferred Stock shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price equal to the price
paid per share for such Additional Stock.
(C) If the corporation shall issue, after the
Series A Ratchet Date (with respect to the Series A Preferred Stock) or after
the Series B Purchase Date (with respect to the Series B Preferred Stock), any
Additional Stock (as defined below)
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<PAGE>
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 clause (i)) 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.
(D) 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 (G)(3) and (G)(4), no adjustment of such Conversion Price pursuant
to this subsection 3(d)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(E) 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.
(F) In the case of the issuance of the 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.
(G) 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)(i) and subsection 3(d)(ii):
(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)(i)(E) and (d)(i)(F)), if any,
received by the corporation upon the issuance of such options
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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)(i)(E) and (d)(i)(F)).
(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 or Series B 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.
(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 or Series B 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)(i)(G)(1) and (2) shall be appropriately
adjusted to reflect any
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change, termination or expiration of the type described in either
subsection 3(d)(i)(G)(3) or (4).
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
3(d)(i)(G)) by this corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a
transaction described in subsection 3(d)(iii) hereof: or
(B) 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 562,359 or
(C) 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
(D) 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
(E) securities issued (I) to vendors or customers
or to other persons in similar commercial situations with the
corporation or (II) in connection with obtaining lease financing,
whether issued to a lessor, guarantor or other person.
(iii) In the event the corporation should at any time
or from time to time after the 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
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date is fixed), the Conversion Price of the Series A Preferred Stock or Series B
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 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)(i)(G).
(iv) If the number of shares of Common Stock
outstanding at any time after the 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 or Series B
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)(iii), 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 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 Articles 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.
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(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 or Series B
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 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 shareholder approval of any necessary amendment to these articles.
-11-
<PAGE>
(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 Sections 5 and 6 of this Article III, 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 shareholders' 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, 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 and Preferred Stock, voting together as a single
class, 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, so long as any
shares of Series A Preferred Stock and Series B Preferred Stock are outstanding,
this corporation shall not 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 Series A Preferred Stock and Series B Preferred
Stock:
(a) 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 superior to any series of
currently-outstanding Preferred Stock with respect to dividends or upon
liquidation; or
(b) 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 or Series B Preferred Stock so as to affect adversely such
shares.
6. ADDITIONAL PROTECTIVE PROVISION. Subject to the rights of
series of Preferred Stock which may from time to time come into existence,
this corporation shall not:
-12-
<PAGE>
(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) (a) for a period of two years following the Purchase Date (the "Protective
Period"), by the holders of at least a majority of the then outstanding shares
of Series A Preferred Stock and Series B Preferred Stock and (b) following the
Protective Period, by the holders of at least a majority of the then outstanding
shares of Preferred Stock.
(b) issue during the Series A Ratchet Period any security (I)
to vendors or customers or to other persons in similar commercial situations
with the corporation or (II) in connection with obtaining lease financing,
whether issued to a lessor, guarantor or other person 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 Series A Preferred Stock.
7. 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 Articles of
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.
8. REPURCHASE OF SHARES. In connection with repurchases by this
Corporation of its Common Stock pursuant to its agreements with certain of the
holders 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 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. 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 III
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 shareholders'
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.
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<PAGE>
ARTICLE IV
A. The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
B. This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with the agents, vote of shareholders or disinterested
directors, or otherwise in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the corporation and its shareholders.
* * *
THREE: The foregoing amendment has been approved by the Board of
Directors of said corporation.
FOUR: The foregoing amendment was approved by the holders of the requisite
number of shares of said corporation in accordance with Sections 902 and 903 of
the California General Corporation Law; the total number of outstanding shares
of each class entitled to vote with respect to the foregoing amendment was
2,851,500 shares of Common Stock. The number of shares voting in favor of the
foregoing amendment equaled or exceeded the vote required, such required vote
being a majority of the outstanding shares of Common Stock.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-14-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
October March 10, 1996.
/s/ Jack Reich, Ph.d.
-------------------------------------------
Jack Reich, President
/s/ Christopher J. Reinhard
-------------------------------------------
Christopher J. Reinhard, Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Restated Articles of Incorporation and know the contents thereof,
and that the statements therein are true.
Executed at San Diego, California, on March 10, 1996.
/s/ Jack Reich, Ph.D.
-------------------------------------------
Jack Reich, President
/s/ Christopher J. Reinhard
-------------------------------------------
Christopher J. Reinhard, Secretary
<PAGE>
CERTIFICATE OF CORRECTION
OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
JACK REICH and CHRISTOPHER J. REINHARD certify that:
1. They are the president and the secretary, respectively, of
COLLATERAL THERAPEUTICS, INC., a California corporation.
2. The name of the corporation is COLLATERAL THERAPEUTICS, INC.
3. The instrument being corrected is entitled "Amended and Restated
Articles of Incorporation of COLLATERAL THERAPEUTICS, INC., a California
corporation," and said instrument was filed with the Secretary of State of
California on March 18, 1996.
4. Section B(3)(d)(i)(A) of Article III of the Amended and Restated
Articles of Incorporation, as corrected, shall read as follows:
"(i) (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") and prior to the date which is the earlier of (I) the
Series B Purchase Date (as defined below) or (II) eighteen (18) months
following the Series A Purchase Date (collectively, the "Series A Ratchet
Date"), or (III) the effective date of any termination pursuant to Section
15.2(f) of the Collaboration, License and Royalty Agreement dated as of
March 29, 1996 by Schering AG, 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 A
Preferred Stock in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause (i)) be adjusted to
a price equal to the price paid per share for such Additional Stock. The
period of time from the Series A Purchase Date through the Series A
Ratchet Date shall be known as the "Series A Ratchet Period." "
5. That said Section B(3)(d)(i)(A) of Article III, as corrected, conforms
the wording of the amended article to that adopted by the board of directors and
shareholders.
-1-
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
DATE: March 18, 1996
/s/ Jack Reich, Ph.D.
-----------------------------------
Jack Reich, President
/s/ Christoper J. Reinhard
-----------------------------------
Christopher J. Reinhard, Secretary
-2-
<PAGE>
EXHIBIT B
HOLDERS OF COMMON STOCK
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES OF COMMON STOCK
FOUNDERS
<S> <C>
Craig Andrews 142,687
Brad Duft 110,887
Robert Engler(1)(2) 506,688
David Hale 139,887
H. Kirk Hammond 941,688
Jack Reich 706,688
Christopher Reinhard 192,688
David Robinson 110,887
OTHER SHAREHOLDERS
Sara Alaimo 1,400
---------
Total 2,853,500
=========
</TABLE>
- --------
(1) Robert Engler's shares are held by the Robert L. Engler Separate
Property Trust.
(2) Robert Engler has indicated that 25,000 of his shares have been
transferred to his son Matthew Lawrence Engler and 25,000 of his shares
have been transferred to his son Eric Hershel Engler.
B-1
<PAGE>
SCHEDULE OF EXCEPTIONS
TO STOCK PURCHASE AGREEMENT
THE FOLLOWING MATTERS ARE EXCEPTIONS TO THE REPRESENTATIONS AND WARRANTIES
OF COLLATERAL THERAPEUTICS, INC., A CALIFORNIA CORPORATION (THE "COMPANY"), AS
SET FORTH IN THE PREFERRED STOCK PURCHASE AGREEMENT (THE "AGREEMENT"). THE
SECTION NUMBERS IN THIS SCHEDULE OF EXCEPTIONS CORRESPOND TO THE SECTION NUMBERS
IN THE AGREEMENT; HOWEVER, ANY INFORMATION DISCLOSED HEREIN UNDER ANY SECTION
NUMBER SHALL BE DEEMED TO BE DISCLOSED AND INCORPORATED INTO ANY OTHER SECTION
NUMBER UNDER THE AGREEMENT WHERE SUCH DISCLOSURE WOULD OTHERWISE BE APPROPRIATE.
WHERE THE TERMS OF A CONTRACT OR OTHER DISCLOSURE ITEM HAVE BEEN SUMMARIZED OR
DESCRIBED IN THIS SCHEDULE OF EXCEPTIONS, SUCH SUMMARY OR DESCRIPTION DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE MATERIAL TERMS OF SUCH CONTRACT OR
OTHER ITEM. ANY TERMS DEFINED IN THE AGREEMENT SHALL HAVE THE SAME MEANING WHEN
USED IN THIS SCHEDULE OF EXCEPTIONS AS WHEN USED IN THE AGREEMENT UNLESS THE
CONTEXT OTHERWISE REQUIRES.
NOTHING HEREIN CONSTITUTES AN ADMISSION OF ANY LIABILITY OR OBLIGATION ON
THE PART OF THE COMPANY NOR AN ADMISSION AGAINST THE COMPANY'S INTEREST. THE
INCLUSION OF ANY SCHEDULE HEREIN OR ANY EXHIBIT HERETO SHOULD NOT BE INTERPRETED
AS INDICATING THAT THE COMPANY HAS DETERMINED THAT SUCH AN AGREEMENT OR OTHER
MATTER IS NECESSARILY MATERIAL TO THE COMPANY. THE INVESTORS ACKNOWLEDGE THAT
CERTAIN INFORMATION CONTAINED IN THESE SCHEDULES MAY CONSTITUTE MATERIAL
CONFIDENTIAL INFORMATION RELATING TO THE COMPANY WHICH MAY NOT BE USED FOR ANY
PURPOSE OTHER THAN THAT CONTEMPLATED IN THE AGREEMENT.
2.5 CAPITALIZATION AND VOTING RIGHTS.
Reference is made to Sections 2.7(c) and (d) below.
2.7 CONTRACTS AND OTHER COMMITMENTS.
(a) Reference is made to Section 2.16 below.
(b) The Company is a party to that certain Security Agreement between
the Company and the Investor dated August 16, 1995.
(c) The Company has issued and sold 2,744,800 shares of Common Stock
to certain officers, directors and employees of the Company
pursuant to certain Restricted Stock Purchase Agreements, under
which the Company has a right of first refusal to purchase such
shares. Pursuant to such Restricted Stock Purchase Agreements,
1,372,400 shares have a vesting start date of August 9, 1995 and
vest monthly in equal installments for thirty-six (36) months
thereafter, with immediate vesting upon death or disability.
With respect to the unvested shares, the Company has, in addition
to its right of first refusal, a repurchase right under certain
circumstances. The remainder of the shares were fully vested
upon issuance.
<PAGE>
(d) The Company has issued and sold 108,700 shares of Common Stock to
certain employees, consultants and outside advisors of the Company
pursuant to certain Stock Purchase Agreements, under which the
Company has a right of first refusal with respect to such shares.
(e) The Company entered into consulting agreements with Drs. Robert
Engler and H. Kirk Hammond on October 1, 1995. Such agreements
are to be effective only upon the Company's completion of an
initial capital funding of at least $2,000,000 within 220 days of
October 1, 1995. Drs. Engler and Hammond each received
restricted shares of Common Stock in connection with their
consulting agreements. See Section 2.7(d) above. Dr. Hammond
currently has an employment contract with The Regents of the
University of California (the "University") and his primary
responsibility is to the University. University employees are
restricted as the amount of time they may devote to providing
consulting services to outside companies.
(f) The Company is a party to that certain Exclusive License Agreement
between the Company and the University dated September 27, 1995 (the
"UC Agreement"), a copy of which was previously provided to the
Investor.
(g) Effective November 27, 1995, the Company entered into a certain
agreement (the "Veterans Agreement") with the Veterans Medical
Research Foundation (the "Foundation"), under which the
Foundation provides certain research services for up to
twenty-four (24) months. Amounts payable under the Veterans
Agreement aggregate $224,000 per year. Due to financial
constraints and based on subsequent negotiations with the
Foundation, the Company has suspended payments payable thereunder
pending the First Closing.
(h) On June 15, 1995, the Company entered into a certain Sublease
Agreement with Gensia, Inc. ("Gensia") for up to 4431 square feet
located at 9360 Towne Centre Drive, San Diego, California. The
term of the sublease expires on December 31, 1996. Due to
financial constraints, the Company has suspended monthly lease
payments to Gensia and, based on negotiations with Gensia, the
Company has deferred the payment of rent pending the First
Closing. Rent payable to Gensia totalled approximately $28,000
as of March 31, 1996.
(i) The Company has outstanding obligations consisting of legal expenses
deferred and unpaid salaries payable to certain employees,
consultants and advisors for services provided through March 31,
1996.
(j) The Company intends to enter into the Collaboration Agreement in
connection with the First Closing.
2.8 RELATED PARTY TRANSACTIONS.
-2-
<PAGE>
(a) Mr. Andrews, a member of Brobeck, Phleger & Harrison LLP, is a
member of the Company's Board of Directors and a holder of 142,687
shares of the Company's Common Stock.
(b) David Hale, a member of the Company's Board of Directors and a
holder of 139,887 shares of the Company's Common Stock, is Chief
Executive Officer of Gensia, which is the landlord for the Company's
executive offices. Reference is made to Section 2.7(h) above.
2.10 PERMITS.
The Company was incorporated April 3, 1995 and has conducted no business
to date other than the execution of the UC Agreement, the Veterans
Agreement, consulting agreements and other start-up and initial financing
activities. The Company has obtained no franchises, permits, licenses and
similar authority necessary for the conduct of its business as planned to
be conducted.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS.
Reference is made to Sections 2.7(g), (h) and (i) above.
2.16 FINANCIAL STATEMENTS.
(a) The Company has borrowed money from the Investor in the aggregate
amount of $500,000, evidenced by those certain Secured Promissory
Notes dated as of August 16, 1995 and October 12, 1995 (the
"Notes"). The Notes are due and payable on demand by the Investor on
or after December 31, 1996. The amounts owing under the Notes shall
be forgiven for a reduction in a milestone payment outlined in the
Collaboration Agreement.
(b) Reference is made to Section 2.7(b) above.
(c) The Financial Statements provided to Investor are unaudited and
subject to to review by Ernst & Young LLP, the Company's independent
auditors.
2.19 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS.
The Company will use its best efforts to ensure that each employee and
officer of the Company has executed a Proprietary Information and
Inventions Agreement immediately following the First Closing.
2.20 TAX RETURNS, PAYMENTS AND ELECTIONS.
The Company has filed a Form 7004 application with the Internal Revenue
Service to receive an automatic extension of the time to file its 1995
income tax return.
-3-
<PAGE>
2.21 SECTION 83(B) ELECTIONS.
Each of the holders of Common Stock has filed elections under Section
83(b) of the Code and any analogous provisions of applicable state tax
law.
-4-
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS, DATED JUNE 10, 1997
STOCK PURCHASE AGREEMENT, DATED AS OF
MAY 7.1996 IN CONNECTION WITH SECOND CLOSING
THE FOLLOWING MATTERS ARE EXCEPTIONS TO THE REPRESENTATIONS AND WARRANTIES
OF COLLATERAL THERAPEUTICS, INC., A CALIFORNIA CORPORATION (THE "COMPANY"), AS
SET FORTH IN THE PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF MAY 7, 1996
(THE "AGREEMENT"), AS OF JUNE 10, 1997. THE SECTION NUMBERS IN THIS SCHEDULE OF
EXCEPTIONS CORRESPOND TO THE SECTION NUMBERS IN THE AGREEMENT; HOWEVER, ANY
INFORMATION DISCLOSED HEREIN UNDER ANY SECTION NUMBER SHALL BE DEEMED TO BE
DISCLOSED AND INCORPORATED INTO ANY OTHER SECTION NUMBER UNDER THE AGREEMENT
WHERE SUCH DISCLOSURE WOULD OTHERWISE BE APPROPRIATE. WHERE THE TERMS OF A
CONTRACT OR OTHER DISCLOSURE ITEM HAVE BEEN SUMMARIZED OR DESCRIBED IN THIS
SCHEDULE OF EXCEPTFONS, SUCH SUMMARY OR DESCRIPTION DOES NOT PURPORT TO BE A
COMPLETE STATEMENT OF THE MATERIAL TERMS OF SUCH CONTRACT OR OTHER ITEM. ANY
TERMS DEFINED IN THE AGREEMENT SHALL HAVE THE SAME MEANING WHEN USED IN THIS
SCHEDULE OF EXCEPTIONS AS WHEN USED IN THE AGREEMENT UNLESS THE CONTEXT
OTHERWISE REQUIRES.
NOTHING HEREIN CONSTITUTES AN ADMISSION OF ANY LIABILITY OR OBLIGATION ON
THE PART OF THE COMPANY NOR AN ADMISSION AGAINST THE COMPANY'S INTEREST. THE
INCLUSION OF ANY SCHEDULE HEREIN OR ANY EXHIBIT HERETO SHOULD NOT BE INTERPRETED
AS INDICATING THAT THE COMPANY HAS DETERMINED THAT SUCH AN AGREEMENT OR OTHER
MATTER IS NECESSARILY MATERIAL TO THE COMPANY. THE INVESTORS ACKNOWLEDGE THAT
CERTAIN INFORMATION CONTAINED IN THESE SCHEDULES MAY CONSTITUTE MATERIAL
CONFIDENTIAL INFORMATION RELATING TO THE COMPANY WHICH MAY NOT BE USED FOR ANY
PURPOSE OTHER THAN THAT CONTEMPLATED IN THE AGREEMENT.
SECTION 2.5. CAPITALIZATION AND VOTING RIGHTS. As of June 10, 1997 there were
3,103,500 shares of Common Stock issued and outstanding and 374,532 shares of
Series A Preferred Stock issued and outstanding. In addition, as of June 10,
1997 stock options to purchase up to 312,500 shares of Common Stock were
outstanding, and the weighted average purchase price of such stock options was
$0.3407 per share. Since the inception of the Company, stock options covering
the purchase of up to 562,500 shares of Common Stock have been issued, of which
stock options to purchase up to 497,500 shares of Common Stock have been issued
pursuant to the Company's 1995 Stock Option/Stock Issuance Plan (hereafter the
"Stock Plan"). As of June 10, 1997, the Company's Board of Directors has
authorized the issuance of up to 708,859 shares of Common Stock pursuant to the
Stock Plan. As of June 10, 1997, 211,359 shares of Common Stock were available
for future award under the Stock Plan.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 2 OF 8
SECTION 2.7. CONTRACTS AND OTHER COMMITMENTS. Set forth below is a summary
of all contracts and commitments of the Company as of the date hereof greater
than $50,000:
PRIVATE PLACEMENT EQUITY OFFERING. The Company has entered into
negotiations with the Welcome Trust Limited and Mr. Jerry Benjamin with
respect to the sale of up to 387,500 shares of Common Stock to raise
$3,100,000 to support the Company's research programs and corporate
development activities.
COLLABORATION, LICENSE AND ROYALTY AGREEMENT WITH SCHERING AG - GENE
THERAPY TO PROMOTE ANGIOGENESIS. On May 6, 1996, the Company entered into
a strategic alliance with Schering AG pursuant to the Collaboration,
License and Royalty Agreement covering the development and
commercialization of gene therapy products to promote anglogenesis.
UNIVERSITY OF CALIFORNIA LICENSE AGREEMENT - ANAIOAENESIS GENE Therapy.
On September 27, 1995, the Company entered into a worldwide exclusive
license agreement with the Regents of the University of California for
certain technology relating to a patent application filed by the
University of California relating to angiogenesis gene therapy, based
on scientific discovery research conducted at the laboratory of Dr. H.
Kirk Hammond at the Veterans' Affairs Medical Center and the Department
of Medicine of the University of California, San Diego. This agreement
provides the Company with exclusive rights to develop and commercialize
technology covered by patent applications that have been filed in the
United States and in foreign countries. Pursuant to such agreement, the
Company has, agreed to pay the University of California a license fee
totalling $550,000 payable in *** installments over a *** and to pay
the University of California an annual royalty fee of *** based on net
sales of products covered by such patents. 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 the patent application thereunder, and pay
certain minimum annual royalty payments following successful commercial
development of a product. As of June 10, 1997, the Company has paid a
total of $75,000 pursuant to the terms of this agreement.
UNIVERSITY OF CALIFORNIA LICENSE AGREEMENT - GENE THERAPY FOR CONGESTIVE
HEART FAILURE. On January 22, 1997, the Company entered into an exclusive
worldwide license agreement with the Regents of the University of
California for certain technology relating to a patent application filed
by the University of California relating to a gene therapy approach for
congestive heart failure based on myocardial adrenergic responsiveness,
which resulted from scientific discovery research conducted at the
laboratory of Dr. H. Kirk
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 3 OF 8
Hammond at the *** and the Department of Medicine of the University of
California, San Diego. This agreement provides the Company with exclusive
rights to develop and commercialize technology covered by patent
applications that have been filed in the United States and in foreign
countries. Pursuant to such agreement, the Company has agreed to pay the
University of California a license fee totalling $650,000 payable in ***
installments over a *** and to pay the University of California an annual
royalty fee of *** based on net sales of products covered by such
patents. 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 patent
applications thereunder, and pay certain minimum annual royalty payments
following successful commercial development of a product.
As of June 10, 1997, the Company has paid a total of $100,000 pursuant to
the terms of this agreement.
UNIVERSITY OF CALIFORNIA LICENSE AGREEMENT - ANGIOGENIC GENE THERAPY
for CONGESTIVE HEART FAILURE. The Company entered into a letter
agreement with The Regents of the University of California to
exclusively negotiate an exclusive worldwide license to develop and
commercialize certain technology relating to gene angiogenic gene
therapy for heart failure, based on scientific discovery research
conducted at the laboratory of Dr. H. Kirk Hammond at the *** *** and
the Department of Medicine of the University of California, San Diego.
Based on the terms and conditions of the proposed agreement, the
Company will have exclusive rights to develop and commercialize
technology covered by patent applications that have been filed in the
United States and in foreign countries. Pursuant to such proposed
agreement, the Company has agreed to pay the University of California a
license fee totalling $325,000 payable in *** installments over a ***
and to pay the University of California an annual royalty fee of ***
based on net sales of products covered by such patents. 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 patent applications
thereunder, and pay certain minimum annual royalty payments following
successful commercial development of a product. Final draft agreements
have been circulated between the parties and the Company believes that
this agreement will be finalized within the next sixty (60) days.
NEW YORK UNIVERSITY LICENSE AGREEMENT - USE OF FIBROBLAST GROWTH FACTOR 4
FOR GENE THERAPY FOR CORONARY ARTERY DISEASE, CONGESTIVE HEART FAILURE AND
PERIPHERAL VASCULAR DISEASE. On March 24, 1997, the Company has entered
into an exclusive worldwide license agreement with New York University for
the use of certain technology relating to issued patents and
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 4 OF 8
patent applications owned by New York University covering the Company's
use of Fibroblast Growth Factor 4 (hereafter "FGF-4") for gene therapy
products developed and commercialized by the Company, or its licensees,
for the treatment of coronary artery disease, congestive heart failure
and peripheral vascular disease. This agreement provides the Company
with exclusive rights to develop and commercialize technology covered
by patents that have been filed in the United States and in foreign
countries. Pursuant to such agreement, the Company has agreed to pay
New York University (i) an initial license fee of *** ; (ii) an annual
license fee of *** until first commercial sale of a product pursuant to
the Agreement; (iii) milestone payments of $1,750,000 payable in ***
installments based on the Company's successful achievement of certain
*** benchmarks, for each product developed thereunder; (iv) three-year
research funding totalling $600,000 payable in six, semi-annual
installments to support Company directed research activities focused on
the development of the Company's core technology; and (v) an annual
royalty fee of *** based on net sales of products covered by such patents.
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, and
pay certain minimum annual royalty payments following successful
commercial development of a product. As of June 10, 1997, the Company
has paid license fees totaling $100,000 and research funding totalling
$100,000 pursuant to the terms of this agreement.
AMRAD OPERATIONS PTY LTD. AND LUDWIG INSTITUTE FOR CANCER RESEARCH LICENSE
AGREEMENT - USE OF VASCULAR ENDOTHELIAL GROWTH FACTOR B GENES FOR GENE
THERAPY FOR CORONARY ARTERY DISEASE, CONGESTIVE HEART FAILURE AND
PERIPHERAL VASCULAR DISEASE. On March 25, 1997, the Company has entered
into an exclusive worldwide license agreement with AMRAD Operations Pty
Ltd and the Ludwig Institute for Cancer Research (hereafter
"AMRAD/Ludwig") covering the use of certain technology relating to patent
applications filed by AMRAD/Ludwig covering the Company's use of Vascular
Endothelial Growth Factor B (hereafter "VEGF-B") for gene therapy products
developed and commercialized by the Company, or its licensees, for the
treatment of coronary artery disease, congestive heart failure and
peripheral vascular disease. This agreement provides the Company with
exclusive rights to develop and commercialize technology covered by
patents that have been filed in the United States and in foreign
countries. Pursuant to such agreement, the Company has agreed to pay
AMRAD/Ludwig (i) license fees totalling $1,150,000 payable in three (3)
installments during the period from March 25, 1997 to October 30, 1997;
(ii) a $1,000,000 license fee upon the earlier of the effective date of
an initial public offering involving the sale of the Company's equity
securities or eighteen (18) months from the effective date of the
agreement; (III) milestone
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 5 OF 8
payments totalling up to $4,750,000, based on the Company's successful
achievement of certain product development benchmarks; (iv) an
additional $1,000,000 payment for each product developed beyond the
initial product for a medical indication; and (v) an annual royalty fee
*** on net sales of products covered by such patents issued thereunder.
Pursuant to 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, and pay certain minimum annual royalty payments following
successful commercial development of a product. As of June 10, 1997,
the Company has paid a total of $250,000 pursuant to the terms of this
agreement.
DIMOTECH LTD. AND TECHNION RESEARCH & DEVELOPMENT FOUNDATION LICENSE
AGREEMENT - USE OF VASCULAR ENDOTHELIAL GROWTH FACTOR GENE FOR GENE
THERAPY CARDIOVASCULAR DISEASE. On October 17, 1996, the Company entered
into an exclusive worldwide license agreement with Dimotech Ltd. and the
Technion Research and Development Foundation located at the Gurtwith
Science Based Industrial Center in Haifa, Israel (hereafter "Technion")
relating to a patent application filed by Technion covering the Company's
use of a novel vascular endothelial growth factor (hereafter "VEGF/CTIO1")
for gene therapy products developed and commercialized by the Company, or
its licensees, for the treatment of cardiovascular disease. This agreement
provides the Company with exclusive rights to develop and commercialize
technology covered by patents that have been filed in the United States
and in foreign countries. Pursuant to such agreement, the Company has
agreed to pay Technion (i) license fees totalling $466,000 payable in ***
installments based on the Company's successful achievement of certain ***
benchmarks; and (ii) an annual royalty fee of *** based on net sales of
products covered by patents. 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, and pay certain minimum annual royalty
payments following successful commercial development of a product. As of
June 10, 1997, the Company has paid a total of $16,000 pursuant to the
terms of this agreement.
VETERANS' MEDICAL RESEARCH FOUNDATION. On November 13, 1996, the Company
entered into an agreement with the Veterans' Medical Research Foundation
(the "Medical Research Foundation') which operates at the Veterans'
Affairs Medical Center covering certain research studies directed at the
Company's core technology. Under the terms and conditions of this
agreement, Dr. H. Kirk Hammond, a shareholder and executive officer of the
Company, serves as the investigator for such studies. The agreement
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 6 OF 8
covers a one year term; however, this term may be extended by mutual
consent of both parties. In consideration for such services, the Company
has agreed to pay the Medical Research Foundation a primary monthly fee of
$20,000, payable in monthly installments (including certain administrative
overhead charges), plus a supplemental payment, payable monthly, for
additional amounts expended by the Medical Research Foundation for
Company-directed research activities (including certain administrative
overhead charges).
UNIVERSITY OF WASHINGTON DISCOVERY RESEARCH AGREEMENT - MUSCLE
DIFFERENTIATION DURING REPAIR OF MYOCARDIAL NECROSIS THROUGH GENE
THERAPY WITH THE MYOD GENE. On April 30, 1997, the Company has entered
into an agreement with the University of Washington, Seattle, School of
Medicine, Department of Pathology, for the University of Washington to
conduct Company-directed discovery research into the study of muscle
differentiation during repair of myocardial necrosis, resulting from a
myocardial infarction, through gene therapy using the MyoD gene, under
the direction of Dr. Charles Murry, M.D., Ph.D. Pursuant to the terms
of this agreement, the Company has agreed to provide the University of
Washington with research funding totalling up to $119,998. Under this
agreement, the Company has a right of first negotiation for the Company
to enter an agreement with the University of Washington to exclusively
license all technology that may result from such research. As of June
10, 1997, the Company has paid $59,999.
***
***
***
***
***
***
***
***
***
CORPORATE OFFICE REAL ESTATE LEASE. On July 17, 1995, the Company entered
into a real estate sublease agreement with Gensia, Inc. covering office
space located at 9360 Towne Centre Drive, San Diego, California, which
currently serves as the Company's corporate office. The sublease covered
by this agreement will expire on December 31, 1997. The Company has an
option to extend the term of such sublease for an additional year to
expire as of December 31, 1998. Rent payable to Gensia, Inc. for the
remainder of the
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 7 OF 8
lease covering the current lease period (June 1, 1997 to December 31,
1997) totals $52,836.
RESEARCH LABORATORY REAL ESTATE LEASE. On June 9, 1997, the Company
submitted a term sheet covering a proposal to lease an 11,200 square foot
research facility located at 11045 Roselle Street, San Diego, California.
The major terms and conditions of such lease as proposed by the Company to
the landlord are as follows: (i) annual base rent: $207,000, with a 3.5%
annual rent escalation; (ii) annual operating charges: $30,360; (iii)
tenant improvement allowance: $240,000; (iv) lease term three (3) years.
There can be no assurance that the Company will agree on final terms and
enter into a lease agreement covering such research facility. The Company
awaits approval of such proposal or counter-proposal covering such lease.
If this facility is leased, the Company estimates that it will invest up
to $1,500,000 for leasehold improvements, equipment and other related
start-up expenses to develop this lease space as a fully-operational
research facility.
CONTRACT RESEARCH SERVICES. On March 17, 1997, the Company entered into an
agreement with HTI Bio-Services, Inc. (hereafter "HTI") for HTI to conduct
certain contract research services. For such services the Company agreed
to pay HTI $99,400. As of June 10, 1997, the unpaid balance payable to HTI
by the Company for such services totalled $19,880.
CONSULTING AGREEMENTS. The Company has entered into consulting agreements
with five (5) individuals who have been appointed as members of the
Company's Scientific Advisory Board and with twelve (12) other
individuals, as set forth in the schedule attached hereto.
NOTES PAYABLE AND SECURITY AGREEMENT. In 1995, the Company entered into
two Promissory Notes with Schering Berlin Venture Corporation ("Payor")
totalling $500,000 to fund operations. The Notes were each amended and
restated as of May 16, 1996. Since there has been an Acceptance of a
Qualified Gene, the Notes are due on Payor's demand on or after June 30,
1999 and bear interest at 1% below the prime rate. These Notes are secured
by all of the assets of the Company pursuant to a Security Agreement dated
August 16, 1995.
SECTION 2.8 RELATED PARTY TRANSACTIONS. Mr. Craig Andrews, a member of Brobeck,
Phleger & Harrison LLP (hereinafter "Brobeck") is a member of the Company's
Board of Directors and a holder of 142,687 shares of Common Stock. During 1996,
the Company paid Brobeck $148,974 and $19,272 for legal services for 1996 and
1997, respectively. In addition, Mr. David Hale, a member of the Company's Board
Directors and a holder of 139,887 shares of Common Stock is Chief Executive
Officer of Gensia, Inc., which is the landlord of the Company's executive
office. During 1996, the Company paid Gensia, Inc. rent of $98,496 and $46,586
for 1996 and 1997, respectively.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 8 OF 8
SECTION 2.16 FINANCIAL STATEMENTS. The Company has delivered to the Investor
audited financial statements (balance sheet, profit and loss statement,
statement of shareholders' equity and statement of changes of financial
position, including notes thereto) at December 31, 1997, as prepared by Ernst &
Young, the Company's independent public accountants. In addition, the Company
has provided the Investor with unaudited financial statements, (balance sheet,
profit and loss statement, statement of shareholders' equity and statement of
changes of financial position) for the period from January 1, 1997 to May 30,
1997. Reference is made to Section 2.7 disclosure under the caption "Notes
Payable and Security" above.
-8-
<PAGE>
EXHIBIT 10.4
COLLATERAL THERAPEUTICS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
___________________
June 30, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
1. Purchase and Sale of Stock..................................... 1
1.1 Sale and Issuance of Series C Preferred Stock............ 1
1.2 Closing.................................................. 1
2. Representations and Warranties of the Company.................. 1
2.1 Organization; Good Standing; Qualification............... 1
2.2 Authorization............................................ 2
2.3 Valid Issuance of Preferred and Common Stock............. 2
2.4 Governmental Consents.................................... 2
2.5 Capitalization and Voting Rights......................... 3
2.6 Subsidiaries............................................. 3
2.7 Contracts and Other Commitments.......................... 4
2.8 Related-Party Transactions............................... 4
2.9 Registration Rights...................................... 4
2.10 Permits.................................................. 4
2.11 Compliance with Other Instruments........................ 4
2.12 Litigation............................................... 5
2.13 Disclosure............................................... 5
2.14 Offering................................................. 5
2.15 Title to Property and Assets; Leases..................... 5
2.16 Financial Statements..................................... 6
2.17 Changes.................................................. 6
2.18 Patents and Trademarks................................... 6
2.19 Proprietary Information and Inventions Agreements........ 7
2.20 Tax Returns, Payments, and Elections..................... 7
2.21 Section 83(b) Elections.................................. 7
2.22 Minute Books............................................. 7
2.23 Real Property Holding Corporation........................ 8
3. Representations and Warranties of Investors.................... 8
3.1 Authorization............................................ 8
3.2 Purchase Entirely for Own Account........................ 8
3.3 Reliance Upon Investors' Representations................. 8
3.4 Receipt of Information................................... 8
3.5 Investment Experience.................................... 9
3.6 Accredited Investor...................................... 9
3.7 Restricted Securities.................................... 10
3.8 Legends.................................................. 10
3.9 Public Sale.............................................. 11
3.10 Non U.S. Persons......................................... 11
4. Conditions of Investor's Obligations at the Closing............ 11
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4.1 Representations and Warranties........................... 11
4.2 Performance.............................................. 11
4.3 Compliance Certificate................................... 12
4.4 Qualifications........................................... 12
4.5 Proceedings and Documents................................ 12
4.6 Due Diligence............................................ 12
4.7 Opinion of Company Counsel............................... 12
4.8 Rights Agreement......................................... 12
5. Conditions of the Company's Obligations at the Closing......... 12
5.1 Representations and Warranties........................... 12
5.2 Payment of Purchase Price................................ 12
5.3 Qualifications........................................... 12
6. Miscellaneous.................................................. 13
6.1 Entire Agreement......................................... 13
6.2 Survival of Warranties................................... 13
6.3 Successors and Assigns................................... 13
6.4 Governing Law............................................ 13
6.5 Counterparts............................................. 13
6.6 Titles and Subtitles..................................... 13
6.7 Notices.................................................. 13
6.8 Finder's Fees............................................ 14
6.9 Expenses................................................. 14
6.10 Attorneys' Fees.......................................... 14
6.11 Amendments and Waivers................................... 14
6.12 Severability............................................. 14
6.13 Corporate Securities Law................................. 14
Exhibit A -- Amended and Restated Articles of Incorporation
Schedule A -- Schedule of Investors
Attachment A
ii
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is
made as of the 30th day of June, 1997, by and between Collateral Therapeutics,
Inc., a California corporation (the "Company"), and the investors listed on
SCHEDULE A hereto, each of which is herein referred to as an "Investor" and
collectively referred to as the "Investors."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES C PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of
State of California on or before the Closing (as defined below) an Amended and
Restated Articles of Incorporation in the form attached hereto as EXHIBIT A (the
"Restated Articles").
(b) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally, to purchase at the Closing pursuant to Section
1.2, and the Company agrees to sell and issue to each Investor at the Closing
pursuant to Section 1.2, that number of shares of the Company's Series C
Preferred Stock set forth opposite each Investor's name on SCHEDULE A hereto for
the purchase price of $8.00 per share.
1.2 CLOSING. The purchase and sale of the Series C Preferred Stock
shall take place at the offices of Brobeck, Phleger & Harrison LLP, 550 West "C"
Street, Suite 1200, San Diego, California at 11:00 A.M., on June 30, 1997, or at
such other time and place as the Company and Investors acquiring in the
aggregate more than half the shares of Series C Preferred Stock sold pursuant
hereto mutually agree upon orally or in writing (which time and place are
designated as the "Closing"). At the Closing, the Company shall deliver to each
Investor a certificate representing the shares of Series C Preferred Stock that
such Investor is purchasing against payment of the purchase price therefor by
check, wire transfer or such other form of payment as shall be mutually agreed
upon by such Investor and the Company.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Investor that, except as set forth on a Schedule of
Exceptions furnished to special counsel for the Investors, which exceptions
shall be deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION; GOOD STANDING; QUALIFICATION. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, has all requisite corporate power and authority
to own and operate its properties
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and assets and to carry on its business as now conducted and as proposed to be
conducted, to execute and deliver this Agreement, the Amended and Restated
Investor Rights Agreement (the "Rights Agreement") and the Amended and Restated
Co-Sale Agreement (the "Co-Sale Agreement"), to issue and sell the Series C
Preferred Stock and the Common Stock issuable upon conversion thereof, and to
carry out the provisions of this Agreement, the Rights Agreement, the Co-Sale
Agreement and the Restated Articles. The Company is not qualified to do business
as a foreign corporation in any jurisdiction and such qualification is not now
required.
2.2 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Rights Agreement and the Co-Sale
Agreement, the performance of all obligations of the Company hereunder and
thereunder at the Closing and the authorization, issuance (or reservation for
issuance), sale, and delivery of the Series C Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion thereof has been taken
or will be taken prior to the Closing, and this Agreement, the Rights Agreement
and the Co-Sale Agreement constitute valid and legally binding obligations of
the Company, enforceable in accordance with their respective terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) to the
extent the indemnification provisions contained in the Rights Agreement may be
limited by applicable federal or state securities law.
2.3 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Series C
Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Rights Agreement, the Co-Sale
Agreement and the Company's Bylaws and under applicable state and federal
securities laws. The Common Stock issuable upon conversion of the Series C
Preferred Stock purchased under this Agreement has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Restated Articles, will be duly and validly issued, fully paid and nonassessable
and will be free of restrictions on transfer other than restrictions on transfer
under this Agreement, the Rights Agreement, the Co-Sale Agreement and the
Company's Bylaws and under applicable state and federal securities laws.
2.4 GOVERNMENTAL CONSENTS. No consent, approval, qualification,
order or authorization of, or filing with, any local, state or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery or performance of this Agreement, the
offer, sale or issuance of the Series C Preferred Stock by the Company or the
issuance of Common Stock upon conversion of the Series C Preferred Stock, except
(i) the filing of the Restated Articles with the Secretary of State of the State
of California and (ii) such filings as have been made prior to the Closing,
except that such
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post-closing filings as may be required under applicable state securities laws
which will be timely filed within the applicable periods therefor.
2.5 CAPITALIZATION AND VOTING RIGHTS. The authorized capital
of the Company consists, or will consist prior to the Closing, of:
(a) PREFERRED STOCK. 1,221,540 shares of Preferred Stock, no par
value, of which 374,532 shares have been designated Series A Preferred Stock,
all of which are issued and outstanding, 374,532 shares have been designated
Series B Preferred Stock, all of which are issued and outstanding, and 472,476
have been designated Series C Preferred Stock, up to all of which will be sold
pursuant to this Agreement. The rights, privileges and preferences of the Series
C Preferred Stock will be as stated in the Restated Articles.
(b) COMMON STOCK. 10,000,000 shares of common stock ("Common
Stock"), no par value, of which 3,103,500 shares are issued and outstanding.
A listing of the Common Stockholders and the number of shares owned is set
forth on the Schedule of Exceptions.
(c) The outstanding shares of Common Stock have been issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Securities Act") and any relevant state securities
laws or pursuant to valid exemptions therefrom.
(d) Except for (i) the conversion privileges of the outstanding
Series A Preferred Stock and the outstanding Series B Preferred Stock, (ii) the
conversion privileges of the Series C Preferred Stock to be issued under this
Agreement, (iii) the rights provided in Sections 2.3 and 3.2 of the Rights
Agreement, and (iv) the rights provided in the Co-Sale Agreement and (v)
currently outstanding options to purchase 312,500 shares of Common Stock, there
are no outstanding any options, warrants, rights (including conversion or
preemptive rights and rights of first refusal) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. In addition to
the previously mentioned options, the Company has reserved an additional 211,359
shares of its Common Stock for restricted stock purchases or for purchases upon
exercise of options to be granted in the future. The Company is not a party or
subject to any agreement or understanding, and, to the best of the Company's
knowledge, there is no agreement or understanding between any persons that
affects or relates to the voting or giving of written consents with respect to
any security or the voting by a director of the Company.
2.6 SUBSIDIARIES. The Company does not own or control, directly or
indirectly, any interest in any other corporation, association or other business
entity. The Company is not a participant in any joint venture, partnership or
similar arrangement.
2.7 CONTRACTS AND OTHER COMMITMENTS. The Company does not have any
contract, agreement, lease, commitment or proposed transaction, written or oral,
absolute or contingent, other than (i) individual contracts for the purchase of
supplies and services that were entered into in the ordinary course of business
and that do not, in the aggregate, involve
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more than $50,000, and do not extend for more than one (1) year beyond the date
hereof, (ii) sales contracts entered into in the ordinary course of business,
and (iii) contracts terminable at will by the Company on no more than thirty
(30) days notice without cost or liability to the Company and that do not
involve any employment or consulting arrangement and are not material to the
conduct of the Company's business. For the purpose of this paragraph, employment
and consulting contracts and contracts with labor unions, and license agreements
and any other agreements relating to the acquisition or disposition of the
Company's technology, shall not be considered to be contracts entered into in
the ordinary course of business.
2.8 RELATED-PARTY TRANSACTIONS. No employee, officer or director of
the Company or member of his or her immediate family thereof is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the best of the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers or directors of the Company and members
of their immediate families may own stock in publicly traded companies that may
compete with the Company. To the best of the Company's knowledge, no officer or
director or any member of their immediate families is, directly or indirectly,
interested in any material contract with the Company.
2.9 REGISTRATION RIGHTS. Except as provided in the Rights
Agreement, the Company is not obligated to register under the Securities Act
any of its presently outstanding securities or any of its securities that may
subsequently be issued.
2.10 PERMITS. The Company has all governmental franchises,
governmental permits, governmental licenses and any similar governmental
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects or financial condition of the Company and believes it can
obtain, without undue burden or expense, any similar authority for the conduct
of its business as planned to be conducted. The Company is not in default in any
material respect under any of such governmental franchises, governmental
permits, governmental licenses or other similar governmental authority.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws or in any material respect of any provision of any mortgage,
indenture, agreement, instrument or contract to which it is a party or by which
it is bound or, to the best of its knowledge, of any federal or state judgment,
order, writ, decree, statute, rule or regulation applicable to the Company. The
execution, delivery and performance by the Company of this Agreement, the Rights
Agreement and the Co-Sale Agreement, and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
material conflict with or constitute, with or without the passage of time or
giving of notice, either a material default under any such provision or an event
that results in the creation of any material lien, charge or encumbrance upon
any assets of the Company or the suspension,
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revocation, impairment, forfeiture or nonrenewal of any material permit,
license, authorization or approval applicable to the Company, its business or
operations, or any of its assets or properties.
2.12 LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that questions
the validity of this Agreement, the Rights Agreement or the Co-Sale Agreement or
the right of the Company to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse change in the assets,
business properties, prospects or financial condition of the Company, or in any
material change in the current equity ownership of the Company. The foregoing
includes, without limitation, any action, suit, proceeding or investigation
pending or currently threatened involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, their obligations under any agreements with prior employers, or
negotiations by the Company with potential backers of, or investors in, the
Company or its proposed business. The Company is not a party to, or to the best
of its knowledge, named in any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit or
proceeding by the Company currently pending or that the Company currently
intends to initiate.
2.13 DISCLOSURE. The Company has provided the Investor with all the
information reasonably available to it without undue expense that the Investors
have requested for deciding whether to purchase the Series C Preferred Stock and
all information which the Company believes is reasonably necessary to enable
each Investor to make such decision. To the best of the Company's knowledge
after reasonable investigation, neither this Agreement nor any other written
statements or certificates made or delivered in connection herewith contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading.
2.14 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Preferred Stock as contemplated by this Agreement are exempt
from the registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.15 TITLE TO PROPERTY AND ASSETS; LEASES. Except (i) for liens for
current taxes not yet delinquent, (ii) for liens imposed by law and incurred in
the ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, materialmen and the like, (iii) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation, or
(iv) for minor defects in title, none of which, individually or in the aggregate
materially interferes with the use of such property, the Company owns its
tangible property and tangible assets free and clear of all mortgages, liens,
claims and encumbrances. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances,
subject to clauses (i)-(iv) above.
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2.16 FINANCIAL STATEMENTS. The Company has delivered to each
Investor or its special counsel its audited financial statements (balance sheet
and profit and loss statement, statement of shareholders' equity and statement
of changes in financial position including notes thereto) at December 31, 1996
and for the fiscal year then ended and its unaudited financial statements
(balance sheet and profit and loss statement including notes thereto) as at and
for the five-month period ended May 31, 1997 (the "Financial Statements"). The
Financial Statements have been prepared in accordance with general accepted
accounting principles applied on a consistent basis throughout the periods
indicated and with each other, except that unaudited Financial Statements may
not contain all footnotes required by generally accepted accounting principles.
The Financial Statements fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein,
subject in the case of unaudited Financial Statements to normal year-end audit
adjustments. Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to May 31, 1997 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements, which, in both cases, individually or in
the aggregate, are not material to the financial condition or operating results
of the Company. Except as disclosed in the Financial Statements, the Company is
not a guarantor or indemnitor on any indebtedness of any other person, firm or
corporation. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.
2.17 CHANGES. To the best of the Company's knowledge, since May 31,
1997, there has not been any event or condition of any type that has materially
and adversely affected the business, properties, prospects or financial
condition of the Company.
2.18 PATENTS AND TRADEMARKS. To its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, servicemarks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted without any conflict with or infringement of the rights of
others. Except as set forth on the Schedule of Exceptions, there are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes of any other person or entity. The Company has not received
any communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights, trade secrets or other proprietary rights of any
other person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, the Rights Agreement or the Co-Sale
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the
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conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a material default under, any contract, covenant or instrument
under which any of such employees is now obligated.
2.19 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each
employee and officer of the Company has executed a Proprietary Information and
Inventions Agreement substantially in the form or forms that have been delivered
to special counsel for the Investors.
2.20 TAX RETURNS, PAYMENTS, AND ELECTIONS. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to
be treated as an S corporation or a collapsible corporation pursuant to Section
341(f) of Section 1362(a) of the Code, nor has it made any other elections
pursuant to the Code (other than elections which relate solely to methods of
accounting, depreciation or amortization) which would have a material effect on
the business, properties, prospects or financial condition of the Company.
2.21 SECTION 83(B) ELECTIONS. To the best of the Company's
knowledge, all individuals who have purchased shares of the Company's Common
Stock have timely filed elections under Section 83(b) of the Internal Revenue
Code and any analogous provisions of applicable state tax laws.
2.22 MINUTE BOOKS. The copy of the minute books of the Company
contain minutes of all meetings of directors and shareholders and all actions by
written consent without a meeting by the directors and shareholders since the
time of incorporation and reflect all actions by the directors (and any
committee of directors) and shareholders with respect to all transactions
referred to in such minutes accurately in all material respects.
2.23 REAL PROPERTY HOLDING CORPORATION. The Company is not a
real property holding corporation within the meaning of Internal Revenue Code
Section 897(c)(2) and any regulations promulgated thereunder.
3. REPRESENTATIONS AND WARRANTIES OF INVESTORS. Each Investor
hereby represents and warrants, with respect to himself or itself, that:
3.1 AUTHORIZATION. Such Investor has full power and authority to
enter into this Agreement and that this Agreement constitutes a valid and
legally binding obligation of such Investor.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
each Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Series C Preferred Stock to be purchased by such Investor and
the Common Stock issuable upon
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conversion thereof (collectively, the "Securities") will be acquired for
investment for such Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that such
Investor has no present intention of selling, granting any participation in or
otherwise distributing the same. By executing this Agreement, each Investor
further represents that such Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
3.3 RELIANCE UPON INVESTORS' REPRESENTATIONS. Each Investor
understands that the Series C Preferred Stock is not, and any Common Stock
acquired on conversion thereof at the time of issuance may not be, registered
under the Securities Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to Section 4(2) thereof, and that the
Company's reliance on such exemption is predicated on such Investor's
representations set forth herein. Each Investor realizes that the basis for the
exemption may not be present if, notwithstanding such representations, such
Investor has in mind merely acquiring the Securities for a fixed or determinable
period in the future, or for a market rise, or for sale if the market does not
rise. Each Investor has no such intention.
3.4 RECEIPT OF INFORMATION. Each Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Series C Preferred Stock. Each Investor further represents that
it has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series C Preferred
Stock and the business, properties, prospects and financial condition of the
Company and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to it or
to which it had access. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of each Investor to rely thereon.
3.5 INVESTMENT EXPERIENCE. Each Investor represents that it is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Series C Preferred Stock. Each Investor also
represents it has not been organized for the purpose of acquiring the Series C
Preferred Stock.
3.6 ACCREDITED INVESTOR.
(a) Each Investor represents to the Company that it, or to the
extent that the representation is being made by a trustee of a trust, such trust
is an Accredited Investor. The term "Accredited Investor" as used herein refers
to a person or entity who:
(1) is a director or executive officer of the
Company; or
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(2) Any bank as defined in section 3(a)(2) of the
Securities Act, or any savings and loan association or other institution
as defined in section 3(a)(5)(A) of the Securities Act whether acting in
its individual or fiduciary capacity; any broker or dealer registered
pursuant to section 15 of the Securities Exchange Act of 1934; an
insurance company as defined in section 2(13) of the Securities Act; an
investment company registered under the Investment Company Act of 1940 or
a business development company as defined in section 2(a)(48) of that act;
a Small Business Investment Company licensed by the United States Small
Business Administration under section 301(c) or (d) of the Small Business
Investment Act of 1958; or an employee benefit plan, including an
individual retirement account, which is subject to the provisions of the
Employee Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in section 3(21) of such
act, which is either a bank, insurance company or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-- directed plan, with investment decisions made
solely by persons that are accredited investors;
(3) Any private business development company as
defined in section 202(a)(22) of the Investment Advisers Act of 1940;
(4) Any organization described in section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of $5,000,000;
(5) Any natural person whose individual net worth, or
joint net worth with that person's spouse, at the time of his purchase
exceeds $1,000,000;
(6) Any natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in each of those years and
has a reasonable expectation of reaching the same income level in the
current year;
(7) Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective investment;
or
(8) Any entity in which all of the equity owners
are accredited investors.
(b) Each Investor further represents to the Company that the capital
contribution of such Investor does not exceed 10% of such Investor's net worth.
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3.7 RESTRICTED SECURITIES. Each Investor understands that the
Securities may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Securities or an
available exemption from registration under the Securities Act, the Securities
must be held indefinitely. In particular, each Investor is aware that the
Securities may not be sold pursuant to Rule 144 promulgated under the Securities
Act unless all of the conditions of such Rule are met. Among the conditions for
use of Rule 144 is the availability of current information to the public about
the Company. Such information is not now available and the Company has no
present plans to make such information available.
3.8 LEGENDS. To the extent applicable, each certificate or other
document evidencing any of the Securities shall be endorsed with the legends set
forth below, and Investor covenants that, except to the extent such restrictions
are waived by the Company, Investor shall not transfer the shares represented by
any such certificate without complying with the restrictions on transfer
described in the legends endorsed on such certificate:
(a) "THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH
RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED."
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
3.9 PUBLIC SALE. Each Investor agrees not to make, without the prior
written consent of the Company, any public offering or sale of the Securities,
or any Common Stock issued upon the conversion thereof, although permitted to do
so pursuant to Rule 144(k) promulgated under the Securities Act, until the
earlier of (i) the date on which the Company effects its initial registered
public offering pursuant to the Securities Act or (ii) the date on which it
becomes a registered company pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended, or (iii) five years after the Closing of the
sale of such Stock to such Investor by the Company.
3.10 NON U.S. PERSONS. If any Investor is not a U.S. Person, such
Investor hereby represents that it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to
subscribe for the Securities or any use of this Agreement, including (i) the
legal requirements within its jurisdiction for the purchase of the shares of
Series C Preferred Stock, (ii) any foreign exchange restrictions applicable to
such
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purchase, (iii) any governmental or other consents which may need to be
obtained and (iv) the income tax and other tax consequences, if any, which may
be relevant to the purchase, holding, redemption, sale or transfer of the
Securities. Each Investor's subscription and payment for, and its continued
beneficial ownership of the Securities will not violate any applicable
securities or other laws of its jurisdiction.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT THE CLOSING. The obligations of
each Investor under subparagraph 1.1(b) of this Agreement are subject to the
fulfillment of each of the following conditions on or before the Closing with
respect to such Investor's purchase of Series C Preferred Stock, the waiver of
which shall not be effective against any Investor who does not consent in
writing thereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to each Investor at the Closing a certificate certifying that the
conditions specified in paragraphs 4.1, 4.2, 4.4, 4.7 and 4.8 have been
fulfilled.
4.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
4.6 DUE DILIGENCE. Each Investor shall have completed its due
diligence of the Company, to its reasonable satisfaction.
4.7 OPINION OF COMPANY COUNSEL. Each Investor shall have received
from Brobeck, Phleger & Harrison LLP, counsel for the Company, an opinion, dated
the date as of the Closing, in form and substance satisfactory to special
counsel to the Investors.
4.8 RIGHTS AGREEMENT; CO-SALE AGREEMENT. The Company and each
Investor shall have entered into the Rights Agreement and the Co-Sale
Agreement.
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5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment of each of the following conditions on or before the Closing with
respect to such Investor's purchase of Series C Preferred Stock by that
Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of such Closing.
5.2 PAYMENT OF PURCHASE PRICE. Each Investor shall have
delivered the purchase price specified in Section 1.2.
5.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be duly obtained and effective as of
the Closing.
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6. MISCELLANEOUS.
6.1 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
6.2 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and the Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
permitted transferees of any Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
6.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.6 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.7 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified by hand or
professional courier service or five days after deposit with the United States
Post Office, by registered or certified mail, postage prepaid and addressed to
the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.
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6.8 FINDER'S FEES. Each party represents that it neither is
nor will be obligated for any finder's fee or commission in connection with
this transaction.
Each Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees or representatives is responsible.
The Company agrees to indemnify and hold harmless each
Investor from any liability for any commission or compensation in the nature of
a finder's fee (and the costs and expenses of defending against such liability
or asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
6.9 EXPENSES. Irrespective of whether the Closing is effected, each
party shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement.
6.10 ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the Rights Agreement, the
Co-Sale Agreement or the Restated Articles, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
6.11 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
more than 50% of the Common Stock (that has not been sold to the public) issued
or issuable upon conversion of the Series C Preferred Stock. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), each
future holder of all such securities and the Company.
6.12 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
6.13 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
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EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
15
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COLLATERAL THERAPEUTICS, INC.
By: /s/ Jack Reich, Ph.D.
-------------------------------------
Jack Reich, President
Address: 9360 Towne Center Drive, Suite 110
San Diego, California 92121
THE INVESTORS:
Subject to ATTACHMENT A hereto, THE WELLCOME
TRUST LIMITED, AS TRUSTEE OF THE
WELLCOME TRUST
By: /s/ Roger Gibbs
-------------------------------------
Sir Roger Gibbs, Chairman
Address: 183 EUSTON ROAD
LONDON NW1 2BE
/s/ Jerry C. Benjamin
-------------------------------------
Jerry C. Benjamin
Address: 2 WALNUT DRIVE
KINGSWOOD, SURBY KT206QX
SCHERING BERLIN VENTURE CORP.
By: /s/ Illegible
-------------------------------------
Its: TREASURER
Address: 110 East Hanover Avenue
Cedar Knolls, New Jersey 07929
[SIGNATURE PAGE TO SERIES C
PREFERRED STOCK PURCHASE AGREEMENT]
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EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
A-1
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF COLLATERAL THERAPEUTICS, INC.,
a California Corporation
The undersigned Jack Reich and Christopher J. Reinhard hereby certify
that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The Amended and Restated Articles of Incorporation of said
corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Collateral Therapeutics, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
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 these Amended and Restated
Articles 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."
<PAGE>
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 III(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 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
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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 shareholders 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 shareholders 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 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.
(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 shareholder'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
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<PAGE>
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 shareholders' 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 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
-4-
<PAGE>
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
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 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")
-5-
<PAGE>
(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.
(D) In the case of the issuance of the 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
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<PAGE>
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.
(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.
-7-
<PAGE>
(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 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
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<PAGE>
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 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 Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action,
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<PAGE>
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 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,
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<PAGE>
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
shareholder approval of any necessary amendment to these articles.
(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 III, 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 shareholders' 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, 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 shareholder (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;
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<PAGE>
(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 Articles 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 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 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. 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 III
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 shareholders'
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.
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<PAGE>
ARTICLE IV
A. The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
B. This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with the agents, vote of shareholders or disinterested
directors, or otherwise in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the corporation and its shareholders.
* * *
THREE: The foregoing amendment has been approved by the Board of
Directors of said corporation.
FOUR: The foregoing amendment was approved by the holders of the requisite
number of shares of said corporation in accordance with Sections 902 and 903 of
the California General Corporation Law; the total number of outstanding shares
of each class entitled to vote with respect to the foregoing amendment was
3,103,500 shares of Common Stock, 374,532 shares of Series A Preferred Stock and
374,532 shares of Series B Preferred Stock. The number of shares voting in favor
of the foregoing amendment equaled or exceeded the vote required. The percentage
vote required was (i) more than 50% of the Common Stock, Series A Preferred
Stock and Series B Preferred Stock voting together as a single class, (ii) more
than 50% of the Common Stock voting as a separate class, (iii) more than 50% of
the Series A Preferred Stock voting as a separate class and (iv) more than 50%
of the Series B Preferred Stock voting as a separate class.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on June
23, 1997.
/s/ Jack Reich, Ph.D.
-----------------------------------------
Jack Reich, President
/s/ Christopher J. Reinhard
-----------------------------------------
Christopher J. Reinhard, Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Amended and Restated Articles of Incorporation and know the
contents thereof, and that the statements therein are true.
Executed at San Diego, California, on June 23, 1997.
/s/ Jack Reich
-----------------------------------------
Jack Reich, President
/s/ Christopher J. Reinhard
-----------------------------------------
Christopher J. Reinhard, Secretary
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<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF AGGREGATE
PURCHASER SERIES C PREFERRED STOCK PURCHASE PRICE
--------- ------------------------ --------------
<S> <C> <C>
The Wellcome Trust 375,000 $3,000,000
Jerry C. Benjamin 12,500 $100,000
Schering Berlin Venture Corp. 84,976 $679,808
-------- -----------
Total 472,476 $3,779,808
</TABLE>
Schedule A-1
<PAGE>
The Wellcome Trust Limited
as trustee of
the Wellcome Trust
ATTACHMENT A
TO
COLLATERAL THERAPEUTICS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
With respect to its signatory capacity and liability, as trustee of the Trust,
the Trustee enters into and delivers this Series C Preferred Stock Purchase
Agreement (the "Agreement") in its capacity as the trustee for the time being of
The Wellcome Trust but not otherwise and it is hereby agreed and declared that
notwithstanding anything to the contrary contained or implied in this Agreement
or any related agreement:
(a) the obligations incurred by the Trustee under or in consequence of this
Agreement or any related agreement shall be enforceable against it or the
other trustees of The Wellcome Trust from time to time; and
(b) the liabilities of the Trustee (or such other trustees as are referred to
in paragraph (a) above) in respect of such obligations shall be limited to
such liabilities as can, and may lawfully and properly, be met out of the
assets of The Wellcome Trust for the time being in the hands or under the
control of the Trustee or such other trustees.
Attachment A
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS, DATED JUNE 30, 1997
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THE FOLLOWING MATTERS ARE EXCEPTIONS TO THE REPRESENTATIONS AND WARRANTIES
OF COLLATERAL THERAPEUTICS, INC., A CALIFORNIA CORPORATION (THE "COMPANY"), AS
SET FORTH IN THE SERIES C PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF JUNE
30, 1997 (THE "AGREEMENT"). THE SECTION NUMBERS IN THIS SCHEDULE OF EXCEPTIONS
CORRESPOND TO THE SECTION NUMBERS IN THE AGREEMENT; HOWEVER, ANY INFORMATION
DISCLOSED HEREIN UNDER ANY SECTION NUMBER SHALL BE DEEMED TO BE DISCLOSED AND
INCORPORATED INTO ANY OTHER SECTION NUMBER UNDER THE AGREEMENT WHERE SUCH
DISCLOSURE WOULD OTHERWISE BE APPROPRIATE. WHERE THE TERMS OF A CONTRACT OR
OTHER DISCLOSURE ITEM HAVE BEEN SUMMARIZED OR DESCRIBED IN THIS SCHEDULE OF
EXCEPTIONS, SUCH SUMMARY OR DESCRIPTION DOES NOT PURPORT TO BE A COMPLETE
STATEMENT OF THE MATERIAL TERMS OF SUCH CONTRACT OR OTHER ITEM. ANY TERMS
DEFINED IN THE AGREEMENT SHALL HAVE THE SAME MEANING WHEN USED IN THIS SCHEDULE
OF EXCEPTIONS AS WHEN USED IN THE AGREEMENT UNLESS THE CONTEXT OTHERWISE
REQUIRES.
NOTHING HEREIN CONSTITUTES AN ADMISSION OF ANY LIABILITY OR OBLIGATION ON
THE PART OF THE COMPANY NOR AN ADMISSION AGAINST THE COMPANY'S INTEREST. THE
INCLUSION OF ANY SCHEDULE HEREIN OR ANY EXHIBIT HERETO SHOULD NOT BE INTERPRETED
AS INDICATING THAT THE COMPANY HAS DETERMINED THAT SUCH AN AGREEMENT OR OTHER
MATTER IS NECESSARILY MATERIAL TO THE COMPANY. THE INVESTORS ACKNOWLEDGE THAT
CERTAIN INFORMATION CONTAINED IN THESE SCHEDULES MAY CONSTITUTE MATERIAL
CONFIDENTIAL INFORMATION RELATING TO THE COMPANY WHICH MAY NOT BE USED FOR ANY
PURPOSE OTHER THAN THAT CONTEMPLATED IN THE AGREEMENT.
SECTION 2.5. CAPITALIZATION AND VOTING RIGHTS. As of June 30, 1997 there were
3,103,500 shares of Common Stock issued and outstanding and 374,532 shares of
Series A Preferred Stock issued and outstanding. In addition, as of June 30,
1997 stock options to purchase up to 312,500 shares of Common Stock were
outstanding, and the weighted average purchase price of such stock options was
$0.3407 per share. Since the inception of the Company, stock options covering
the purchase of up to 562,500 shares of Common Stock have been issued, of which
stock options to purchase up to 497,500 shares of Common Stock have been issued
pursuant to the Company's 1995 Stock Option/Stock Issuance Plan (hereafter the
"Stock Plan"). As of June 30, 1997, the Company's Board of Directors has
authorized the issuance of up to 708,859 shares of Common Stock pursuant to the
Stock Plan. As of June 30, 1997, 211,359 shares of Common Stock were available
for future award under the Stock Plan. A list of shareholders of the Company's
Common Stock is included herein as "Exhibit 2.5A."
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 2 OF 9
SECTION 2.7. CONTRACTS AND OTHER COMMITMENTS. Set forth below is a summary
of all contracts and commitments of the Company, which as of the date hereof,
in aggregate are greater than $50,000:
COLLABORATION, LICENSE AND ROYALTY AGREEMENT WITH SCHERING AG - GENE
THERAPY TO PROMOTE ANGIOGENESIS. On May 6, 1996, the Company entered into
a strategic alliance with Schering AG pursuant to the Collaboration,
License and Royalty Agreement covering the development and
commercialization of gene therapy products to promote angiogenesis.
UNIVERSITY OF CALIFORNIA LICENSE AGREEMENT - ANGIOGENESIS GENE Therapy.
On September 27, 1995, the Company entered into a worldwide exclusive
license agreement with the Regents of the University of California for
certain technology relating to a patent application filed by the
University of California relating to angiogenesis gene therapy, based
on scientific discovery research conducted at the laboratory of Dr. H.
Kirk Hammond at the Veterans' Affairs Medical Center and the Department
of Medicine of the University of California, San Diego. This agreement
provides the Company with exclusive rights to develop and commercialize
technology covered by patent applications that have been filed in the
United States and in foreign countries. Pursuant to such agreement, the
Company has agreed to pay the University of California a license fee
totalling $550,000 payable in *** installments over a *** and to pay
the University of California an annual royalty fee of *** based on net
sales of products covered by such patents. 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 the patent application thereunder, and pay
certain minimum annual royalty payments following successful commercial
development of a product. As of June 30, 1997, the Company has paid a
total of $150,000 pursuant to the terms of this agreement.
UNIVERSITY OF CALIFORNIA LICENSE AGREEMENT - GENE THERAPY FOR
CONGESTIVE HEART FAILURE. On January 22, 1997, the Company entered into
an exclusive worldwide license agreement with the Regents of the
University of California for certain technology relating to a patent
application filed by the University of California relating to a gene
therapy approach for congestive heart failure based on myocardial
adrenergic responsiveness, which resulted from scientific discovery
research conducted at the laboratory of Dr. H. Kirk Hammond at the
Veterans' Affairs Medical Center and the Department of Medicine of the
University of California, San Diego. This agreement provides the
Company with
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 3 OF 9
exclusive rights to develop and commercialize technology covered by patent
applications that have been filed in the United States and in foreign
countries. Pursuant to such agreement, the Company has agreed to pay the
University of California a license fee totalling $650,000 payable in ***
installments over a *** and to pay the University of California an annual
royalty fee of *** based on net sales of products covered by such
patents. 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 patent
applications thereunder, and pay certain minimum annual royalty payments
following successful commercial development of a product.
As of June 30, 1997, the Company has paid a total of $100,000 pursuant to
the terms of this agreement.
UNIVERSITY OF CALIFORNIA LICENSE AGREEMENT - ANGIOGENIC GENE THERAPY FOR
CONGESTIVE HEART FAILURE. The Company entered into a letter agreement with
The Regents of the University of California to exclusively negotiate an
exclusive worldwide license to develop and commercialize certain technology
relating to gene angiogenic gene therapy for heart failure, based on
scientific discovery research conducted at the laboratory of Dr. H. Kirk
Hammond at the *** *** and the Department of Medicine of the University of
California, San Diego. Based on the terms and conditions of the proposed
agreement, the Company will have exclusive rights to develop and
commercialize technology covered by patent applications that have been filed
in the United States and in foreign countries. Pursuant to such proposed
agreement, the Company has agreed to pay the University of California a
license fee totalling $325,000 payable in *** installments over a *** and to
pay the University of California an annual royalty fee of *** based on net
sales of products covered by such patents. 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 patent applications thereunder, and pay certain minimum annual royalty
payments following successful commercial development of a product. Final
draft agreements have been circulated between the parties and the Company
believes that this agreement will be finalized within the next sixty (60)
days.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 4 OF 9
NEW YORK UNIVERSITY LICENSE AGREEMENT - USE OF FIBROBLAST GROWTH FACTOR 4 FOR
GENE THERAPY FOR CORONARY ARTERY DISEASE, CONGESTIVE HEART FAILURE AND
PERIPHERAL VASCULAR DISEASE. On March 24, 1997, the Company has entered into
an exclusive worldwide license agreement with New York University for the use
of certain technology relating to issued patents and patent applications
owned by New York University covering the Company's use of Fibroblast Growth
Factor 4 (hereafter "FGF-4") for gene therapy products developed and
commercialized by the Company, or its licensees, for the treatment of
coronary artery disease, congestive heart failure and peripheral vascular
disease. This agreement provides the Company with exclusive rights to develop
and commercialize technology covered by patents that have been filed in the
United States and in foreign countries. Pursuant to such agreement, the
Company has agreed to pay New York University (i) an initial license fee of
*** ; (ii) an annual license fee of *** until first commercial sale of a
product pursuant to the Agreement; (iii) milestone payments of $1,750,000
payable in *** installments based on the Company's successful achievement of
certain *** benchmarks, for each product developed thereunder; (iv)
three-year research funding totalling $600,000 payable in six, semi-annual
installments to support Company directed research activities focused on the
development of the Company's core technology; and (v) an annual royalty fee
of *** based on net sales of products covered by such patents. 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, and pay certain
minimum annual royalty payments following successful commercial development
of a product. As of June 30, 1997, the Company has paid license fees totaling
$100,000 and research funding totalling $100,000 pursuant to the terms of
this agreement.
AMRAD OPERATIONS PTY LTD. AND LUDWIG INSTITUTE FOR CANCER RESEARCH LICENSE
AGREEMENT - USE OF VASCULAR ENDOTHELIAL GROWTH FACTOR B GENES FOR GENE
THERAPY FOR CORONARY ARTERY DISEASE, CONGESTIVE HEART FAILURE AND PERIPHERAL
VASCULAR DISEASE. On March 25, 1997, the Company has entered into an
exclusive worldwide license agreement with AMRAD Operations Pty Ltd and the
Ludwig Institute for Cancer Research (hereafter "AMRAD/Ludwig") covering the
use of certain technology relating to patent applications filed by
AMRAD/Ludwig covering the Company's use of Vascular Endothelial Growth Factor
B (hereafter "VEGF-B") for gene therapy products developed and commercialized
by the Company, or its licensees, for the treatment of coronary artery
disease, congestive heart failure and peripheral vascular disease. This
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 5 OF 9
agreement provides the Company with exclusive rights to develop and
commercialize technology covered by patents that have been filed in the
United States and in foreign countries. Pursuant to such agreement, the
Company has agreed to pay AMRAD/Ludwig (i) license fees totalling $1,150,000
payable in three (3) installments during the period from March 25, 1997 to
October 30, 1997; (ii) a $1,000,000 license fee upon the earlier of the
effective date of an initial public offering involving the sale of the
Company's equity securities or eighteen (18) months from the effective date
of the agreement, (iii) milestone payments totalling up to $4,750,000, based
on the Company's successful achievement of certain product development
benchmarks; (iv) an additional $1,000,000 payment for each product developed
beyond the initial product for a medical indication; and (v) an annual
royalty fee *** on net sales of products covered by such patents issued
thereunder. Pursuant to 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,
and pay certain minimum annual royalty payments following successful
commercial development of a product. As of June 30, 1997, the Company has
paid a total of $1,000,000 pursuant to the terms of this agreement.
DIMOTECH LTD. AND TECHNION RESEARCH & DEVELOPMENT FOUNDATION LICENSE
AGREEMENT -USE OF VASCULAR ENDOTHELIAL GROWTH FACTOR GENE FOR GENE THERAPY
CARDIOVASCULAR DISEASE. On October 17, 1996, the Company entered into an
exclusive worldwide license agreement with Dimotech Ltd. and the Technion
Research and Development Foundation located at the Gurtwith Science Based
Industrial Center in Haifa, Israel (hereafter "Technion") relating to a
patent application filed by Technion covering the Company's use of a novel
vascular endothelial growth factor (hereafter "VEGF/CTI01") for gene therapy
products developed and commercialized by the Company, or its licensees, for
the treatment of cardiovascular disease. This agreement provides the Company
with exclusive rights to develop and commercialize technology covered by
patents that have been filed in the United States and in foreign countries.
Pursuant to such agreement, the Company has agreed to pay Technion (i)
license fees totalling $466,000 payable in *** installments based an the
Company's successful achievement of certain *** benchmarks; and (ii) an
annual royalty fee of *** based on net sales of products covered by patents.
Under the terms of this agreement, the Company is required to satisfy certain
due diligence provisions with respect to
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 6 OF 9
the timely development and commercialization of products covered by patents
thereunder, and pay certain minimum annual royalty payments following successful
commercial development of a product. As of June 10, 1997, the Company has paid a
total of $16,000 pursuant to the terms of this agreement.
VETERANS' MEDICAL RESEARCH FOUNDATION. On November 13, 1996, the Company entered
into an agreement with the Veterans' Medical Research Foundation (the "Medical
Research Foundation") which operates at the Veterans' Affairs Medical Center
covering certain research studies directed at the Company's core technology.
Under the terms and conditions of this agreement, Dr. H. Kirk Hammond, a
shareholder and executive officer of the Company, serves as the investigator for
such studies. The agreement covers a one year term; however, this term may be
extended by mutual consent of both parties. In consideration for such services,
the Company has agreed to pay the Medical Research Foundation a primary monthly
fee of $20,000, payable in monthly installments (including certain
administrative overhead charges), plus a supplemental payment, payable monthly,
for additional amounts expanded by the Medical Research Foundation for
Company-directed research activities (including certain administrative overhead
charges).
UNIVERSITY OF WASHINGTON DISCOVERY RESEARCH AGREEMENT - MUSCLE
DIFFERENTIATION DURING REPAIR OF MYOCARDIAL NECROSIS THROUGH GENE THERAPY
WITH THE MYOD GENE. On April 30, 1997 the Company entered into an
agreement with the University of Washington, Seattle, School of Medicine,
Department of Pathology, for the University of Washington to conduct Company-
directed discovery research into the study of muscle differentiation during
repair of myocardial necrosis, resulting from a myocardial infarction,
through gene therapy using the MyoD gene, under the direction of Dr. Charles
Murry, M.D., Ph.D. Pursuant to the terms of this agreement, the Company has
agreed to provide the University of Washington with research funding
totalling up to $119,998. Under this agreement, the Company has a right of
first negotiation for the Company to enter an agreement with the University
of Washington to exclusively license all technology that may result from such
research. As of June 30, 1997, the Company has paid $59,999 pursuant to such
agreement.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 7 OF 9
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CORPORATE OFFICE REAL ESTATE LEASE. On July 17, 1995, the Company entered into a
real estate sublease agreement with Gensia, Inc. covering office space located
at 9360 Towne Centre Drive, San Diego, California, which currently serves as the
Company's corporate office. The sublease covered by this agreement will expire
on December 31, 1997. The Company has an option to extend the term of such
sublease for an additional year to expire as of December 31, 1998. Rent payable
to Gensia, Inc. for the remainder of the lease covering the current lease period
(June 1, 1997 to December 31, 1997) totals $52,836.
RESEARCH LABORATORY REAL ESTATE LEASE. On June 23, 1997, the Company submitted a
term sheet covering a proposal to lease an 11,200 square foot research facility
located at 11045 Roselle Street, San Diego, California. The major terms and
conditions of such lease as proposed by the Company to the landlord are as
follows: (i) annual base rent: $235,200, with an up to 4% annual rent
escalation; (ii) annual operating charges: $30,360; (iii) tenant improvement
allowance: $250,000: (iv) lease term five (5) years. There can be no assurance
that the Company will agree on final terms and enter into a lease agreement
covering such research facility. The Company awaits approval of such proposal or
counter-proposal covering such lease. If this facility is leased, the Company
estimates that it will invest up to $1,500,000 for leasehold improvements,
equipment and other related start-up expenses to develop this lease space as a
fully-operational research facility.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 8 OF 9
CONTRACT RESEARCH SERVICES. On March 17, 1997, the Company entered into an
agreement with HTI Bio-Services, Inc. (hereafter "HTI") for HTI to conduct
certain contract research services. For such services the Company agreed
to pay HTI $99,400. As of June 10, 1997, the unpaid balance payable to HTI
by the Company for such services totalled $19,880.
CONSULTING AGREEMENT . The Company has entered into consulting agreements
with five (5) individuals who have been appointed as members of the
Company's Scientific Advisory Board and with twelve (12) other
individuals, as set forth in the schedule attached hereto.
NOTES PAYABLE AND SECURITY AGREEMENT. In 1995, the Company entered Into
two Promissory Notes with Schering Berlin Venture Corporation ('Payor')
totalling $500,000 to fund operations. The Notes were each amended and
restated as of May 16, 1996. Since there has been an Acceptance of a
Qualified Gene, the Notes are due on Payor's demand on or after June 30,
1999 and bear Interest at 1% below the prime rate. These Notes are secured
by all of the assets of the Company pursuant to a Security Agreement dated
August 16, 1995.
SECTION 2.8 RELATED PARTY TRANSACTIONS. Mr. Craig Andrews, a member of Brobeck,
Phleger & Harrison LLP (hereinafter "Brobeck") is a member of the Company's
Board of Directors and a holder of 142,687 shares of Common Stock. During 1996,
the Company paid Brobeck $148,974 and $19,272 for legal services for 1996 and
1997, respectively. In addition, Mr. David Hale, a member of the Company's Board
Directors and a holder of 139,887 shares of Common Stock is Chief Executive
Officer of Gensia, Inc., which is the landlord of the Company's executive
office. During 1996, the Company paid Gensia, Inc. rent of $98,496 and $46,586
for 1996 and 1997, respectively.
On June 10, 1997, pursuant to the terms of the Collaboration, License and
Royalty Agreement between Schering AG and the Company, Schering AG purchased
374,532 shares of Series B Preferred Stock at a purchase price $2,500,000. As of
June 10, 1997, Schering AG owned 374,532 shares of the Company Series A
Preferred Stock and 374,532 shares of the Series B Preferred Stock, representing
100% of each class of Preferred Stock and 17.98% of the Company's capital stock,
on a fully-diluted basis.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
SCHEDULE OF EXCEPTIONS
PAGE 9 OF 9
SECTION 2.16 FINANCIAL STATEMENTS. The Company has delivered to the Investor
audited financial statements (balance sheet, profit and loss statement,
statement of shareholders' equity and statement of changes of financial
position, including notes thereto) at December 31, 1997, as prepared by Ernst &
Young, the Company's independent public accountants. In addition, the Company
has provided the Investor with unaudited financial statements, (balance sheet,
profit and loss statement, statement of shareholders' equity and statement of
changes of financial position) for the period from January 1, 1997 to May 30,
1997. Reference is made to Section 2.7 disclosure under the caption "Notes
Payable and Security" above.
<PAGE>
EXHIBIT 2.5A
COLLATERAL THERAPEUTICS, INC.
COMMON STOCK CAPITALIZATION TABLE
<TABLE>
<CAPTION>
Number
Shareholder of Shares Percent
- -------------------------- --------------- -----------------
<S> <C> <C>
H. Kirk Hammond, M.D. 941,688 30.3%
Jack W. Reich, Ph.D. 706,688 22.8%
Robert L. Engler, M.D. 456,688 14.7%
Mathew Lawrence Engler 25,000 0.8%
Eric Hershel Engler 25,000 0.8%
Christopher J. Reinhard 277,688 8.9%
Craig Andrews 142,687 4.6%
David Hale 139,887 4.5%
Bradford Duft 110,887 3.6%
David Robinson 110,887 3.6%
Ruth Wikberg - Leonardi 60,000 1.9%
Kathy Rooney 50,000 1.6%
Dr. PeiPei Ping 45,000 1.4%
Mathew Spellman 4,000 0.1%
Dan Mokiman 2,000 0.1%
Sara Alaimo 1,400 0.0%
April Estes 1,500 0.0%
Grai Andreason 2,500 0.1%
--------------- -------------
Total Common 3,103,500 100.0%
=============== =============
</TABLE>
<PAGE>
EXHIBIT 10.11
Exclusive License Agreement
between
The Regents of the University of California
and
Collateral Therapeutics
for
Angiogenesis Gene Therapy
***
----------------------
U.C. AGREEMENT
CONTROL NUMBER
***
----------------------
<PAGE>
Table of Contents
Article No. Title Page
Recitals..........................................................1
1 Definitions.......................................................4
2. Grant.............................................................7
3. License Issue Fee.................................................9
4. Royalties.........................................................9
5. Due Diligence....................................................13
6. Progress and Royalty Reports.....................................15
7. Books and Records................................................17
8. Life of the Agreement............................................18
9. Termination by The Regents.......................................19
10. Termination by Licensee..........................................20
11. Disposition of Patent Products on Hand Upon Termination..........20
12. Use of Names and Trademarks......................................21
13. Limited Warranty.................................................22
14. Patent Prosecution and Maintenance...............................23
15. Patent Marking...................................................27
16. Patent Infringement..............................................27
17. Indemnification..................................................29
18. Notices..........................................................31
19. Assignability....................................................32
20. Late Payments....................................................32
21. Waiver...........................................................33
22. Failure to Perform...............................................33
23. Governing Laws...................................................33
24. Government Approval or Registration..............................34
25. Export Control Laws..............................................34
26. Force Majeure....................................................34
27. Confidentiality..................................................35
28. Miscellaneous....................................................37
<PAGE>
***
Revised: 7/13/95 (SH)
Draft date: September 25, 1995
Exclusive License Agreement
for
Angiogenesis Gene Therapy
This license agreement ("Agreement") is effective this 27th day of
September, 1995, by and between The Regents of the University of California
("The Regents"), a California corporation, having its statewide administrative
offices at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 and
Collateral Therapeutics ("Licensee"), a California corporation, having a
principal place of business at 9360 Towne Centre Drive, San Diego, California
92121.
Recitals
Whereas, certain inventions, relating to "Angiogenesis Gene Therapy"
("Invention"), useful for angiogenesis, were made at the University of
California, San Diego ("UCSD") and are described and claimed in certain patent
applications, naming *** H. Kirk Hammond ***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
----------------------
U.C. AGREEMENT
CONTROL NUMBER
***
----------------------
<PAGE>
*** as co-inventors, identified in the below defined Patent Rights;
Whereas, Licensee entered into a Letter of Intent ('Letter of
Intent"), having U.C. Agreement Control No. *** effective *** that provided the
Licensee with a time-limited exclusive right to negotiate for a license to the
Patent Rights;
Whereas, under 35 USC 200-212, The Regents may elect to retain title
to any invention (including the Invention) made by it, in whole or in part,
under U.S. Government funding;
Whereas, if The Regents elects to retain title to the Invention,
then the law requires that The Regents grant to the U.S. Government a
nontransferable, paid-up, nonexclusive irrevocable license to use the Invention
by or on behalf of the U.S. Government throughout the world;
Whereas, The Regents elected on September 19, 1995, to retain title
to the Invention and granted the required licenses to the U.S. Government;
Whereas, H. Kirk Hammond is an employee of the Veterans'
Administration Medical Center ("VA");
Whereas, 37 CFR 501.6(a)(2) allows the VA to release the
Invention to Dr. Hammond under certain conditions;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
Whereas, Dr. Hammond, also an employee of The Regents, is under
obligation to assign to The Regents the rights in the Invention that were
released to him by the VA;
Whereas, Licensee is a "small entity" as defined in 37 CFR Section
1.9 and a "small-business concern" defined at 15 U.S.C. ss. 632;
Whereas, both parties recognize that royalties due under this
Agreement will be paid on issued patents and pending patent applications that
are being prosecuted diligently and in good faith;
Whereas, Licensee requested an exclusive license to the Patent
Rights from The Regents; and
Whereas, The Regents wish to grant an exclusive license to the
Patent Rights to Licensee so that products and other benefits derived from
the Invention can be enjoyed by the general public.
-- oo O oo --
The parties agree as follows:
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<PAGE>
1. Definitions
As used in this Agreement, the following terms will have the meaning set
forth below:
1.1 "Patent Rights" means all U.S. patents and patent applications and
foreign patents and patent applications assigned to The Regents, and in the case
of foreign patents and patent applications those requested under Paragraph 14.4
herein, including any reissues, extensions, substitutions, continuations,
divisions, and continuations-in-part applications (only to the extent, however,
that claims in the continuations-in-part applications are entitled to the
priority filing date of the parent patent application) based on and including
the following:
1.1.1 any subject matter claimed in or described according to the
requirements of 35 USC Section 112 in U.S. Patent Application
Serial Number *** entitled *** *** filed *** *** by
Dr. H. Kirk Hammond, et al. and assigned to The Regents; and
1.1.2 any subject matter claimed in or described according to the
requirements of 35 USC Section 112 in U.S. Patent Application
Serial Number *** entitled *** *** filed *** *** by Dr. H.
Kirk Hammond, et al., and assigned to The Regents.
1.2 "Patent Products" means:
1.2.1 any kit, composition of matter, material, or product;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
1.2.2 any kit, composition of matter, material, or product to be
used in a manner requiring the performance of the Patent
Method; or
1.2.3 any kit, composition of matter, material, or product produced
by the Patent Method;
to the extent that the manufacture, use, or sale of such kit, composition of
matter, material, or product, in a particular country, would fall within the
scope of (1) an unexpired claim of a patent under Patent Rights in that country
or (2) a pending claim of a pending patent application that is being prosecuted
diligently and in good faith in that country, were it issued as a claim in a
patent under Patent Rights in that country in which such application is pending.
This definition of Patent Products also includes a service either used by
Licensee or provided by Licensee to its customers when such service requires the
practice of the Patent Method.
1.3 "Patent Method" means any process or method, the use or practice of
which in a country would fall within the scope of (1) an unexpired claim of a
patent under Patent Rights in that country or (2) a pending claim of a pending
application that is being prosecuted diligently and in good faith in that
country, were it issued as a claim in a patent under Patent Rights in that
country in which such application is pending.
1.4 "Net Sales" means the gross invoice prices from the sale of Patent
Products by Licensee, an Affiliate, a Joint Venture, or a sublicensee
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<PAGE>
to independent third parties for cash or other forms of consideration in
accordance with Generally Accepted Accounting Principles limited to the
following deductions (if not already deducted from the gross invoice price and
at rates customary within the industry): (a) allowances (actually paid and
limited to rejections, returns, and prompt payment and volume discounts granted
to customers of Patent Products, whether in cash or Patent Products in lieu of
cash); (b) freight, transport packing, insurance charges associated with
transportation; and (c) taxes, tariff, or import/export duties based on sales
when included in gross sales, but not value-added taxes or taxes assessed on
income derived from such sales.
1.5 "Affiliate(s)" of Licensee means any entity which, directly or
indirectly, controls Licensee, is controlled by Licensee, or is under common
control with Licensee ("control" for these purposes being defined as the actual,
present capacity to elect a majority of the directors of such affiliate, or if
not, the capacity to elect the members that control fifty percent (50%) of the
outstanding stock or other voting rights entitled to elect directors) provided,
however, that in any country where the local law will not permit foreign equity
participation of a majority, then an "Affiliate" will include any company in
which Licensee will own or control, directly or indirectly, the maximum
percentage of such outstanding stock or voting rights permitted by
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<PAGE>
local law. Each reference to Licensee herein will be meant to include its
Affiliates.
1.6 "Joint Venture" means any separate entity established pursuant to an
agreement between a third party and Licensee to constitute a vehicle for
commercializing patent products, in which the separate entity manufactures,
uses, purchases, sells, or acquires Patent Products from Licensee. Each
reference to Licensee herein will be meant to include its Joint Venture(s).
2. Grant
2.1 Subject to the terms of this Agreement, subject to the licenses
granted to the U.S. Government as set forth in the Recitals above, and subject
to the obligations of Section 2.5 below, The Regents hereby grants to Licensee
exclusive licenses under Patent Rights to make, use, sell, offer for sale, and
import Patent Products and to practice the Patent Method where Patent Rights
exist.
2.2 The Regents also grants to Licensee the exclusive right to issue
sublicenses to third parties to make, use, sell, offer for sale, and import
Patent Products and to practice the Patent Method, provided Licensee retains
current exclusive rights thereto under this Agreement. To the extent applicable,
such sublicenses will include all of the rights of and obligations
- 7 -
<PAGE>
due to The Regents (and, if applicable, the U.S. Government, including 35 USC
Sections 200-212 and the implementing regulations), including the payment of
royalties in Article 4. (Royalties) that are contained in this Agreement.
2.3 Licensee will notify The Regents of each sublicense granted hereunder
and provide The Regents with a copy of each sublicense. Licensee will collect
and pay all royalties due The Regents as set forth in Paragraph 4.1 below (and
guarantee all such payments due from sublicensees). Licensee will require
sublicensees to provide it with progress and royalty reports in accordance with
the provisions herein, and Licensee will collect and deliver to The Regents all
such reports due from sublicensees.
2.4 Upon termination of this Agreement for any reason, The Regents, at its
sole discretion, will determine whether any or all sublicenses will be canceled
or assigned to The Regents.
2.5 Nothing in this Agreement will be deemed to limit the right of The
Regents to publish any and all technical data resulting from any research
performed by The Regents relating to the Invention and to make and use Patent
Product(s), Patent Method(s), and associated technology solely for educational
and noncommercial research purposes.
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<PAGE>
3. License Issue Fee
3.1 As partial consideration for all the rights and licenses granted to
Licensee, Licensee will pay to The Regents a license issue fee of Five
Hundred and Fifty Thousand Dollars ($550,000) according to the following
schedule:
3.1.1 Seventy-Five Thousand Dollars ($75,000) within thirty (30)
days after the execution of this Agreement by both parties;
3.1.2 Seventy-Five Thousand Dollars ($75,000) on or before June 30,
1997;
3.1.3 *** on or before *** ;
3.1.4 *** on or before *** ; and
3.1.5 *** on or before *** .
3.2 The fees set forth in Paragraph 3.1 above are non-refundable,
non-creditable, and not an advance against royalties.
4. Royalties
4.1 As further consideration for all the rights and licenses granted to
Licensee, Licensee also will pay to The Regents an earned royalty at the rate of
*** based on the Net Sales of Patent Products.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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4.2 Paragraphs 1.1, 1.2, and 1.3 define Patent Rights, Patent Product, and
Patent Method so that royalties will be payable only on Patent Products covered
by either a pending patent application that is being prosecuted diligently and
in good faith in a relevant country or by an issued patent in a relevant
country. Earned royalties will accrue in each country for the duration of any
issued patent within Patent Rights in that country and will be payable to The
Regents when Patent Products are invoiced, or if not invoiced, when delivered to
a third party for the purpose of patient administration for purposes other than
clinical trials. Licensee, its Affiliates, Joint Ventures, and sublicensees will
not use Patent Products or Patent Methods for administration to patients in any
business of the Licensee, or of its Affiliates, Joint Ventures, and sublicensees
without payment of applicable royalty on Net Sales to be calculated on retail
sales prices as if the sales transaction had occurred at arm's-length to an
unrelated third party.
4.3 Royalties accruing to The Regents will be paid to The Regents
quarterly on or before the following dates of each calendar year:
February 28 for the calendar quarter ending December 31
May 31 for the calendar quarter ending March 31
August 31 for the calendar quarter ending June 30
November 30 for the calendar quarter ending September 30
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Each such payment will be for royalties which accrued up to the most recently
completed calendar quarter of Licensee.
4.4 Beginning in the year 2003, Licensee will pay to The Regents a
minimum annual royalty in the amounts and at the times set forth below:
<TABLE>
<CAPTION>
<S> <C> <C>
2003 - $ ***
2004 - $ ***
2005 - $ ***
2006 - $ ***
2007 - $ ***
</TABLE>
In each succeeding calendar year after the year 2007, Licensee will pay a
minimum annual royalty of Seven Hundred and Fifty Thousand ($750,000), for
the life of this Agreement. Each minimum annual royalty payment must be paid
to The Regents by February 28 of each year following the calendar year in
which royalties accrued. Royalties paid during the prior calendar year will
be credited against the minimal annual royalty payment due and owing for the
prior calendar year.
4.5 All monies due The Regents will be payable in United States funds
collectible at par in San Francisco, California. When Patent Products are sold
for monies other than United States dollars, the earned royalties will first be
determined in the foreign currency of the country in which such Patent Products
were sold and then converted into equivalent United States
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
funds. The exchange rate will be that rate quoted in the Wall Street Journal on
the last business day of the reporting period.
4.6 Earned royalties on sales of Patent Products occurring in any country
outside the United States will not be reduced by any taxes, fees, or other
charges imposed by the government of such country except those taxes, fees, and
charges allowed under the provisions of Paragraph 1.4 (Net Sales). Licensee will
be responsible for all bank transfer charges.
4.7 Notwithstanding the provisions of Article 26. (Force Majeure), if at
any time legal restrictions prevent prompt remittance of part or all royalties
owed to The Regents by Licensee with respect to any country where a Patent
Product is sold or distributed, Licensee will convert the amount owed to The
Regents into United States funds and will pay The Regents directly from another
source of funds for the amount impounded.
4.8 In the event that any patent or any claim thereof included within the
Patent Rights is held invalid or unenforceable in a final decision by a court of
competent jurisdiction and last resort and from which no appeal has or can be
taken, all obligation to pay royalties based on such patent or claim or any
claim patentably indistinct therefrom will cease as of the date of such final
decision. Licensee will not, however, be relieved from paying any royalties that
accrued before such decision or that are based on another patent or claim that
has not expired or that is not involved in such decision.
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<PAGE>
4.9 No royalties will be collected or paid hereunder to The Regents on
Patent Products sold to the account of the U.S. Government. Licensee and its
sublicensee will reduce the amount charged for Patent Products distributed to
the United States Government by an amount equal to the royalty for such Patent
Products otherwise due The Regents as provided herein.
5. Due Diligence
5.1 Licensee, upon execution of this Agreement, will diligently proceed
with the development, manufacture and sale of Patent Products. In this regard,
The Regents acknowledges that the technology covered by this Agreement has only
recently been invented and that substantial additional effort, expense and time,
as well as regulatory approval, will be required before manufacture and sales of
any Patent Products will be possible. Meeting the requirements of Section 5.3
below shall be deemed to satisfy the due diligence requirements of this Article
5.
5.2 Licensee will be entitled to exercise prudent and reasonable business
judgment in the manner in which it meets its due diligence obligations
hereunder, including under Section 5.3 below. In no case, however, will Licensee
be wholly relieved of its obligations to meet each of the due diligence
provisions of Paragraph 5.3 below.
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<PAGE>
5.3 If Licensee is unable to perform any of the following:
5.3.1 begin Phase I Clinical Trials in the United States for Patent
Products on or before *** ; and
5.3.2 enter pivotal clinical trials (a combination of Phase II and
Phase III Clinical Trials) in the United States for said
Patent Products on or before *** ***; and
5.3.3 file for marketing approval in the United States for said
Patent Product on or before *** ; and
5.3.4 market Patent Products in the United States within *** after
receiving marketing approval of such Patent Products from the
U.S. Food and Drug Administration; and
5.3.5 diligently and earnestly fill the market demand for Patent
Products following commencement of marketing at any time
during the exclusive period of this Agreement;
then The Regents will have the right and option to terminate this Agreement or
reduce the exclusive licenses granted to Licensee to non-exclusive licenses in
accordance with Paragraph 5.4 hereof. The exercise of this right and option by
The Regents supersedes the rights granted in Article 2. (Grant).
5.4 To exercise either the right to terminate this Agreement or reduce the
exclusive licenses granted to Licensee to non-exclusive licenses for lack of
diligence required in this Article 5. (Due Diligence), The Regents will give
Licensee written notice of the deficiency. Licensee thereafter has
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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60 (sixty) days to cure the deficiency. Licensee shall be entitled to a
one-time extension of each of the dates set forth in Subparagraphs 5.3.1
through 5.3.4 (which have not been met) by one (1) additional year to cure
the deficiency upon payment of One Hundred Thousand Dollars ($100,000) to The
Regents, provided that such payment is received by The Regents within sixty
(60) days of receipt of written notice by The Regents of Licensee's
deficiency. The One Hundred Thousand Dollar ($100,000) payment has the effect
of extending the subject date and all subsequent dates by one (1) year . If
The Regents has not received the One Hundred Thousand Dollar ($100,000)
payment by the end of the sixty (60)-day period, or written tangible evidence
satisfactory to The Regents that the deficiency has been cured by the end of
the sixty (60)-day period, then The Regents may, at its option, terminate
this Agreement or reduce the exclusive licenses granted to Licensee to
non-exclusive licenses by giving written notice to Licensee. These notices
will be subject to Article 18. (Notices).
6. Progress and Royalty Reports
6.1 Beginning February 28, 1996, and semi-annually thereafter, Licensee
will submit to The Regents a progress report covering activities by Licensee
related to the development, including clinical trials and testing, of all Patent
Products and the obtaining of the governmental approvals necessary
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for marketing. These progress reports will be provided to The Regents to cover
the progress of the research and development of the Patent Products until their
first commercial sale in the United States.
6.2 The progress reports submitted under Paragraph 6.1 will include, but
not be limited to, the following topics so that The Regents may be able to
determine the progress of the development of Patent Products:
o summary of work completed;
o summary of work in progress;
o current schedule of anticipated events or milestones specified
in Paragraph 5.3 and the dates when said milestones have been
met or will be met, as of the time of the report;
o market introduction date of Patent Products; and
o activities of sublicensees, if any.
6.3 Licensee will also report to The Regents in its immediately subsequent
progress and royalty report the date of first commercial sale of a Patent
Product(s) in each country where the Licensee has sought marketing approval.
6.4 After the first commercial sale of a Patent Product, Licensee will
provide The Regents with quarterly royalty reports to The Regents on or before
each February 28, May 31, August 31, and November 30 of each year. Each such
royalty report will cover the most recently completed
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<PAGE>
calendar quarter of Licensee (October through December, January through March,
April through June, and July through September) and will show:
6.4.1 the gross sales and Net Sales of Patent Products sold by
Licensee and reported to Licensee as sold by its sublicensees
during the most recently completed calendar quarter;
6.4.2 the number of Patent Products sold or distributed by Licensee
and reported to Licensee as sold or distributed by its
sublicensees;
6.4.3 the royalties, in U.S. dollars, payable hereunder with respect
to Net Sales; and
6.4.4 the exchange rates used, if any.
6.5 If no sales of Patent Products have been made during any reporting
period after the first commercial sale of a Patent Product, then a statement to
this effect is required.
7. Books and Records
7.1 Licensee will keep books and records accurately showing all Patent
Products manufactured, used, and/or sold under the terms of this Agreement. Such
books and records will be preserved for at least four (4) years after the date
of the royalty payment to which they pertain and will be open to inspection by
representatives or agents of The Regents at reasonable times to determine the
accuracy of the books and records and to determine compliance by Licensee with
the terms of this Agreement.
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<PAGE>
7.2 The fees and expenses of representatives of The Regents performing
such an examination will be borne by The Regents. However, if an error in
royalties of more than five percent (5%) of the total royalties due for any year
is discovered, then the fees and expenses of these representatives will be borne
by Licensee.
8. Life of the Agreement
8.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement will be
in force from the effective date recited on page one and will remain in effect
for the life of the last-to-expire patent licensed under this Agreement or until
the last patent application licensed under this Agreement is abandoned.
8.2 Any termination of this Agreement will not affect the rights and
obligations set forth in the following Articles:
<TABLE>
<CAPTION>
<S> <C> <C>
Article 3 License Issue Fee
Article 7 Books and Records
Article 11 Disposition of Patent Products on Hand Upon
Termination
Article 12 Use of Names and Trademarks
Paragraph 14.6 Patent Prosecution and Maintenance
</TABLE>
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<PAGE>
Article 17 Indemnification
Article 22 Failure to Perform
Article 27 Confidentiality
9. Termination by The Regents
9.1 If Licensee should violate or fail to perform any material term or
covenant of this Agreement, then The Regents may give written notice of such
default ("Notice of Default") to Licensee. If Licensee should fail to repair
such default within sixty (60) days after the date of such notice takes effect,
The Regents will have the right to terminate this Agreement and the licenses
herein by a second written notice ("Notice of Termination") to Licensee. If a
Notice of Termination is sent to Licensee, this Agreement will automatically
terminate on the date such notice takes effect. Such termination will not
relieve Licensee of its obligation to pay any royalty or license fees owing at
the time of such termination and will not impair any accrued right of The
Regents. These notices will be subject to Article 18. (Notices).
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<PAGE>
10. Termination by Licensee
10.1 Licensee will have the right at any time to terminate this Agreement
in whole or as to any portion of Patent Rights by giving notice in writing to
The Regents. Such Notice of Termination will be subject to Article 18. (Notices)
and termination of this Agreement will be effective sixty (60) days after the
effective date thereof.
10.2 Any termination pursuant to the above paragraph will not relieve The
Regents or Licensee of any obligation or liability accrued hereunder prior to
such termination or rescind anything done by The Regents or Licensee or any
payments made to The Regents hereunder prior to the time such termination
becomes effective, and such termination will not affect in any manner any rights
of The Regents or Licensee arising under this Agreement prior to such
termination.
11. Disposition of Patent Products on Hand Upon Termination
11.1 Upon termination of this Agreement, Licensee will have the privilege
of disposing of all previously made or partially made Patent Products, but no
more, within a period of one hundred twenty (120) days, provided, however, that
the sale of such Patent Products will be subject to the terms of this Agreement
including, but not limited to the payment of fees and reimbursement for patent
costs and the payment of royalties based on
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<PAGE>
the Net Sales of Patent Products at the rates and at the times provided herein
and the rendering of reports in connection therewith.
12. Use of Names and Trademarks
12.1 Nothing contained in this Agreement will be construed as conferring
any right to use in advertising, publicity, or other promotional activities any
name, trade name, trademark, or other designation of either party hereto by the
other (including contraction, abbreviation or simulation of any of the
foregoing). Unless required by law, the use by Licensee of the name "The Regents
of the University of California" or the name of any campus of the University of
California for use in advertising, publicity, or other promotional activities is
expressly prohibited.
12.2 It is understood that The Regents will be free to release to the
inventors and senior administrative officials employed by The Regents the terms
of this Agreement upon their request. If such release is made, The Regents will
request that such terms will be kept in confidence in accordance with the
provisions of Article 27. (Confidentiality) and not be disclosed to others. It
is further understood that should a third party inquire whether a license to
Patent Rights is available, The Regents may disclose the existence of this
Agreement and the Extent of the grant in Article 2. (Grant) to such third party,
but will not disclose the name of Licensee, except where The
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<PAGE>
Regents is required to release such information under either the California
Public Records Act or other applicable law.
13. Limited Warranty
13.1 The Regents warrants to Licensee that it has the lawful right to
grant this license, and that it has not granted any rights or licenses to Patent
Rights, other than to the U.S. Government, in derogation of this Agreement.
13.2 This license and the associated Invention are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESSED OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY
THAT THE INVENTION, PATENT PRODUCTS, OR PATENT METHOD WILL NOT INFRINGE ANY
PATENT OR OTHER PROPRIETARY RIGHT.
13.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF THE
INVENTION, PATENT METHOD, OR PATENT PRODUCTS.
13.4 Nothing in this Agreement will be construed as:
13.4.1 a warranty or representation by The Regents as to the
validity, enforceability, or scope of any Patent Rights;
or
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<PAGE>
13.4.2 a warranty or representation that anything made, used, sold
or otherwise disposed of under any license granted in this
Agreement is or will be free from infringement of patents of
third parties; or
13.4.3 an obligation to bring or prosecute actions or suits against
third parties for patent infringement except as provided in
Article 16. (Patent Infringement); or
13.4.4 conferring by implication, estoppel, or otherwise any license
or rights under any patents of The Regents other than Patent
Rights as defined herein, regardless of whether such patents
are dominant or subordinate to Patent Rights; or
13.4.5 an obligation to furnish any know-how not provided in Patent
Rights.
14. Patent Prosecution and Maintenance
14.1 The Regents will diligently prosecute and maintain the United States
and foreign patents comprising Patent Rights using counsel of its choice. The
Regents will promptly provide Licensee with copies of all relevant documentation
so that Licensee may be currently and promptly informed and apprised of the
continuing prosecution, and may comment upon such documentation sufficiently in
advance of any initial deadline for filing a response, provided, however, that
if Licensee has not commented upon such documentation prior to the initial
deadline for filing a response with the relevant government patent office or The
Regents must act to preserve Patent Rights, The Regents will be free to respond
appropriately
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<PAGE>
without consideration of comments by Licensee, if any. Both parties hereto will
keep this documentation in confidence in accordance with the provisions of
Article 27. (Confidentiality) herein. The Regents' counsel will take
instructions only from The Regents.
14.2 The Regents will use all reasonable efforts to amend any patent
application to include claims requested by Licensee and required to protect the
Patent Products contemplated to be sold or Patent Method to be practiced under
this Agreement.
14.3 The Regents and Licensee will cooperate in applying for an extension
of the term of any patent included within Patent Rights, if appropriate, under
the Drug Price Competition and Patent Term Restoration Act of 1984. Licensee
will prepare all such documents, and The Regents will execute such documents and
will take such additional action as Licensee may reasonably request in
connection therewith.
14.4 The Regents will, at the request of Licensee, file, prosecute, and
maintain patent applications and patents covered by Patent Rights in foreign
countries if available. Licensee must notify The Regents within nine (9) months
of the filing of the corresponding United States application of its decision to
request The Regents to file foreign counterpart patent applications. This notice
concerning foreign filing must be in writing and must identify the countries
desired. The absence of such a notice from
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Licensee to The Regents within the nine (9)-month period will be an election by
Licensee not to request The Regents to secure foreign patent rights on behalf of
Licensee. The Regents will have the right to file patent applications at its own
expense in any country Licensee has not included in its list of desired
countries, and such applications and resultant patents, if any, will not be
included in the licenses granted under this Agreement unless Licensee agrees in
writing to pay all costs associated with any such patent application(s) and
provided the rights of said patent application(s) are available at the time
Licensee agrees to pay the associated costs.
14.5 All past, present and future costs of preparing, filing, prosecuting
and maintaining all United States and foreign patent applications and all costs
and fees relating to the preparation and filing of patents covered by Patent
Rights in Paragraph 1.1 will be borne by Licensee. This includes all patent
preparation and prosecution costs incurred by The Regents prior to the execution
of this Agreement. Such costs will be due upon execution of this Agreement and
will be payable at the time that the license issue fee is payable. The costs of
all interferences and oppositions will be considered prosecution expenses and
also will be borne by Licensee. Licensee will reimburse The Regents for all
costs and charges within thirty (30) days following receipt of an itemized
invoice from The Regents for same.
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<PAGE>
14.6 The obligation of Licensee to underwrite and to pay patent
preparation, filing, prosecution, maintenance, and related costs will continue
for such costs as may be incurred during the three (3)-month period after
receipt by either party of a Notice of Termination for all non-cancelable
obligations made prior to the receipt of said Notice of Termination. Licensee
will reimburse The Regents for all patent costs incurred during the term of the
Agreement and for three (3) months thereafter whether or not invoices for such
costs are received during the three (3)-month period after receipt of a Notice
of Termination. Licensee may with respect to any particular patent application
or patent terminate its obligations with the patent application or patent in any
or all designated countries upon three months written notice to The Regents. The
Regents may continue prosecution and/or maintenance of such application(s) or
patent(s) at its sole discretion and expense, provided, however, that Licensee
will have no further right or licenses thereunder.
14.7 Licensee will have a continuing responsibility to keep The Regents
informed of its large/small entity status (as defined by the United States
Patent and Trademark Office) of itself and its sublicensees.
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<PAGE>
15. Patent Marking
15.1 Licensee will mark all Patent Products made, used or sold under the
terms of this Agreement, or their containers, in accordance with the applicable
patent marking laws.
16. Patent Infringement
16.1 In the event that Licensee learns of the substantial infringement of
any patent licensed under this Agreement, Licensee will call the attention of
The Regents thereto in writing and will provide The Regents with reasonable
evidence of such infringement. Both parties to this Agreement acknowledge that
during the period and in a jurisdiction where Licensee has exclusive rights
under this Agreement, neither will notify a third party of the infringement of
any of Patent Rights without first obtaining consent of the other party, which
consent will not be unreasonably withheld. Both parties will use their best
efforts in cooperation with each other to terminate such infringement without
litigation.
16.2 Licensee may request that The Regents take legal action against the
infringement of Patent Rights. Such request must be made in writing and must
include reasonable evidence of such infringement and damages to Licensee. If the
infringing activity has not been abated within ninety (90)
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days following the effective date of such request, The Regents will have the
right to elect to:
16.2.1 commence suit on its own account; or
16.2.2 refuse to participate in such suit
and The Regents will give notice of its election in writing to Licensee by the
end of the one hundredth (100th) day after receiving notice of such request from
Licensee. Licensee may thereafter bring suit for patent infringement if and only
if The Regents elects not to commence suit and if the infringement occurred
during the period and in a jurisdiction where Licensee had exclusive rights
under this Agreement. However, in the event Licensee elects to bring suit in
accordance with this paragraph, The Regents may thereafter join such suit at its
own expense, but the Licensee will control the lawsuit.
16.3 Such legal action as is decided upon will be at the expense of the
party on account of whom suit is brought and all recoveries recovered thereby
will belong to such party, provided, however, that legal action brought jointly
by The Regents and Licensee and participated in by both will be at the joint
expense of the parties and all recoveries will be allocated in the following
order: a) to each party reimbursement in equal amounts of the attorneys costs,
fees, and other related expenses to the extent each party paid for such costs,
fees, and expenses until all such costs, fees, and
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<PAGE>
expenses are consumed for each party; and b) any remaining amount shared
jointly by them in proportion to the share of expenses paid by each party.
16.4 Each party will cooperate with the other in litigation proceedings
instituted hereunder but at the expense of the party on account of whom suit is
brought. Such litigation will be controlled by the party bringing the suit,
provided, however, that The Regents may be represented by counsel of its choice
in any suit brought by Licensee.
17. Indemnification
17.1 Licensee will (and will require its sublicensees to) indemnify, hold
harmless, and defend The Regents, its officers, employees, and agents; the
sponsors of the research that led to the Invention; the inventors of any
invention covered by Patent Rights (including the Patent Products and Patent
Method contemplated thereunder) and their employers against any and all claims,
suits, losses, damage, costs, fees, and expenses resulting from or arising out
of exercise of this license or any sublicense. This indemnification will
include, but will not be limited to, any product liability.
17.2 Licensee, at its sole cost and expense, will insure its activities in
connection with the work under this Agreement and obtain, keep in force, and
maintain insurance as follows: (or an equivalent program of self insurance)
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At the initiation of clinical trials, Comprehensive or Commercial Form
General Liability Insurance (contractual liability included) with limits as
follows up to and until Licensee enters Phase III Clinical Trials:
<TABLE>
<CAPTION>
<S> <C>
(a) Each Occurrence.............................................$3,000,000
(b) Products/Completed Operations Aggregate.....................$3,000,000
(c) Personal and Advertising Injury.............................$3,000,000
(d) General Aggregate (commercial form only)....................$3,000,000
</TABLE>
Comprehensive or Commercial Form General Liability Insurance (contractual
liability included) with limits as follows after Licensee enters
Phase III Clinical Trials:
<TABLE>
<CAPTION>
<S> <C>
(a) Each Occurrence.............................................$5,000,000
(b) Products/Completed Operations Aggregate.....................$5,000,000
(c) Personal and Advertising Injury.............................$5,000,000
(d) General Aggregate (commercial form only)....................$5,000,000
</TABLE>
It should be expressly understood, however, that the coverages and limits
referred to under the above will not in any way limit the liability of Licensee.
Licensee will furnish The Regents with certificates of insurance evidencing
compliance with all requirements. Such certificates will:
(a) Provide for thirty (30)-day advance written notice to The
Regents of any modification;
(b) Indicate that The Regents has been endorsed as an additional
Insured under the coverages referred to under the above; and
(c) Include a provision that the coverages will be primary and
will not participate with nor will be excess over any valid
and collectable insurance or program of self-insurance carried
or maintained by The Regents.
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<PAGE>
17.3 The Regents will immediately notify Licensee in writing of any claim or
suit brought against The Regents in respect of which The Regents intends to
invoke the provisions of this Article 17. (Indemnification). Licensee will keep
The Regents informed as appropriate and necessary on a current basis of its
defense of any claims pursuant to this Article 17. (Indemnification).
18. Notices
18.1 Any notice or payment required to be given to either party will be
deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five days after mailing if mailed by
first class certified mail, postage paid, to the respective addresses given
below, or to another address as it may designate by written notice given to the
other party.
In the case of Licensee: COLLATERAL THERAPEUTICS
9360 Towne Centre Drive
San Diego, CA 92121
Tel: (619) 622-4100
Fax: (619) 587-3518
Attention: Jack Reich, Ph.D.
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In the case of The Regents: THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
1320 Harbor Bay Parkway, Suite 150
Alameda, California 94502
Tel: (510) 748-6600
Fax: (510) 748-6639
Attention: Terence A. Feuerborn
Executive Director
Research Administration and
Technology Transfer
Referring to: ***
19. Assignability
19.1 This Agreement is binding upon and will inure to the benefit of The
Regents, its successors and assigns, but will be personal to Licensee and
assignable by Licensee only with the written consent of The Regents, which
consent shall not be unreasonably withheld.
20. Late Payments
20.1 In the event royalty payments or fees or patent prosecution costs are
not received by The Regents when due, Licensee will pay to The Regents interest
charges at a rate of ten percent (10%) simple interest per annum. Such interest
will be calculated from the date payment was due until actually received by The
Regents. Acceptance by The Regents of any late payment interest from Licensee
under this Paragraph 20 will in no way affect the provision of Article 21.
(Waiver) herein.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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21. Waiver
21.1 It is agreed that no waiver by either party hereto of any breach or
default of any of the covenants or agreements herein set forth will be deemed a
waiver as to any subsequent and/or similar breach or default.
22. Failure to Perform
22.1 In the event of a failure of performance due under the terms of this
Agreement and if it becomes necessary for either party to undertake legal action
against the other on account thereof, then the prevailing party will be entitled
to reasonable attorney's fees in addition to costs and necessary disbursements.
23. Governing Laws
23.1 THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA, excluding any choice of law rules that
would direct the application of the laws of another jurisdiction, but the scope
and validity of any patent or patent application will be governed by the
applicable laws of the country of such patent or patent application.
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24. Government Approval for Registration
24.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, Licensee will assume all legal obligations to do so. Licensee will
notify The Regents if it becomes aware that this Agreement is subject to a
United States or foreign government reporting or approval requirement. Licensee
will make all necessary filings and pay all costs including fees, penalties, and
all other out-of-pocket costs associated with such reporting or approval
process.
25. Export Control Laws
25.1 Licensee will observe all applicable United States and foreign laws
with respect to the transfer of Patent Products and related technical data to
foreign countries, including, without limitation, the International Traffic in
Arms Regulations (ITAR) and the Export Administration Regulations.
26. Force Majeure
26.1 The parties to this Agreement will be excused from any performance
required hereunder if such performance is rendered impossible or unfeasible due
to any acts of God, catastrophes, or other major events
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<PAGE>
beyond their reasonable control, including, without limitation, war, riot, and
insurrection; laws, proclamations, edicts, ordinances, or regulations; strikes,
lock-outs, or other serious labor disputes; and floods, fires, explosions, or
other natural disasters. However, any party to this Agreement will have the
right to terminate this Agreement upon thirty (30) days' prior written notice if
either party is unable to fulfill its obligations under this Agreement due to
any of the causes mentioned above and such inability continues for a period of
one year. Notices will be subject to Article 18. (Notices).
27. Confidentiality
27.1 Licensee and The Regents respectively will treat and maintain the
proprietary business, patent prosecution, software, engineering drawings,
process and technical information, and other proprietary information of the
other party ("Proprietary Information") in confidence using at least the same
degree of care as that party uses to protect its own proprietary information of
a like nature for a period from the date of disclosure until five (5) years
after the date of termination of this Agreement.
27.2 Proprietary Information will be labeled or marked confidential or as
otherwise similarly appropriate by the disclosing party, or if the Proprietary
Information is orally disclosed, it will be reduced to writing or some other
physically tangible form, marked and labeled as set forth above
- 35 -
<PAGE>
by the disclosing party and delivered to the receiving party within thirty (30)
days after the oral disclosure as a record of the disclosure and the
confidential nature thereof. Notwithstanding the foregoing, Licensee and The
Regents may use and disclose Proprietary Information to its employees, agents,
consultants, and contractors having a need to know the Proprietary Information
and, in the case of Licensee, its sublicensees, provided that any such parties
are bound by a like duty of confidentiality.
27.3 Nothing contained herein will in any way restrict or impair the right
of Licensee or The Regents to use, disclose, or otherwise deal with any
Proprietary Information:
27.3.1 that recipient can demonstrate by written records was
previously known to it;
27.3.2 that is now, or becomes in the future, public knowledge
other than through acts or omissions of recipient;
27.3.3 that is lawfully obtained without restrictions by
recipient from sources independent of the disclosing
party;
27.3.4 that is required to be disclosed to a governmental entity
or agency in connection with seeking any governmental or
regulatory approval, or pursuant to the lawful requirement
or request of a governmental entity or agency;
27.3.5 that is furnished to a third party by the recipient with a
need to know and with similar confidentiality restrictions
imposed on such third party, as evidenced in writing, or
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<PAGE>
27.3.6 that The Regents is required to disclose pursuant to the
California Public Records Act or other applicable law.
27.4 Upon termination of this Agreement, Licensee and The Regents will
destroy or return to the disclosing party proprietary information received from
the other in its possession within fifteen (15) days following the effective
date of termination. Licensee and The Regents will provide each other, within
thirty (30) days following termination, with a written notice that Proprietary
Information has been returned or destroyed. Each party may, however, retain one
copy of Proprietary Information for archival purposes in nonworking files.
28. Miscellaneous
28.1 The headings of the several sections are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
28.2 The licenses and any sublicenses granted hereunder will be subject to
any legal obligations to the U.S. Government including those set forth in 35
U.S.C. 200-212 and applicable governmental implementing regulations. Because
this Agreement grants the exclusive right to use or sell the Patent Products in
the United States, Licensee acknowledges that
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<PAGE>
Patent Products will be manufactured substantially in the United States as
required under 35 USC Section 204.
28.3 The manufacture of Patent Products will be in accordance with any
applicable government importation laws and regulations of a particular country
on Patent Products made outside the particular country in which such Patent
Products are to be used or sold.
28.4 Licensee will obtain all necessary governmental approvals in each
country where it intends to sell or manufacture and use Patent Products or
permit others to manufacture, use, or sell Patent Products.
28.5 This Agreement will not be binding upon the parties until it has been
signed below on behalf of each party, in which event, it will be effective as of
the date recited on page one.
28.6 No amendment or modification hereof will be valid or binding upon the
parties unless made in writing and signed on behalf of each party.
28.7 This Agreement embodies the entire understanding of the parties and
will supersede all previous communications, representations or understandings,
either oral or written, between the parties relating to the subject matter
hereof. The Letter of Intent specified in the Recitals in this Agreement is
hereby terminated.
28.8 In case any of the provisions contained in this Agreement are held to
be invalid, illegal, or unenforceable in any respect, such invalidity,
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<PAGE>
illegality, or unenforceability will not affect any other provisions hereof, but
this Agreement will be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
The Regents and Licensee execute this Agreement in duplicate originals by
their respective, authorized officers on the date indicated.
Collateral Therapeutics: The Regents of the University
of California:
By /s/ Jack W. Reich, Ph.D. By /s/ Terence A. Fuerborn
------------------------ -------------------------
Name Jack W. Reich, Ph.D. Name Terence A. Feuerborn
---------------------- -----------------------
(Please Print)
Title President and C.E.O. Title Executive Director
--------------------- Research Administration and
Technology Transfer
Date Sept. 27, 1995 Date 9-28-95
---------------------- ------------------------
Approval as to legal form: /s/ P. Martha Simpson 9/26/95
------------------------ ----------
P. Martha Simpson, President Counsel Date
Office of Technology Transfer
University of California
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<PAGE>
1st Amendment
to the Exclusive License Agreement
between
The Regents of the University of California
and
Collateral Therapeutics, Inc.
for
"Angiogenesis Gene Therapy"
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
----------------------
U.C. AGREEMENT
CONTROL NUMBER
***
----------------------
<PAGE>
1st Amendment to the Exclusive License Agreement
for "Angiogenesis Gene Therapy"
This Amendment is made and is effective this 19th day of Sept., 1996, by
and between The Regents of the University of California ("The Regents"), a
California corporation, having its statewide administrative offices at 300
Lakeside Drive, 22nd Floor, Oakland, California 94612-3550, and Collateral
Therapeutics, Inc. ("Licensee"), a California corporation, have a principal
place of business at 9360 Towne Centre Drive, San Diego, California 92121.
RECITALS
WHEREAS, Licensee and The Regents entered into a license agreement
entitled "Exclusive License Agreement for Angiogenesis Gene Therapy,"
effective on September 27, 1995, having U.C. Agreement Control Number ***
("License Agreement"), and covering licensure to Licensee by The Regents of
rights in certain inventions developed by Dr. H. Kirk Hammond, et al.
("Inventor") at the University of California, San Diego ("UCSD") and claimed
in U.S. Patent Application Serial Nos. *** and *** ;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
----------------------
U.C. AGREEMENT
CONTROL NUMBER
***
----------------------
- 1 -
<PAGE>
Whereas, in accordance with Paragraph 2.3 of the License Agreement,
Licensee has notified The Regents of its intent to enter into a sublicense
agreement with Schering Aktiengesellschaft ("Schering AG");
Whereas, Shering AG will use its resources to further develop the
Patent Products so that the technology licensed under the sublicense
agreement may be developed, utilized, and marketed and the products therefrom
and other benefits may be enjoyed by the general public;
Whereas, Licensee desires to amend the License Agreement to reflect
that, upon termination of the License Agreement, any sublicenses to Schering AG
will be assigned to The Regents;
Whereas, Licensee and The Regents desire to amend the License Agreement to
redefine Patent Rights to exclude two continuing patent applications entitled
*** filed in the names of *** and any continuing patent applications thereof;
Whereas, Licensee and The Regents desire to amend the License Agreement to
reflect the above changes;
Now, Therefore, in consideration of the foregoing and the mutual promises
and covenants contained herein, the parties hereto agree as follows:
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
- 2 -
<PAGE>
ooOoo
1. Paragraph 1.1 (Definitions) of the License Agreement shall be replaced
in its entirety with the following Paragraphs 1.1a and 1.1b:
1.1a "Patent Rights" means all U.S. patents and patent applications
and foreign patents and patent applications assigned to The Regents, and
in the case of foreign patents and patent applications those requested
under Paragraph 14.4 herein, including any reissues, extensions,
substitutions, continuations, divisions, and continuations-in-part
applications (only to the extent, however, that claims in the
continuations-in-part applications are entitled to the priority filing
date of the parent patent application) based on and including the
following:
1.1.1. any subject matter claimed in or described according to the
requirements of 35 USC Section 112 in U.S. Patent Application
Serial Number *** entitled *** filed *** by Dr. H. Kirk
Hammond et. al. and assigned to The Regents; and
1.1.2. any subject matter claimed in or described according to the
requirements of 35 USC Section 112 in U.S. Patent Application
Serial Number *** entitled *** filed *** by
Dr. H. Kirk Hammond ***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
*** and assigned to The Regents.
1.1b The subject matter relating to the use of heat-shock proteins
described and claimed in U.S. Patent Application Serial Number *** entitled ***
filed *** by *** and U.S. Patent Application Serial Number *** entitled ***
filed *** by *** and any continuing applications thereof are expressly excluded
from this Agreement. The excluded patent applications specified in this
Paragraph 1.1b do not and will not claim any angiogenesis gene therapy or gene
therapy delivery subject matter that is described and/or claimed in any of the
patent applications referred to in Paragraph 1.1a above.
2. Paragraph 2.4 (Grant) of the License Agreement shall be replaced in its
entirety with the following:
2.4 Except as provided below, upon termination of this Agreement for
any reason, The Regents, at its sole discretion, will determine whether
any or all sublicenses will be canceled or assigned to The Regents.
Notwithstanding the foregoing, any sublicenses to
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
Schering AG will be assigned to The Regents. The Regents will not be
bound by any duties or obligations contained in any sublicense that
extend beyond the duties and obligations of The Regents in this
Agreement.
In Witness Whereof, both The Regents and Licensee have executed this
Amendments, in duplicate originals, by their respective officers hereunto duly
authorized, on the day and year hereinafter written.
COLLATERAL THERAPEUTICS, INC. THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
By /s/ Jack W. Reich, Ph.D. By /s/ Candace L. Voelker
------------------------- -------------------------
(Signature)
Name Jack W. Reich, Ph.D. Name Candace L. Voelker
------------------------ ----------------------
Title President & C.E.O. Title Associate Director
---------------------- Office of Technology Transfer
Date Sept. 19, 1996 Date 9/19/96
---------------------- -----------------------
Approval as to legal form: /s/ illegible 9/19/96
----------------------- ----------
illegible Date
Assistant President Counsel
Office of Technology Transfer
University of California
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<PAGE>
2nd Amendment to the Exclusive License Agreement
between
The Regents of the University of California
and
Collateral Therapeutics, Inc.
for
"Angiogenesis Gene Therapy"
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
----------------------
U.C. AGREEMENT
CONTROL NUMBER
***
----------------------
<PAGE>
2nd Amendment to the Exclusive License Agreement
for "Angiogenesis Gene Therapy"
This Amendment is made and is effective this 30th day of June, 1996, by
between The Regents of the University of California ("The Regents"), a
California corporation, having its statewide administrative offices at 300
Lakeside Drive, 22nd Floor, Oakland, California 94612-3550, and Collateral
Therapeutics, Inc. ("Licensee"), a California corporation, having a principal
place of business at 9360 Towne Centre Drive, San Diego, California 92121.
RECITALS
WHEREAS, Licensee and The Regents entered into a license agreement
entitled "Exclusive License Agreement for Angiogenesis Gene Therapy,"
effective on September 29, 1995, having U.C. Agreement Control Number ***
("License Agreement"), and covering licensure to Licensee by The Regents of
rights in certain inventions developed by Dr. H. Kirk Hammond, et al.
("Inventor") at the University of California, San Diego ("UCSD") and claimed
in Patent Rights (as defined in the License Agreement);
Whereas, Licensee and The Regents amended the License Agreement on
September 19, 1996, to redefine Patent Rights and to grant Licensee rights to
enter into a sublicense agreement Schering Aktiengesellschaft;
Whereas, Licensee has experienced unforeseen difficulties in obtaining
rights in materials desired for the development of the invention;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
----------------------
U.C. AGREEMENT
CONTROL NUMBER
***
----------------------
- 1 -
<PAGE>
Whereas, Licensee desires to amend the License Agreement to extend the
diligence provisions provided in Paragraph 5.3 in order to accommodate the
above- cited unforeseen difficulties so that it can continue development of the
invention; and
Whereas, The Regents desires that the invention be developed, utilized,
and marketed to the fullest extent so that the products therefrom may be enjoyed
by the general public and, therefore, is willing to amend the Agreement;
Now, Therefore, in consideration of the foregoing and the mutual promises
and covenants contained herein, the parties hereto agree as follows:
ooOoo
1. Paragraph 5.3 (Due Diligence) of the License Agreement shall be
replaced in its entirety with the following:
"5.3 If Licensee is unable to perform any of the following:
5.3.1 begin Phase I Clinical Trials in the United States for
Patent Products on or before June 30, 1998; and
5.3.2 enter pivotal clinical trials (a combination of Phase II
and Phase III Clinical Trials) in the United States for
said Patent Products on or before December 31, 1999; and
5.3.3 file for marketing approval in the United States for
said Patent Product on or before December 31, 2002; and
5.3.4 market Patent Products in the United States within
six (6) months after receiving marketing approval of
such Patent Products from the U.S. Food and Drug,
Administration; and
5.3.5 diligently and earnestly fill the market demand for
Patent Products following commencement of marketing
- 2 -
<PAGE>
at any time during, the exclusive period of this
Agreement;
then The Regents will have the right and option to terminate this Agreement or
reduce the exclusive licenses granted to Licensee to non-exclusive licenses in
accordance with Paragraph 5.4 hereof. The exercise of this right and option by
The Regents supersedes the rights granted in Article 2. (Grant)."
This Amendment is not intended to, and it is agreed that it does not,
expressly or by implication, affect in any way, any other provisions of the
Exclusive License Agreement for Angiogenesis Gene Therapy, dated September 29,
1995, which are intended to remain in full force and effect.
In Witness Whereof, both The Regents and Licensee have executed this
Amendments, in duplicate originals, by their respective officers hereunto duly
authorized, on the day and year hereinafter written.
COLLATERAL THERAPEUTICS, INC. THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
By /s/ Jack W. Reich, Ph.D. By /s/ Candace L. Voelker
-------------------------- ------------------------
(Signature) (Signature)
Name Jack W. Reich, Ph.D. Name Candace L. Voelker
------------------------ -----------------------
Title President & CEO Title Associate Director
----------------------- Office of Technology Transfer
Date 6-24-97 Date 6/30/97
---------- --------
Approved as to legal form: /s/ illegible illegible
----------------- ------------
illegible Date
Office of Technology Transfer
University of California
- 3 -
<PAGE>
EXHIBIT 10.12
COLLABORATION LICENSE AND ROYALTY AGREEMENT
Between
SCHERING AG
AND
COLLATERAL THERAPEUTICS, INC.
MAY 6, 1996
<PAGE>
TABLE OF CONTENTS
Page No.
Section I DEFINITIONS.......................................................2
Section II RESEARCH; COMMERCIALIZATION; OWNERSHIP OF REGULATORY
APPLICATION(S); CONTINUED ACCESS TO INVENTIONS IN THE FIELD.......6
Section III MANAGEMENT; RESEARCH AND DEVELOPMENT PLAN AND
BUDGET............................................................6
Section IV OWNERSHIP OF INVENTIONS; LICENSES; RIGHTS TO
PRODUCTS AND GENE PRESENTATION....................................9
Section V PAYMENT FOR RESEARCH AND DEVELOPMENT OF
PRODUCTS.........................................................11
Section VI MILESTONE PAYMENTS; DILIGENCE....................................13
Section VII INVENTORY OF DEVELOPED TECHNOLOGY; NEW
PRODUCTS; PRODUCTS OUTSIDE THE FIELD; RIGHT OF
FIRST REFUSAL; RIGHT OF FIRST OFFER..............................15
Section VIII ROYALTY PAYMENTS; NEW PRODUCTS AND PRODUCTS......................17
Section IX REPORTS, BOOKS AND TAX MATTERS...................................20
Section X PATENTS..........................................................21
Section XI CONFIDENTIALITY..................................................24
Section XII REPRESENTATIONS, WARRANTIES AND COVENANTS OF COLLATERAL..........27
Section XIII REPRESENTATIONS, WARRANTIES AND COVENANTS OF SCHERING............29
Section XIV DISCLAIMERS; SURVIVAL AND INDEMNIFICATION........................30
Section XV TERM, TERMINATION, AND EXPIRATION................................32
Section XVI MISCELLANEOUS....................................................36
<PAGE>
COLLABORATION, LICENSE AND ROYALTY AGREEMENT
This Collaboration, License and Royalty Agreement (the "Agreement") is
made and entered into as of May 3, 1996 (hereinafter "Effective Date") by and
between Schering AG, a German corporation ("Schering") and Collateral
Therapeutics, Inc., a California corporation ("Collateral"). Each of Schering on
one hand and Collateral on the other hand, is referred to as a "Party" and
collectively as the "Parties".
WHEREAS, Collateral is the exclusive licensee to technology relating to
the use of growth factor genes for gene therapy to promote angiogenesis from The
Regents of the University of California and it is seeking any required
proprietary rights to a growth factor gene from a Third Party;
WHEREAS, Collateral has the capability to conduct research and wishes to
further research and develop such angiogenesis technology with Schering for
therapy and diagnosis in humans;
WHEREAS, Schering has the capability to research, develop, manufacture and
market pharmaceuticals/biologics;
WHEREAS, Schering, in its discretion, will cooperate with Collateral in an
effort to secure a growth factor gene;
WHEREAS, Schering and Collateral wish to collaborate in the further
research and development of pharmaceuticals/biologics to promote angiogenesis;
WHEREAS, Schering loaned Collateral Five Hundred Thousand ($500,000.00)
Dollars pursuant to two Promissory Notes dated August 6, 1995 and October 12,
1995;
WHEREAS, Collateral by this Agreement has granted Schering certain
licenses including a sublicense to the UC License;
WHEREAS, The Regents of the University of California consented in writing
to accept Schering as a sublicensee and allow Schering to cure Collateral's
defaults, if any, under the UC License (Attached as Exhibit A); and
WHEREAS, Collateral and Schering have entered into a letter agreement
(Attached as Exhibit B) whereby Collateral agrees to seek additional assurances
from the Regents of the University of California regarding the non-cancellation
of the sublicense to Schering;
WHEREAS, Schering Berlin Venture Corporation, a Delaware corporation, an
Affiliate of Schering, is entering into a Series A Stock Purchase Agreement and
Investors' Rights Agreement ("the Stock Agreement") with Collateral as of the
Effective Date hereof.
In consideration of the mutual covenants and conditions hereinafter set
forth in this Agreement, the Parties hereby agree as follows:
1
<PAGE>
I
DEFINITION
1.1 Defined Terms. The following terms when used herein shall have the following
meanings:
"Acceptance of a Qualified Gene" is defined in Section 4.8.
"Affiliate means any company controlled by, controlling, or under common
control with Schering or Collateral and shall include any company fifty percent
(50%) or more of whose voting stock or participating profit interest is owned or
controlled, directly or indirectly by Schering or Collateral, and any company
which owns or controls, directly or indirectly fifty percent (50%) or more of
the voting stock of Schering or Collateral, and any company which Schering or
Collateral or a company owned or controlled by or owning or controlling Schering
or Collateral at the maximum control or ownership right permitted in the country
where the company exists.
"Budget" means the annual budget forming part of the Research and
Development Plan. The initial version is as attached as Exhibit C hereto.
"CABG" means coronary artery by-pass graft surgery.
"COGS" means Schering's costs of supplying Product(s) calculated in
accordance with Schering's accounting methods consistently applied which
methodology shall be calculated in, compliance with applicable accounting
principles for U.S. Affiliates. Expenses include but are not limited to
Schering's manufacturing costs are listed in Exhibit D. COGS includes idle
capacity to the extent that the portion of facility and equipment which is idle
is completed and received Regulatory Approval for such Product. Such accounting
method must be reasonable in the context of the international pharmaceutical
industry.
"Collateral Base Technology" means all technology and know-how,
including, but not limited to, patents, patent applications, continuations
and continuations-in-part, divisional and provisional patent applications,
trade secrets, methods, processes, techniques, materials, compositions,
information, data, results of tests or studies and expertise which are used
or useful for the research, development, manufacture, use or sale of products
in the Field or in conducting research and development pursuant to this
Agreement which: (a) is under the Control of Collateral at the Effective
Date, including but not limited to the technology disclosed in the patent
applications serial number *** entitled *** filed *** by Dr. H. Kirk Hammond,
et al. and assigned to The Regents of the University of California and serial
number *** entitled *** filed *** and the continuation in part related
thereto filed on *** by Dr. H. Kirk Hammond, et al. and assigned to The
Regents of the University of California technology licensed under the *** ,
and any adenovirus drug delivery technology and continuations, continuations
in part, divisionals or any patent issuing from any technology Controlled by
Collateral and any foreign counterparts, and/or; (b) is invented, developed,
acquired or otherwise comes within the Control of Collateral
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
2
<PAGE>
after the Effective such as a gene licensed solely by Collateral and which
Collateral can demonstrate does not constitute Developed Technology.
"Competing Product" is defined in Section 4.10.
"Contribution" is defined in Section 5.2.
"Control" or "Controlled" shall refer to possession of the ability to
grant a license or sublicense of patent rights, know-how or other intangible
rights as provided for herein without
"Developed Technology" means all technology and know-how, including, but
not limited to, patents, patent applications, continuations and
continuations-in-part, divisional and provisional patent applications, trade
secrets, methods, processes, techniques, materials, compositions, information,
data, results of tests or studies and expertise which are used or useful for the
research, development, manufacture, use or sale of products in the Field which
is conceived of during the Term either (i) solely by Collateral, by a Third
Party on Collateral's behalf, jointly by Collateral and a Third Party as
permitted by this Agreement, or jointly by Schering and Collateral or (ii)
solely by Schering if conceived solely in connection with the performance of the
Research and Development Plan.
"Drug Approval Application" means an application for Regulatory Approval
required to be approved before marketing and commercial sale of a Product in
humans as a biologic or a drug in a regulatory jurisdiction.
"Field" means gene therapy to promote angiogenesis.
"First Commercial Sale" means the date Schering or Affiliate or a
Sublicensee of Schering first sells commercially, pursuant to Regulatory
Approval, Products in the United States, Japan or any country of the EU,
provided that where such a First Commercial Sale has occurred in a country for
which pricing or reimbursement approval is necessary for widespread sale, then
such sale shall not be deemed a First Commercial Sale until such pricing or
reimbursement approval has been obtained.
"Force Majeure" is defined in Section 16.10.
"Fundamental Change" means a change to any existing Product, including the
Initial Product which meets all of the following criteria: (i) in respect of
which the governing regulatory authority would require new Pivotal Clinical
Trials before granting Regulatory Approval, and (ii) which is for a deferent
label indication than such Product, and (iii) which targets a different organ
than such Product.
"Gene Presentation Period" means the later of (i) October 1, 1997, or (ii)
any extensions of such date pursuant to this Agreement or, if earlier than those
dates, the Acceptance of a Qualified Gene.
3
<PAGE>
"Gene Presentation Procedure" is defined in Section 4.7.
"IND" means the document filed by Schering pursuant to 21 CFR 312, as such
regulations may be amended with the United States Federal Food and Drug
Administration to test the Products in humans.
"Initial Product" means the Product described in the initial Research and
Development Plan with the initial indication to prevent, ameliorate, mitigate or
cure of (i) ischemic heart disease alone or in conjunction with CABG surgery,
angioplasty or medical therapy and/or (ii) peripheral arterial occlusive disease
such as limb-salvage, rest pain (Stage IV), healing of ischemic ulcers (Stage
III) and claudication and improvement of exercise tolerance (Stage II), and any
change to such Product which does not constitute a Fundamental Change.
"Information" is defined in Section 11.1 (a).
"Laboratory Notebooks" is defined in Section 3.8.
"Milestone Payments" are defined in Sections 6.1.
"Net Sales" shall be defined as amounts invoiced by Schering, or its
Affiliates from worldwide sales of each Product(s) to end users, less deductions
for: (i) transportation charges, charges, including insurance relating thereto;
(ii) sales and excise taxes or customs duties paid by selling party and any
other governmental charges imposed upon the sale of the Product(s); (iii)
distributors fees, rebates or allowances actually granted, allow or incurred;
(iv) quantity discounts, cash discounts or chargebacks actually granted, allowed
or incurred in the ordinary course of business in connection with the sale of
the Product(s); (v) allowances or credits to customers, not in excess of the
selling price of the Product(s), on account of governmental requirements,
rejection, outdating, recalls or return of the Product(s); and (vi) less actual
amounts for uncollectable accounts. Sales of the Product(s) between Schering and
its Affiliates solely for the research or clinical testing purposes in
connection with the Research and Development Plan shall be excluded from the
computation of Net Sales. In the event that Schering enters into a sublicense
covering sale of the Product(s) without the consent of Collateral, Net Sales
shall be computed based on unit or volume sales multiplied by Schering's average
selling price(s) of the Product(s) by country. In the event that Schering enters
into a sublicense covering sale of the Product(s) with the consent of
Collateral, Net Sales and royalties payable thereunder shall be as agreed by the
Parties.
"New Product" is any Product other than the Initial Product. A Fundamental
Change to a Product is a New Product so long as the result is in the Field.
"Pivotal Clinical Trials" means clinical trials which when completed will
have demonstrated that the Product(s) (i) is safe and efficacious, (ii) has an
established dose, (iii) has an established route of administration and (iv) has
a treatment schedule in the target population, all sufficient for the purpose of
supporting a Drug Approval Application.
"Product(s)" means any pharmaceutical/biologic in the Field.
4
<PAGE>
"Promissory Notes" means the promissory notes signed by Collateral dated
August 16, 1995 and on October 12, 1995.
"Qualified Gene" means a gene that Collateral presents to Schering
pursuant to Section 4.7, under which Schering has the sole discretion to accept
or reject such gene.
"Regulatory Approval" means any approvals, product and/or establishment
licenses, registrations or authorizations of any federal, state or local
regulatory agency, department, bureau or other governmental entity, necessary
for the manufacture, use, storage, importation, export, transport, or sale of
Product(s) in a regulatory jurisdiction.
"Research and Development Plan" means a written plan agreed to by Schering
and Collateral which includes the Budget and outlines the joint effort of the
Parties in conducting research and development of Product(s).
"Returned Product" is defined in Section 4.10.
"Royalty Term" is defined in Section 8.1 (a).
"Steering Committee" is defined in Section 3.3.
"Sublicensees" means, with respect to Products, a Third Party to whom
Schering has granted a sublicense under this Agreement to make, have made, use
or sell, import or offer to import such Products.
"Term" is defined in Section 15.1.
"Third Party" means an entity other than Schering, Collateral or any of
their respective Affiliates.
"UC License" means that certain exclusive license agreement effective as
of September 27, 1995, entered into by and between Collateral and The Regents of
the University of California concerning certain patent applications within the
Collateral Base Technology.
*** means that certain exclusive license agreement effective as of ***
entered into by and between Collateral and *** concerning technology in the
Field.
"Winddown Payment" is defined in Section 15.2(g).
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
5
<PAGE>
II
RESEARCH; COMMERCIALIZATION; OWNERSHIP OF REGULATORY APPLICATION(S);
CONTINUED ACCESS TO INVENTIONS IN THE FIELD
2.1 Research and Development. The Parties hereto agree to diligently conduct
and perform their respective obligations in respect of research and
development hereunder pursuant to the Research and Development Plan and
Budget. Research and development shall include all activities relating to
obtaining Regulatory Approval of Product(s) and all activities relating to
the development of the ability to manufacture the same.
2.2 Exclusive Research. During the Term, Collateral will conduct research and
development in the Field solely with Schering.
2.3 Commercialization. Schering is solely responsible for the preparation and
filing of ail Drug Approval Applications and all activities relating to
the manufacture, marketing and sale of the Products. Such Drug Approval
Applications will be filed in the name of Schering. Collateral shall be
provided copies with all final drafts of such Drug Approval Application
for comments which Schering, in its sole discretion, may or may not
incorporate in such Drug Approval Applications. With respect to such
activities, Schering will conduct itself according to international
pharmaceutical industry standards using commercially reasonable efforts in
an attempt to commercialize Products.
2.4 Ownership of IND and Drug Approval Applications. Schering owns the
regulatory submissions including all IND's and Drug Approval Applications
for all Products Collateral will have the right to cross-reference such
Schering submissions for Collateral's own IND and drug approval
applications filed solely for New Products that Collateral files pursuant
to Section 7.2. During the Term, at Collateral's reasonable requests and
at Collateral's sole expense, Schering shall provide Collateral with
copies of all regulatory submissions and material correspondence with
respect to Products.
2.5 Continuing Access to Future Inventions in the Field by Dr. Hammond.
Collateral will use its commercially reasonable efforts to (i) continue
Dr. Kirk Hammond as a consultant exclusive in the Field during the Term
with exclusive rights to any of his inventions in the Field, and (ii)
obtain access to any inventions made by Dr. Hammond during the Term in
the Field outside of his consulting relationship with Collateral.
III
MANAGEMENT; RESEARCH AND DEVELOPMENT PLAN AND BUDGET
3.1 Research and Development Plan and Budget. The Research and Development
Plan and Budget shall detail the research and development activities to be
undertaken by the Parties, shall set forth the personnel commitments of
Collateral and shall account
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for how the payments made by Schering pursuant to Section V shall be
spent. The initial Research and Development Plan and Budget for the
Initial Product attached as Exhibits C and F is adopted by the Parties.
3.2 Chances to the Research and Development Plan. Changes to any Research and
Development Plan may only be made with the express written consent of both
Parties. Such Research and Development Plan will be reviewed in the ninth
(9th) month of each calendar year and signed by both Parties at least
annually.
3.3 Establishment of Steering Committee. The Steering Committee ("Steering
Committee") shall be Dr. William Dole, Dr. Eirik Nestaas, Leonard
Slootmaker and Marvin Tancer for Schering and Dr. Kirk Hammond, Dr. Robert
Engler, Ruth Leonardi and Kathy Rooney for Collateral. The Steering
Committee shall exist during the Term. Members of the Steering Committee
shall serve on such terms and conditions as shall be determined by the
Party selecting such persons for membership on the Steering Committee.
Alternative members designated by a Party may serve in the absence of or
be substituted for a permanent member designated by such Party. The Chief
Executive Officer of Collateral and the President of Berlex Biosciences, a
division of Berlex Laboratories, Inc., an Affiliate of Schering ("Berlex
Biosciences") or their respective designees may attend the meetings of the
Steering Committee as observers.
3.4 Meetings of the Steering Committee. The Steering Committee:
(a) shall hold meetings at such times and places as shall be determined
by majority approval of the Steering Committee members, but in no
event shall such meetings be held less frequently than once every
month;
(b) may conduct meetings in person or by telephone conference, provided
that any decision made during a telephone conference meeting is
evidenced in a confirmed writing signed by one of the members of
such Steering Committee from each of the Parties;
(c) shall keep minutes reflecting actions taken at meetings;
(d) may act without a meeting if prior unanimous written consent thereto
is signed by all members of the Committee; and
(e) may amend or expand upon the foregoing procedures for its internal
operation by unanimous written consent.
3.5 Functions and Powers of the Steering Committee. The activities of the
Parties under the Research and Development Plan and Budget shall be
managed by the Steering Committee only to the extent set forth herein. The
Steering Committee shall perform the following functions:
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(a) prepare for and coordinate research and manpower commitments
pursuant to the Research and Development Plan and Budget including
approval of the use of Third Parties for research and development of
Products;
(b) subject to Section V, review and approve Budgets;
(c) engage in exchanges of information and joint planning activities;
(d) provide quarterly written research and development reports to the
Parties;
(e) notify the Parties of inventions (patentable or not) arising out of
research and development conducted pursuant to the Research and
Development Plan and for Collateral any other inventions or
discoveries whatsoever (whether patentable or not) in the Field,
including, but without limitation, any potential new applications of
the Initial Product, any potential Fundamental Changes to existing
Products and any New Products; and
(f) develop criteria for selection of development candidates and back up
candidates.
3.6 Steering Committee Actions.
(a) Limitations of Powers of the Steering Committee. The Steering
Committee shall have only such powers as are specifically delegated
to it hereunder. The Steering Committee is not a substitute for the
rights of He Parties and is intended for coordination of the
research and development of Product(s) during the Term.
(b) Decisions. All decisions to be made and actions to be taken by the
Steering Committee pursuant to the terms of this Agreement shall
require majority approval of the Steering Committee members, and, if
the Steering Committee cannot reach a majority decision on any
matter, the matter shall be referred to (i) the Vice President, Head
of Cardiovascular Research for Beltex Biosciences and Chief
Scientific Officer of Collateral to attempt to reach an agreement,
and if they cannot agree, (ii) then to the President of Berlex
Biosciences, and President of Collateral (iii) then in writing by
the President of Berlex Biosciences or the President of Collateral
to the Chairman of Berlex Laboratories, Inc., (hereinafter "Beltex")
and the Chairman of Collateral. If the two Chairman cannot resolve
the matter within ten (10) days of the written referral, either
Party may terminate this Agreement pursuant to Section 15.2(f).
3.7 Visit to Facilities; Records. Representatives of each Party may, upon
reasonable notice and at times reasonably acceptable to the other Party,
(i) visit the facilities including research laboratories and clinics where
the activities under the Research and Development Plan are being
conducted, and (ii) consult informally, during such visits and by
telephone, with personnel of the Parties. Each Party shall maintain
records in sufficient detail and in good scientific manner appropriate for
patent and Regulatory
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Approval purposes and so as to properly reflect all work done and results
achieved in the performance of this Agreement. Such records shall include
books, records, reports, research notes, charts, graphs, comments,
computations, analyses, recordings, photographs, computer programs and
documentation thereof, samples of materials and other graphic or written
data generated in connection with the Research and Development Plan,
including any data required to be maintained pursuant to applicable
governmental regulations. During the Term each Party shall respond to
reasonable requests from the other for information based on such records.
Each Party shall cause appropriate individuals working on the Research and
Development Plan to be available for meetings at the facilities where such
individuals are employed at times reasonably convenient to the Party
responding to such request.
3.8 Laboratory Notebooks. Collateral and Schering will each maintain
laboratory notebooks designed specifically for the research conducted
pursuant to the Research and Development Plan (hereinafter "Laboratory
Notebooks"), and, upon the reasonable request of a Party will give copies
of entries of such Laboratory Notebooks to the requesting Party.
IV
OWNERSHIP OF INVENTIONS; LICENSES; RIGHTS TO PRODUCTS
AND GENE PRESENTATION
4.1 Ownership. Each Party shall solely own any inventions made solely by that
Party's employees or consultants in the course of performing work under
this Agreement. Inventions made jointly by employees or consultants of
both Collateral and Schering with or without Third Parties in the course
of performing work under this Agreement, shall be jointly owned by
Collateral and Schering, and each Party shall retain full joint ownership
under any patents resulting from such inventions.
4.2 Non-Exclusive Sublicense to Schering. Collateral hereby grants Schering a
worldwide, perpetual (except under the sole circumstance of automatic
termination pursuant to Section 4.4), nonexclusive license or a
sublicense, as the case may be, with the right to sublicense, under all of
its rights in Collateral Base Technology, to make, have made, use, sell,
offer to sell or import any product in the Field.
4.3 Non-Exclusive License to Schering. Collateral hereby grants Schering a
worldwide, perpetual, nonexclusive license, with the right to sublicense,
under all of its rights in Developed Technology to make, have made, use,
sell, offer to sell or import any product.
4.4 Acceptance of Qualified Gene. Upon the Acceptance of a Qualified Gene, the
licenses to Schering under Section 4.2 and 4.3 shall automatically
terminate, and Schering shall automatically have in its place the license
in Section 4.5.
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4.5 Exclusive License to Schering. Upon Acceptance of a Qualified Gene,
Collateral automatically grants to Schering a worldwide, exclusive license
or exclusive sublicense, as the case may be, to all its rights in (i)
Collateral Base Technology, and (ii) Developed Technology in each case, to
make, have made, use, sell, import and offer to import any Product.
Schering has the right to sublicense to its Affiliates without the consent
of Collateral and the right to sublicense to Third Parties with the
consent of Collateral which shall not be unreasonably withheld. Collateral
retains its right to Collateral Base Technology and Developed Technology
for the purposes of research and development pursuant to the Research and
Development Plan and, subject to Section VII, with respect to Collateral
Base Technology and, Collateral solely invented Developed Technology and
Developed Technology jointly invented by Collateral and Schering to make,
have made, use, sell, offer to sell or import products outside the Field.
Schering hereby grants Collateral a nonexclusive license in the United
States, without the right to sublicense, to use Schering solely invented
Developed Technology solely for the purposes of research and development
pursuant to the Research and Development Plan.
4.6 Restriction on Licensing. (a) For the period from the Effective Date,
through the Gene Presentation Period, Schering shall exercise the rights
granted to it pursuant to Section 4.2 only for the purpose of conducting
research and development pursuant to this Agreement. (b) For the period
from the Effective Date, through the Gene Presentation Period, Collateral
shall not grant to any Third Party any other licenses or sublicenses, as
the case may be, to the Collateral Base Technology, or Developed
Technology. Before and after the license granted pursuant to Section 4.5
takes effect, Collateral may only grant licenses to its rights in
Collateral Base Technology, or Developed Technology consistent with
Section 4.5.
4.7 Gene Presentation Procedure; Collateral Presentation. At any time, but no
later than October 1, 1997, Collateral must present written evidence to
Schering that it believes it has secured rights to a gene which would be
acceptable by Schering or, in any case, Collateral must present by October
1, 1997 a summary of its good faith efforts to secure a gene and a full,
detailed report of the result of those efforts. During the Gene
Presentation Period, Collateral may make as many gene presentations as it
wishes ("Gene Presentation(s)"). The Gene Presentations may include all
the elements of scientific criteria listed in Exhibit E and evidence of
Collateral's belief that the gene is capable of being patented and used
without infringement of rights of Third Parties.
4.8 Gene Presentation Procedure; Schering Response. Schering shall have sixty
(60) days from each written Gene Presentation to review the evidence
presented concerning whether Collateral has a gene or secured rights to a
gene acceptable to Schering. If Schering rejects such presented gene or
gene license, it shall give Collateral written reasons for such rejection;
provided however, if Collateral makes any Gene Presentations after August
1, 1997, Schering is not required to give Collateral written or oral
reasons for such rejection. Schering has the right, in its sole
discretion, to accept or reject the presented gene with or without (i) a
reason, or (ii) cause, and without the regard for the legitimacy for the
rejection or the reasonableness of the rejection. The decision to accept
or reject the presented gene is completely free of
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any legal challenge. Schering may terminate this Agreement pursuant to
Section 15.2(e) due to the failure of Collateral to present Schering an
acceptable gene by the end of the Gene Presentation Period; provided
however, to allow for Collateral to present a gene that is acceptable to
Schering, and provided the Parties agree on a mutually acceptable Budget
for an extension of the Gene Presentation Period, Schering has the sole
right and, in its sole discretion, to extend the Gene Presentation Period
for an additional period of not shorter than three (3) months and no
longer than six (6) months. Notwithstanding anything to the contrary in
this Agreement, including any informal discussions between Schering and
Collateral concerning a presented gene or Schering responding to
Collateral's Gene Presentations with written reasons for rejection,
Schering does not waive its rights to accept such gene in its sole,
absolute discretion and Schering shall not be restricted in any manner
from exercising its sole discretion to accept or reject the presented
gene. If Schering accepts the gene, such acceptance shall be in writing
and is defined as the "Acceptance of a Qualified Gene."
4.9 Schering License Grants with Respect to New Products. If Collateral and
Schering cannot agree to the funding of research and development of a
particular New Product according to the procedure set forth in Section
7.2, except as provided in Section 7.3, at the time stated in Section
7.2(c), Schering will automatically grant Collateral a worldwide,
exclusive sublicense, without the right to sublicense, to the licenses
granted to Schering pursuant to Section 4.5, solely for the purpose of
making, having made, using, selling, offering to sell or importing the
particular New Product presented in the New Product Opportunity Report.
Schering shall retain all rights with respect to Section 4.5 for all other
purposes, Products, New Products and applications except such New Product.
4.10 Restriction on Schering Concerning Competing Products. If during the
Royalty Term, Schering first sells commercially in the U.S., Japan, or any
country of the EU, a product in the Field (herein "Competing Product"),
with the same label indication as a Product then being sold commercially
in the same country pursuant to this Agreement, then Schering will (i)
grant Collateral a sublicense to its licenses granted pursuant to Section
4.5 to make, have made, use, sell, offer to sell or import such Product
(herein "Returned Product") into such of only U.S., Japan, or any country
of the EU where such Competing Product is being sold commercially, and
(ii) stop selling such Returned Product into such of only the U.S., Japan
or any country of the EU where such Competing Product is being sold.
Collateral will pay Schering the same range of royalties for the full time
period set forth in Section VIII on Net Sales of any such Returned
Products. Schering agrees to manufacture such Returned Product for
Collateral for a period of at least twelve (12) months after this license
grant takes effect for a manufacturing transfer price to be negotiated.
V
PAYMENT FOR RESEARCH AND DEVELOPMENT OF PRODUCTS
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5.1 Phase One. Until the end of the Gene Presentation Period, Schering will
pay Collateral the amounts provided in this Section for the activities it
under takes pursuant to the critical studies plan and budget for each of
three (3) six (6) month periods (collectively, the "Phase One Plan and
Budgets"). The first Phase One Plan and Budget is attached as Exhibit 5.1.
At any time during the Gene Presentation Period, the Parties may meet to
prepare the second and third Phase One Plan and Budget to be attached as
successive Exhibits pursuant to this Section. The second and third Phase
One Plan and Budget shall be negotiated in good faith between the parties;
provided, that the second Phase One Budget shall be a minimum of
$1,000,000. Schering, in its sole discretion, subject to good faith
negotiation, will decide how much cash, if any, it will provide to
Collateral for the third Phase One Plan and Budget. Within three (3) days
of the Effective Date, Schering will wire transfer $625,000 Dollars to
Collateral's account number 0600795375 at Silicon Valley Bank (ABA No.
121140399) for the account of Collateral.
5.2 Schering's Cash and Services Contribution. Subject to continued technical
and regulatory success as defined by the Steering Committee, and pursuant
to the Research and Development Plan and Budget, for the period beginning
after the Acceptance of a Qualified Gene, for the remainder of the Term,
Schering shall contribute up to a maximum of Five Million ($5,000,000.00)
Dollars per year to the research and development of the Initial Product
("Contribution"). Such Contribution shall be advanced as follows:
(a) Cash Contribution:
(i) Up to Three Million ($3,000,000.00) Dollars per year for
the *** after the Acceptance of a Qualified Gene *** ("Case
Contribution"), to Collateral pursuant to a mutually agreed
Research and Development Plan and Budget administered by
the Steering Committee may be spent on research and
development of the Initial Product which includes up to ***
for Collateral's general and administrative expenses.
(ii) Collateral may spend up to *** of the Cash Contribution for
New Product research or for additional indications for the
Initial Product or Product(s) pursuant to a separate research
and development plan agreed to and signed by the Parties.
Collateral shall not receive such *** until such research and
development plan is signed by both Parties and attached as
successive Exhibits 5.2(a)(ii) to this Agreement.
(b) Carryover of Cash Contribution.
Any portion of the Cash Contribution not spent each year will be
carried over to subsequent years ("Carryovers") and may be spent
pursuant to Section 5.2(c).
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(c) Additional Funding.
Up to an additional Two Million ($2,000,000.00) Dollars per year
plus the Carryover payable in any combination to: (i) Collateral
for research pursuant to the Research and Development Plan, (ii)
Berlex for services for the research and development pursuant to
the Research and Development Plan and (iii) the contracting Party
to be paid to Third Parties for services pursuant to the Research
and Development Plan, may be spent as administered by the
Steering Committee.
(d) Any Contribution not spent pursuant to 5.2(c) will be retained by
Schering and spent according to Schering's sole discretion.
5.3 Cash Payments to Collateral. After Acceptance of a Qualified Gene and
provided Collateral is not in breach of this Agreement, and depending
on the reconciliation stated below, on the first day of each three (3)
month period for the Term, Schering shall pay Collateral up to Seven
Hundred Fifty Thousand ($750,000.00) Dollars by wire transfer to
Collateral's account number *** at Silicon Valley Bank *** for the
account of Collateral. During the Term, the Parties shall reconcile
Collateral's costs and expenses each three (3) month period to
determine the actual amount of the Schering payments per quarter toward
the Cash Contribution and the amount of Carryover. Such reconciliation
shall begin six (6) months from the Effective Date, at which time
Collateral will provide Schering within, thirty (30) days from the end
of each quarter a reconciliation of actual expenses incurred during the
preceding quarter reported consistently with the detail specified in
Exhibit C.
5.4 Audit Rights of Parties. During the Term, each Party shall have the right,
at it's sole expense, through a certified public accountant reasonably
acceptable to the other Party, and following reasonable notice, to examine
financial records (including COGS) of the other Party of or relating to
the other Party's performance of it obligations and duties pursuant to
this Agreement during regular business hours during the Term, subject to
the confidentiality obligation contained in Section 11.1 (b).
VI
MILESTONE PAYMENTS; DILIGENCE
6.1 Milestone Payments on Products. Subject to this Agreement, Schering shall
make the payments to Collateral stated below once for the Initial Product
and once for each New Product ("Milestone Payments").
6.2 Milestone Payment Paid Once Per Product. Each milestone may be met in any
of the United States, Japan or any country of the EU. Each Milestone
Payment will be paid
*** Portions of this page have been omitted pursuant to a request for
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*** *** . Such Milestone Payments shall be made within forty-five
(45) days of Schering reaching the particular Milestone.
6.3 Milestones
6.3.1 *** . Two Million ($2,000,000.00) Dollars upon the earlier of (i)
submission of an IND or (ii) equivalent filing in Japan or any
country of the EU, to conduct clinical trials for each Product;
6.3.2 *** . *** upon the initiation of Pivotal Clinical Trials for each
Product, of which, *** of the first such *** Milestone will be paid
by Schering in the form of forgiveness of the Promissory Notes if
such Promissory Notes are outstanding.
6.3.3 *** . *** upon the submission of a Drug Approval Application for
each Product.
6.3.4 *** . *** upon the First Commercial Sale of each Product;
6.3.5 *** . *** spread out as follows:
a. *** upon Schering achieving a cumulative total of *** of each
Product; and
b. *** upon Schering achieving a cumulative total of *** in ***
of each Product; and
c. *** upon Schering achieving a cumulative total of *** in ***
of each Product.
*** Portions of this page have been omitted pursuant to a request for
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VII
INVENTORY OF DEVELOPED TECHNOLOGY; NEW PRODUCTS; PRODUCTS OUTSIDE
THE FIELD; RIGHT OF FIRST REFUSAL; RIGHT OF FIRST OFFER
7.1 Inventory of Developed Technology. At least six (6) months prior to the
end of the Term, the Parties shall create a written inventory of the
Developed Technology. Such written inventory shall include, but not be
limited to patents, patent applications, invention disclosures,
description of know how and all tangible materials.
7.2 Milestone Payments and Royalties. The Milestone Payments and Royalties
stated in this Agreement apply separately to the Initial Product and each
New Product. The Parties may negotiate in good faith different research
and development funding for each New Product than that provided for in
Section V for the Initial Product according to the procedure stated below.
7.3 Procedure For New Products Within Seven Years of the Effective Date.
(a) For seven (7) years from the Effective Date, Collateral shall keep
Schering informed of all research concerning New Products that arise
out of Collateral Base Technology and/or Developed Technology
Controlled or created during the Term. For every such potential New
Product which is the subject of research in the Field by Collateral
and has reached the stage of proof of concept as demonstrated by in
vivo animal data, Collateral shall first and exclusively present as
a New Product opportunity to Schering, in writing, and, good faith,
giving as much detail and as complete as possible, a report on the
New Product which includes, but is not limited to a description of
technology, test data, animal test results, proof of concept,
preliminary product description, proposed indication and market
data, and patent and license analysis ("New Product Opportunity
Report");
(b) Schering has thirty (30) days from receipt of the New Product
Opportunity Report to respond in writing to Collateral whether it
wishes to proceed with a good faith negotiation of funding support
for the research and development of such New Product;
(c) If Schering notifies Collateral that it does not wish to proceed to
negotiate the funding of the research and development of such New
Product, or, If the Parties cannot agree on the amount of funding
amounts for research and development for the New Product within
three (3) months of receipt of the New Product Opportunity Report by
Schering, then Collateral may proceed as follows:
(i) if Collateral researches, develops, commercializes and sells
such New Product, alone without any Third Party, and is not an
Affiliate of any Third Party, Collateral shall pay Schering
the range of Royalties on Net Sales of such New Product as
Schering is paying or could pay pursuant to Section VIII;
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(ii) ***
***
***
***
***
***
***
***
***
***
***
***
***
(iii) if Schering and Collateral cannot agree on the terms and
conditions of an agreement with respect to Section 7.3(c)(ii)
and Collateral commercializes such New Product, Collateral and
such Third Party shall pay Schering the range of Royalties on
Net Sales of such New Product as Schering is paying or could
pay pursuant to Section VIII.
7.4 Procedure For Products Outside the Field Within Seven Years of the
Effective Date.
For seven (7) years from the Effective Date, Collateral shall keep
Schering informed in writing of all research, technology and know how
with respect to potential products outside the Field for which
Developed Technology was used or useful. For such seven (7) year period
Collateral grants Schering a right of first negotiation in good faith
to exclusively license all technology that arose out of Developed
Technology or for which Developed Technology was used and is Controlled
by Collateral to make, have made, use, sell, offer to sell or import
any product outside the Field. Collateral may not disclose and/or
negotiate with any Third Party during the three (3) month period stated
in this Section 7.5. Each right of first negotiation is initiated by a
written offer from Collateral describing the product outside the Field
and the terms of an agreement suggested by Collateral. If after *** of
good faith negotiations, the Parties cannot agree, Collateral shall not
offer, sell, license or enter into any collaboration concerning such
technology, that was described in the written offer, on better terms
than were offered to Schering for *** from the end of the each *** for
each written offer.
7.5 Procedure for New Products and Products Outside the Field For the Period
Beginning After Seven Years After the Effective Date Through the
Tenth (10th) Anniversary of the Effective Date.
For the period beginning after seven (7) years after the Effective Date
through the tenth (10th) anniversary of the Effective Date, Collateral
grants Schering the right of first offer.
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to any potential New Product, product outside the Field, technology, or
know how that arose out of Developed Technology or for which Developed
Technology was used and is Controlled by Collateral.
VIII
ROYALTY PAYMENTS; NEW PRODUCTS AND PRODUCTS
8.1 Royalty Term.
(a) Royalty Term; Products. Schering or Collateral as provided in
this Agreement, shall pay the other Party royalties on the Net
Sales of each Product on a country-by-country basis from the
first commercial sale, until the later of ten (10) years
following the first sale in such country or until the expiration
of the last to expire patent within Collateral Base Technology or
Developed Technology which has valid claims covering such Product
in such country ("Royalty Term"). A patent will be deemed to be
expired when all the claims covering a Product has been held
invalid or unenforceable by a final, unappealable decision of a
court of competent jurisdiction.
(b) Paid-Up: License. At the end of the period for which any royalties
on each Product are due pursuant to this Agreement, Schering or
Collateral as provided in this Agreement, shall have a fully paid
license granted pursuant to this Agreement.
8.2 Royalties on Annual Net Sales of Each Product. During the Royalty Term,
Schering or Collateral shall pay the other Party a *** on annual Net Sales
of each Product of *** plus:
(a) *** if:
(i) Annual Net Sales are greater than *** , but less than *** and
COGS is less than or equal to ***;
(ii) Annual Net Sales are greater than *** , but less than *** and
COGS is greater than *** and less than or equal to ***;
(b) *** if:
(i) Annual Net Sales are greater than *** and less than *** and
COGS is greater than *** and less than or equal to ***;
(ii) Annual Net Sales are greater than *** and COGS is greater than
*** and less than or equal to ***;
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(c) *** if:
(i) Annual Net Sales are greater than *** but less than or equal
to *** and COGS is less than or equal to ***.
(ii) Annual Net Sales are greater than *** and COGS is greater than
*** and less than or equal to ***;
(d) *** if:
(i) Annual Net Sales are greater than *** and COGS is less than or
equal to ***.
Each Product shall meet its own Net Sales threshold for purposes of
calculating the royalties due under this Section 8.2
8.3 Payment of Royalties.
(a) Royalty Report. Each Party shall provide the other Party a royalty
report based on the *** and, if applicable, a royalty payment to the
other Party on a quarterly calendar basis. The report relating to
Net Sales within the U.S. shall be provided within thirty (30) days
after the end of the calendar quarter to which such report and
payment apply and the report relating to Net Sales for countries
other than the U.S. shall be provided within one hundred and twenty
(120) days after the end of the calendar quarter to which such
report and payment apply. Within sixty (60) days at the end of each
calendar year for the U.S. and within ninety (90) days for the
remainder of the world, the paying Party shall provide an annual
royalty report and payments, if any, relating to the annual Net
Sales and any additional amounts due, pursuant to Section 8.2.
(b) Records Retention. Each Party shall keep, and require any
Sublicensee and Affiliate to keep, for a period of not less than ***
, complete and accurate records of all Net Sales of Products. Each
Party shall have the right, at such Party's sole expense, through a
certified public accountant reasonably acceptable to the other
Party, and following reasonable notice, to examine such royalty
records during regular business hours during the life of the other
Party's obligation to pay royalties on Products; provided however,
that such examination shall not (i) be of records for more than the
prior three (3) years, (ii) take place more often than once a year,
and (iii) shall not cover any records which date prior to the date
of the last examination, and provided further that, such accountants
shall report to the auditing Party only as to the accuracy of the
royalty statements and payments and the amount of any underpayment;
provided further if there is a greater than ten (10%) percent under
reporting between the amount of Net Sales reported by the Party
obligated to pay
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royalties and that reported in such audit such Party shall pay the
costs of the audit plus any discrepancy in the amount of royalty
due.
(c) Tax on Royalties. Any tax paid or required to be withheld by
Schering or Collateral for the benefit of the other Party on account
of royalties payable to the other Party under this Agreement shall
be deducted from the amount of royalties otherwise due. Each Party
shall secure and send to the other Party proof of any such taxes
withheld and paid by Schering or Collateral for the benefit of the
other Party and shall, at the other Party's request, provide
reasonable assistance to the other Party in recovering said taxes,
if possible.
(d) Form of Payment. All payments due to Schering or Collateral
hereunder shall be made in United States dollars, for the other
Party's account, by wire to a bank in the United States designated
in writing by such Party; provided, that where payments in respect
of Net Sales are based on Net Sales in non-U.S. currencies, the
amount of Net Sales and any deductions used to calculate Net Sales,
if any, shall be converted monthly to United States dollars at the
average of the average daily "bid" and "asked" exchange rates as
provided by Reuters for the applicable month.
8.4 Royalty Payments to Third Parties. Except as provided in Section 10.6,
Collateral will pay all royalties and/or lump sum payments, if any, due to
Third Parties with respect to the Products and, if Collateral has failed
to make such payments in a timely manner, Schering may pay such royalties
to such Third Parties and credit such payments against any royalties due
Collateral pursuant to this Agreement.
8.5 Net Sales Exclusions. In the event that Schering or its Sublicensees
distributes Products to any entity for research or clinical testing
purposes, or indigent or other public support programs, and determines
that such distributions shall be excluded from the computation of Net
Sales, then Schering shall exclude such distributions from Net Sales and
provide Collateral such information with the royalty report provided for
in Section 8.3(a) describing such distribution of all such Products, the
purpose for which such Products were distributed, and the quantities of
Products and so distributed in the preceding calendar year.
8.6 Cross Royalties for products in the Field. In the event Schering
terminates this Agreement pursuant to Section 15.2(e), Schering shall pay
Collateral a royalty of *** on *** that are claimed by one or more issued
patents in *** and Collateral shall pay Schering a royalty of *** on ***
are claimed in one or more issued patents in *** . In both circumstances,
Collateral shall pay all royalties due pursuant to the UC License. The Net
Sales definition of this Agreement applies to such product net sales. For
purposes of this Section 8.6, Sections 8.3, 8.4 and 8.5 shall apply.
Royalties will be paid on the Net Sales of each product for a period from
the date of the first commercial sale on a country by country basis until
the last to expire patent within Collateral Base Technology or Developed
Technology.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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8.7 Schering Right to Negotiate Reductions in Royalties and Milestones.
The Parties agree that Collateral is solely responsible for all payments
and royalties to Third Parties with respect to Collateral gaining access
to a gene that may be acceptable to Schering. The Parties agree that the
Royalties and Milestones negotiated in this Agreement, and the basis for
Schering proceeding with this Agreement is the assumption that Collateral
will obtain exclusive rights to a gene in the Field and Collateral will
not grant any rights in the Field to Third Parties.
(a) If Collateral obtains less than exclusive rights to a gene in the
Field from a Third Party and, if Schering, in its sole discretion,
decides to permit and proceed with such an arrangement Schering and
Collateral will discuss reductions in the Milestone Payments and
Royalties and other aspects of this Agreement.
(b) If Collateral obtains less than exclusive rights to a gene in the
Field from a Third Party, and, if Schering, in its sole discretion,
decides to permit and proceed with such an arrangement, and if such
Third Party sells a product in the Field, Schering and Collateral
will in good faith negotiate reductions in the Milestone Payments
and Royalties and other aspects of this Agreement to take into
account such Third Party selling products in the Field.
(c) If Collateral obtains less than exclusive rights to a gene in the
Field from a Third Party and, if Schering, in its sole discretion,
decides to permit and proceed with such an arrangements and/or such
Third Party requires access to Collateral Base Technology, Developed
Technology or Products, Schering and Collateral will in good faith
negotiate reductions in Milestone Payments and Royalties and other
aspects of this Agreement to take into account such Third Party
participating in the business opportunity that is the subject matter
of this Agreement.
IX
REPORTS, BOOKS AND TAX MATTERS
9.1 Examination of Books. Each of the Parties shall keep and maintain complete
and accurate books in respect of its activities under this Agreement.
Unless otherwise provided, each Party shall provide the other the right to
inspect such records, and shall provide copies of all requested records,
to the extent reasonably related to the performance of the other's
obligations under this Agreement. The Parties shall retain such records
for so long as the Parties shall mutually determine.
9.2 Tax Matters. Collateral agrees that Schering is entitled to all tax
benefits, including in particular, tax credits and/or tax deductions
attributable to amounts Schering has funded hereunder excepting amounts
funded and paid by Collateral. Collateral shall file its federal, state,
and local tax returns on a basis consistent with this Agreement, and shall
not take any action inconsistent with Schering's entitlement to such tax
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benefits. In the event that either Party, in its reasonable judgment,
determines that it must obtain information and verification regarding the
use or application of such expenditures in order to prepare its tax
returns or to respond to an inquiry during a tax audit or any other
inquiry relating to such treatment of its tax return, or to defend its tax
position in any proceeding including litigation, each Party shall
reasonably cooperate with the other Party and furnish it with such
information as it may reasonably require at such Party's request and sole
expense.
X
PATENTS
10.1 Disclosure by Employees, Agents or Independent Contractors. Schering and
Collateral agree that as to any employees, agents, or independent
contractors of Schering and Collateral presently in their employ or who
are hired or retained by Schering or Collateral to perform, manage
performance of, or participate in the research done pursuant to this
Agreement, Schering and Collateral will ensure that such employees,
agents, or independent contractors will promptly disclose and assign to
the party engaging them any and all rights to inventions, developments, or
improvements, (whether patentable or not) conceived and/or reduced to
practice during the course of their duties. Each Party will notify the
other Party promptly of the subject matter of any inventions within the
Developed Technology or Collateral Base Technology.
10.2 Patent Prosecution and Related Activities.
(a) Collateral Base Technology and Collateral Solely Invented Developed
Technology. Collateral shall be responsible, at its sole expense,
for preparing, filing, prosecuting and maintaining in at least
United States and Canada, Europe, Japan and Australia ("Countries
and Territories"), and conducting any interferences,
re-examinations, reissues and oppositions, relating to patent
applications and patents all relating to Collateral Base Technology
and Collateral solely invented Developed Technology ("Collateral
Inventions") in the Countries and Territories. If Schering wishes to
fife and prosecute patent applications disclosing Collateral
Inventions in countries and territories other than where Collateral
has or will file, then Schering has the right to do so at Schering's
expense using attorneys designated by Schering and reasonably
acceptable to Collateral.
(b) Jointly Invented Developed Technology and Schering Solely Invented
Developed Technology. Schering shall be responsible, at its sole
expense, for preparing, filing, prosecuting and maintaining in at
least the Countries and Territories, and conducting any
interferences, re-examinations, reissues and oppositions relating to
patent applications and patents all relating to Developed Technology
solely invented by Schering and jointly invented by Schering and
Collateral with or without Third Parties ("Schering Inventions") in
such Countries and Territories. If Collateral wishes to file and
prosecute patent applications
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disclosing Schering Inventions in countries and territories other
than where Schering has or will file, then Collateral has the right
to do so at Collateral's expense using attorneys designated by
Collateral reasonably acceptable to Schering.
(c) Comments on Patent Applications and Patent Prosecution. Each Party
has the right of prior review and comment on the other Party's
patent applications and patent prosecutions filed and/or prosecuted
pursuant to Sections 10.2 (a) and (b).
(d) Election Not to Prosecute. With ninety (90) days prior notice to the
other Party, either Party may elect, not to file and/or to
discontinue the prosecution of any proceeding of or relating to any
patent applications filed in any country pursuant to Section 10.2
above. In the event Schering or Collateral respectively decline to
file or having filed fail to further prosecute or maintain any
patent applications or patents subject to this Agreement, or conduct
any interferences, re- examinations, reissues, oppositions with
respect thereto, the other Party shall have the right to prepare,
file, prosecute and maintain such patent applications and patents,
in such countries worldwide as it deems appropriate, and conduct any
interferences, re-examinations, reissues or oppositions at its sole
expense.
10.3 Cooperation. Each of Schering and Collateral shall keep the other fully
informed as to the status of patent matters described in this Section X
including, without limitation, by providing the other Party the
opportunity to fully review and comment on any documents which will be
flied in any patent office as far in advance of filing dates as feasible,
and providing the other copies of any documents that such party receives
from such patent offices promptly after receipt, including office actions,
notices of all interferences, reissues, re-examinations, oppositions or
requests for patent term extensions. Schering and Collateral shall each
reasonably cooperate with and assist the other at its own expense in
connection with such activities, at the other party's request.
10.4 Permitted Disclosures. Following a written notice from the other Party
hereto, the Parties shall in good faith grant each other permission, not
to be unreasonably withheld, to disclose in the specification of a patent
application filed by the other Party pursuant to this Agreement, any
Collateral Base Technology, or Developed Technology necessary to support
and enable claims in such patent applications.
10.5 Third Party Infringement.
(a) Schering Rights. Subject to the rights of Collateral's licensors,
Schering, at its sole discretion and sole expense, shall have the
sole right to initiate and control any legal action to enforce any
patent rights it Controls pursuant to this Agreement, with respect
to any infringing Third Party product that in Schering's opinion
competes with any Product(s) or defend any declaratory judgment
action relating thereto ("Product Infringement Offenses").
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(b) Collateral Rights. Subject to the rights of Collateral's licensors,
Collateral may initiate and control any legal action that is not a
Product Infringement Offense to enforce any of its patent rights it
Controls against any Third Party; provided however if an adverse
ruling in such legal action could adversely affect Schering's
research, development, manufacture or sale of Product(s), Collateral
may not initiate such legal actions without the prior written
permission of Schering which will not be unreasonably withheld.
(c) Recoveries. (a) Any recovery received in connection with a suit
brought by Schering pursuant to Section 10.5(a) shall be paid first
to reimburse Schering for its expenses including attorneys fees,
second to reimburse Collateral for its expenses including attorneys
fees with the remainder being paid eighty-five (85%) percent to
Schering and fifteen (15%) percent to Collateral. (b) Any recovery
received in connection with a suit brought by Collateral pursuant to
Section 10.5(b) shall be paid first to reimburse Collateral for its
expenses including attorneys' fees, second to reimburse Schering for
its expenses including attorneys' fees, with the remainder being
paid Collateral.
(d) No Settlement without Consent. Neither Party shall enter into any
settlement of any claim, suit or proceeding under Section 10.5 which
admits or concedes that any aspect of the Collateral Base
Technology, or Developed Technology is invalid or unenforceable
without the prior written consent of the other Party which shall not
be unreasonably withheld.
(e) Cooperation. Unless both Parties are sued or are joined in such
lawsuit, each Party shall keep the other reasonably informed of the
progress of any claim, suit or proceeding subject to this Section
10.5 and cooperate reasonably in connection with such activities at
the request of the Party involved in such claim, suit or proceeding.
Each Party may be represented by counsel of its choice.
10.6 Infringement Claims by Third Parties.
(a) Schering Control. If the manufacture, sale, offer for sale, use or
import of any Product(s) pursuant to this Agreement results in any
claim, suit or proceeding alleging patent infringement against
Schering (or its Sublicensees) by reason of its use or sale of a
Product ("Defense Proceeding"), Schering shall promptly notify
Collateral in writing setting forth the facts of such claim in
reasonable detail. Schering shall have the first right to defend and
control the defense and settlement of any such Defense Proceeding.
(b) Schering Control; Sharing of Costs and Damages. In the event
Schering so notified Collateral of its decision to control the
defense, Schering shall be entitled to select counsel of its choice
and direct and instruct such counsel and control the defense. All
costs of defense and any amounts paid by way of judgment or
settlement shall be borne fifty (50%) percent by Collateral and
fifty (50%) by Schering according to Section 10.6 (d). Provided,
however, in the event any judgment is entered (which becomes final
with all rights of appeal
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exhausted) which specifically awards damages for willful
infringement, Schering shall be solely responsible to pay the amount
of such willful damages in excess of actual damages.
(c) Collateral Control; and Damages. if Schering decides not to control
such Defense Proceeding, it shall give Collateral reasonable notice
of such decision, and Collateral shall control such Defense
Proceeding and Collateral shall bear all costs, damages, including
damages for willful infringement.
(d) Reserve. In the event that Schering establishes, according to its
normal and customary accounting practices, a reserve for the Defense
Proceeding it defends pursuant to (a) and (b) above, at the time of
the establishment of the reserve, the Parties shall agree upon a
payment schedule for Collateral whereby Schering may reduce the
amount of royalties due pursuant to Section VIII by the amounts to
be paid by Collateral pursuant to this Section. If no royalty is
being paid to Collateral, then such amounts will be paid by Schering
with the right to credit against future royalties. Provided however,
Schering's deduction from royalties due for Collateral's payments to
such reserve in any one calendar year cannot be greater than
one-half of the result of (a) the total royalty due Collateral under
Section 8.2 less (b) the royalty due pursuant to the UC License.
(e) No Settlement without Consent. Neither Party shall enter into any
settlement of any claim, suit or proceeding under this Section 10.6
which admits or concedes that any aspect of the Collateral Base
Technology, or Developed Technology is invalid or unenforceable
without the prior written consent of the other Party which shall not
be unreasonably withheld.
(f) Cooperation. Unless both Parties are sued or are joined in such
lawsuit, each Party shall keep the other reasonably informed of the
progress of any claim, suit or proceeding subject to this Section
10.6 and cooperate reasonably in connection with such activities at
the request of the Party involved in such claim, suit or proceeding.
Each Party may be represented by counsel of its choice.
XI
CONFIDENTIALITY
11.1 Confidentiality.
(a) Information. As used in this Section 11.1, the term "Information"
means the non-public, proprietary or otherwise confidential
information, specifications, know-how, materials, data and other
communications, oral or written, disclosed or provided to either
Party (the "Recipient") by or on behalf of the other Party (the
"Disclosing Party") pursuant hereto or in connection herewith,
together with
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all portions of analyses, studies and other documents prepared by or
for the benefit of the Recipient which contain or otherwise reflect
any of the foregoing.
(b) Term of Confidentiality. The Recipient will keep all Information
provided by the disclosing party confidential for the Term and ten
(10) years thereafter and shall use such Information solely for the
purposes of this Agreement. Without the prior written consent of the
Disclosing Party, the Recipient will not disclose any Information to
any Third Party, except to the officers, employees, agents, or
representatives of the Recipient or the Recipient's Affiliates
(collectively "Representatives"), who, in each case, need to know
any such Information for purposes of the implementation and
performance by the Recipient of this Agreement, and will use the
Information provided by the disclosing party only for such limited
purposes.
(c) Warranty of Obligation. Each Party warrants that each of its
Representatives to whom any Information provided by the disclosing
party is revealed shall previously have been informed of the
confidential nature of the Information and shall have agreed to be
bound by the terms and conditions of this Agreement applicable to
the Recipient. The Recipient shall use commercially reasonable
efforts ensure that the Information provided by the Disclosing Party
is not used or disclosed by such Representatives except as permitted
by this Agreement and shall be responsible for any breach of this
Agreement.
(d) Ownership of Information. All Information shall remain the property
of the Disclosing Party; provided however, each Party may keep a
copy of such information for archival purposes. Upon the written
request of the Disclosing Party (i) all tangible Information
provided by the Disclosing Party (including all copies thereof and
all unused samples) except for Information consisting of analyses,
studies and other documents prepared by or for the benefit of the
Recipient, shall be promptly returned to the Disclosing Party, and
(ii) ail portions of such analyses, studies and other documents
prepared by or for the benefit of the Recipient (including all
copies thereof) which are within the definition of Information shall
be destroyed, with such destruction certified in writing to the
Disclosing Party by the Recipient; provided however, the Recipient
may keep one archival copy of such Information.
(e) Obligation of Confidentiality. The obligations of confidentiality
and non-use set forth in this Agreement shall not apply to any
portion of the Information which:
(i) is or becomes public or available to the general public
otherwise than through the act or default of the Recipient or
its Representatives; or
(ii) is obtained by the Recipient from a Third Party who is
lawfully in possession of such Information and is not subject
to an obligation of confidentiality or non-use owed to the
Disclosing Party or others; or
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(iii) is previously known to the Recipient prior to disclosure to
the Recipient by the Disclosing Party under this Agreement, as
shown by written evidence, and is not obtained or derived
directly or indirectly from the Disclosing Party; or
(iv) is disclosed by the Recipient pursuant to the requirement of
law, provided that the Recipient has complied the provisions
set forth in this Section 11.1; or
(v) is independently developed by Recipient without the use of or
reliance on any Information provided by the Disclosing Party
hereunder, as shown by contemporaneous written evidence.
(f) Legal Disclosure. If the Recipient becomes legally required to
disclose any Information provided by the disclosing party, the
Recipient will give the Disclosing Party prompt notice of such fact
so that the Disclosing Party may obtain a protective order or other
appropriate remedy concerning any such disclosure and/or waive
compliance with the non-disclosure provision of this Agreement.
Recipient will reasonably cooperate with the Disclosing Party in
connection with the Disclosing Party's efforts to obtain any such
order or other remedy. If any such order or other remedy does not
fully preclude disclosure or the Disclosing Party waives such
compliance, Recipient will make such disclosure only to the extent
that such disclosure is legally required and will use its reasonable
efforts to have confidential treatment accorded to the disclosed
Information.
(g) No Warranty As To Reliability. Each of the parties acknowledges that
neither party makes any representation or warranty as to the
reliability, accuracy or completeness of any of the Information,
except for any specific representation or warranty made in other
sections of this Agreement. Recipient agrees that neither the
Disclosing Party nor any of the Disclosing Party's Representatives
shall have any liability to Recipient arising from the Information
provided by the Disclosing Party except as otherwise provided
herein.
(h) No Implied License. Except as otherwise set forth in this Agreement,
nothing herein shall be construed as giving Recipient any right,
title, interest in or ownership of the Information provided by the
Disclosing Party, and with respect to any portion thereof which is
or becomes public information and is now or hereafter becomes
covered by any patent, Recipient's rights with respect thereto shall
be subject to all rights of the patent owner and/or licenses.
(i) Public Domain. For the purpose of this Agreement, specific
information disclosed as part of Information shall not be deemed to
be in the public domain or in the prior possession of Recipient
merely because it is embraced by more general information in the
public domain or by more general information in the prior possession
of Recipient.
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(j) Prior Confidentiality Agreements. To the extent the duties and
obligations undertaken pursuant to Section XI conflict with the
Confidential Disclosure Agreements between the Parties dated June 6,
1995 the duties and obligations undertaken pursuant to Section XI
shall control.
11.2 Publications. The Steering Committee will discuss and review proposed
publications describing the scientific results of the Research and
Development Plan. Subject to the rights of Collateral's licensers, either
Party may, in its sole discretion, decide not to permit publication of
confidential Information by the other Party of any scientific results of
the Research and Development Plan.
XII
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COLLATERAL
12.1 Collateral represents and warrants and covenants to Schering as follows:
(a) Organization. It is a corporation duly organized, validly existing
and in good standing under the laws of the State of California.
(b) Authority. It has full corporate power and authority to execute and
deliver this Agreement and the other agreements and instruments to
be executed and delivered by Collateral pursuant hereto and to
consummate the transactions contemplated hereby and thereby. All
corporate acts and other proceedings required to be taken to
authorize such execution, delivery, and consummation have been duly
and properly taken and obtained.
(c) Enforceability. This Agreement has been duly executed and delivered
by Collateral and constitutes, and such other agreements and
instruments when duly executed and delivered by Collateral will
constitute, legal, valid, and binding obligations of Collateral
enforceable against Collateral in accordance with their respective
forms.
(d) Approvals, Consents. Etc. No approval, authorization, consent, or
other order or action of or filing with any court, administrative
agency or other governmental authority is required for the execution
and delivery by Collateral of this Agreement and the execution and
delivery by Collateral of such other agreements and instruments or
the consummation of the transactions contemplated hereby or thereby.
(e) No Conflicts. None of the execution, delivery, or performance of
this Agreement or the other agreements and instruments to be
executed and delivered by Collateral (i) conflicts with or results
in a breach under the charter documents or any material contractual
undertaking of Collateral, including but not limited to the UC
License and the *** or (ii) conflicts with or results in a violation
of any of the laws of the jurisdiction of incorporation of
Collateral.
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*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Collateral has not entered and will not and enter into any written
or oral agreement before or after the Effective Date that is or
would be inconsistent with its obligations under this Agreement.
(f) Title. As of the Effective Date, it has good title to or valid
leases or licenses for all its properties, rights, and assets
necessary for the fulfillment of its obligations and
responsibilities under this Agreement.
(g) Patent Infringement. As of the Effective Date, it is not aware of a
Third Party patent that would be infringed by the research and
development contemplated under the Research and Development Plan.
(h) Sufficient Rights. (i) Except as contemplated herein, as of the
Effective Date it owns or possesses adequate licenses or other
rights to use all patents, patent rights, inventions, know-how,
including technology in the Field licensed pursuant to the UC
License and the *** to conduct research and development, to grant
rights and licenses to Schering, and to fulfill its other duties and
obligations pursuant to this Agreement. As of the Effective Date,
the rights and licenses granted to Schering hereunder do not violate
the rights of any Third Party to which Collateral has granted a
license. Collateral has not and will not during the Term of this
Agreement enter into any contract, agreement, or other arrangement
with a Third Party pertaining to the Field inconsistent with this
Agreement, and (ii) as of the Effective Date and as long as Kirk
Hammond is an employee of The Regents of the University of
California all his inventions in the Field conceived during the Term
(except for the inventions he conceives as a consultant of
Collateral) will be at the *** governed by the *** .
(i) License. It is not in material breach of, and this Agreement will
not result in any material breach of the UC License and/or the *** .
(j) No Prior Grant or Patents. As of the Effective Date and through the
end of the Royalty Term, Collateral has not and will not grant any
assignments, licenses or sublicenses or otherwise transfer to Third
Parties, Collateral Base Technology, Developed Technology or the UC
License in a manner inconsistent with this Agreement.
(k) No Sublicense Royalties Under Collateral Base Technology. As of the
Effective Date and through the end of the Royalty Term, there are no
and will not be any licenses between Collateral and Third Parties to
the Collateral Base Technology that would require Schering to pay a
Third Party a royalty to make, have made, use, sell, offer to sell
or import Product(s).
(l) Use of Contribution. As of the Effective Date and through the end of
the Royalty Term, except for that portion of the Cash Contribution
made pursuant to Section 5.2(a)(ii) which Collateral covenants will
only be used pursuant to such Section, Collateral will use the
Contribution and the payments made pursuant to
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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Section 5.2 solely for the research and development of Product(s)
pursuant to the Research and Development Plan and this Agreement and
permitted overhead allocations.
XIII
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SCHERING
13.1 Schering represents and warrants to Collateral as follows:
(a) Organization. It is a corporation duly organized, validly existing
and in good standing under the laws of Germany.
(b) Authority. It has full corporate power and authority to execute and
deliver this Agreement and the other agreements and instruments to
be executed and delivered by Schering pursuant hereto and to
consummate the transactions contemplated hereby and thereby. All
corporate acts and other proceedings required to be taken to
authorize such execution, delivery, and consummation have been duly
and properly taken and obtained.
(c) Enforceability. This Agreement has been duly executed and delivered
by Schering and constitutes, and such other agreements and
instruments when duly executed and delivered by Schering will
constitute, legal, valid, and binding obligations of Schering
enforceable against Schering in accordance with their respective
terms.
(d) Approvals Consents. Etc. No approval, authorization, consent, or
other order or action of or filing with any court, administrative
agency or other governmental authority is required for the execution
and delivery by Schering of this Agreement and the execution and
delivery by Schering of such other agreements and instruments or the
consummation by Schering of the transactions contemplated hereby or
thereby (other than contemplated Products Regulatory Approvals).
(e) No Conflicts. None of the execution, delivery, or performance of
this Agreement or the other agreements and instruments to be
executed and delivered by Schering, (i) conflict with (or will
conflict with) or results in a breach under (or will result in a
breach under) the charter documents or any material contractual
undertaking of Schering or its Affiliates or (ii) conflicts with (or
will conflict with) or results in a violation of (or will result in
a violation of) any of the laws of the jurisdiction of incorporation
of Schering.
(f) Title. As of the Effective Date, it has good title to or valid
leases or licenses for all its properties, rights, and assets
necessary for the fulfillment of its obligations and
responsibilities under this Agreement.
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XIV
DISCLAIMERS; SURVIVAL INDEMNIFICATION
14.1 Disclaimer. Schering and Collateral specifically disclaim any guarantee
that the research will be successful, in whole or in part. The failure of
the Parties to successfully develop Products will not constitute a breach
of any representation or warranty or other obligation under this
Agreement. Neither Schering nor Collateral makes any representation or
warranty or guaranty that the Research and Development Plan will be
sufficient for the successful completion of the research. EXCEPT AS
OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, COLLATERAL AND SCHERING
MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OR CONDITIONS OF ANY
KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE COLLATERAL BASE
TECHNOLOGY AND DEVELOPED TECHNOLOGY, PRODUCTS, INCLUDING, BUT NOT LIMITED
TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
VALIDITY OF COLLATERAL BASE TECHNOLOGY OR DEVELOPED TECHNOLOGY, PATENTED
OR UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF
THIRD PARTIES.
14.2 Survival of Representations Warranties, Covenants, and Agreements. The
representations, warranties, covenants, and agreements contained in this
Agreement, and in other agreements and instruments to be executed and
delivered by the Parties pursuant to this Agreement, shall survive the
Term and the completion of the other actions set forth herein and shall
remain in full force and effort. Except as expressly provided herein, the
representations, warranties, covenants, and agreements contained herein,
and in the other agreements and instruments to be executed and delivered
by the Parties hereto the Parties confirm that they have not relied upon
any and other representations, warranties, covenants. and agreements as an
inducement to enter into this Agreement or the other agreements and
instruments to be executed and delivered by the Parties pursuant to this
Agreement.
14.3 Indemnification By Collateral. Collateral hereby agrees to indemnify and
hold Schering, its Affiliates and their respective officers, directors,
stockholders, employees, agents. and representatives (collectively, the
"Schering Indemnitees") harmless on an after-tax basis from and against
any and all claims, liabilities, losses damages, costs and expenses in
respect of claims against the Schering Indemnitees by parties other than
the Schering Indemnitees, including reasonable fees and disbursements of
counsel and expenses of reasonable investigation (collectively, "Schering
Losses"), arising out of, based upon or caused by: (i) the inaccuracy of
any material representation or the material breach of any warranty,
covenant or agreement of Collateral contained in this Agreement or in any
other agreement or instrument delivered by Collateral pursuant to this
Agreement; (ii) the material breach by Collateral of this Agreement or of
any other agreement or instrument delivered by Collateral pursuant to this
Agreement; (iii) any material failure by Collateral, its Affiliates or
designee to conduct the research pursuant
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<PAGE>
to the Research and Development Plan in a diligent and professional manner
and/or in accordance with applicable U.S. laws and regulations; (iv) any
gross negligence or intentional wrongdoing in the research conducted by
Collateral, its Affiliates or designees (except in each case to the extent
that any Schering Loss is due to the negligence or willful misconduct of
Schering Indemnitees.)
14.4 Indemnification By Schering. Schering hereby agrees to indemnify and hold
Collateral, its Affiliates, subcontractors and their respective officers,
directors, shareholders. employees, agents, and representatives
(collectively, the "Collateral Indemnitees") harmless on an after-tax
basis from and against any and all claims, liabilities, losses, damages,
costs and expenses in respect of claims against the Collateral Indemnitees
by parties other than the Collateral Indemnitees, including reasonable
fees and disbursements of counsel and expenses of reasonable investigation
(collectively, "Collateral Losses"), arising out of, based upon or caused
by: (i) the material inaccuracy of any representation or the material
breach of any warranty, covenant or agreement of Schering contained in
this Agreement or in any other agreement or instrument delivered by
Schering pursuant to this Agreement; (ii) any material failure by
Schering, its Affiliates or designee to conduct the research pursuant to
the Research and Development Plan in a diligent and professional manner
and in accordance with applicable laws and regulations; (iii) any gross
negligence or intentional wrongdoing in the research conducted by
Schering, its Affiliates or designees; or (iv) except for Third Party
patents, the development, pre-clinical and clinical testing, manufacture,
distribution, sale and/or use (including but not limited to Products
liability claims) of any Products made, used or distributed by Schering or
its licensees (except in each case to the extent that any Collateral Loss
is due to the negligence or willful misconduct of Collateral indemnitees).
14.5 Notices, Etc. Each indemnified party agrees to give the indemnifying party
prompt written notice of any action, claim, demand, discovery of fact,
proceeding or suit (collectively, "Claims") for which such indemnified
party intends to assert a right to indemnification under this Agreement;
provided however, that failure to give such notification shall not affect
the indemnified party's entitlement to indemnification hereunder except to
the extent that the indemnifying party shall have been prejudiced as a
result of such failure. The indemnifying party shall have the initial
right (but not the obligation) to defend, settle or otherwise dispose of
any Claim for which the indemnified party intends to assert a right to
indemnification under this Agreement as contemplated in the preceding
sentence if and so long as the indemnifying party has recognized in a
written notice to the indemnified party provided within thirty (30) days
of such written notice its obligation to indemnify the indemnified party
for any Collateral Losses or Schering Losses (as the case may be) relating
to such Claim, provided however that the indemnifying party shall obtain
the written consent of the indemnified party prior to ceasing to defend,
settling or otherwise disposing of any Claim. If the indemnifying party
fails to state in a written notice during such thirty (30) day period its
willingness to assure the defense of such a Claim, the Collateral or
Schering Indemnitee, as the case may be, shall have the right to defend,
settle or otherwise dispose of such claim, subject to the applicable
provisions of 14.3 and 14.4 above.
31
<PAGE>
14.6 Agreement Not to Sue. Notwithstanding anything to the contrary in this
Agreement or any other agreement or instrument delivered by Collateral or
Schering pursuant to this Agreement, Schering and Schering, on behalf of
themselves, their Affiliates and designees, agrees not to sue or initiate
legal action on any legal theory against any of Collateral's or Schering's
past, current or future shareholders, officers, or directors.
XV
TERM, TERMINATION, AND EXPIRATION
15.1 Term. Unless earner terminated, the Term of this Agreement is five (5)
years from the Effective Date. The licenses granted herein shall be
effective as of the Effective Date and shall continue in full force and
effect on a country-by-country basis until Schering and its Sublicensees
have no remaining royalty obligations in a country, at which time Schering
shall have a fully paid up license in such country and the surviving terms
of this Agreement shall terminate in such country.
15.2 Termination.
(a) Breach. If either Party materially breaches, or materially defaults
in the performance of, or fails to be in compliance with, any
material warranty, representation, agreement or covenant of this
Agreement, including any payment obligations, and such default or
noncompliance shall not have been substantially remedied, or steps
initiated to substantially remedy the same to the other Party's
reasonable satisfaction, within sixty (60) days after receipt by the
defaulting Party of a written notice thereof and demand to cure such
default from the other Party; provided however, the defaulting Party
has just one opportunity to initiate the steps to cure such default
or noncompliance, the Party not in default or breach may terminate
this Agreement. In such instance the terminating Party may maintain
the licenses and, subject to damages for such breach, obligations
pursuant to this Agreement.
(b) Bankruptcy. Either Party may terminate this Agreement or the
licenses granted by such Party, if, at any time, the other Party
shall file in any court pursuant to any statute, a petition in
bankruptcy or insolvency or for reorganization in bankruptcy or for
an arrangement or for the appointment of a receiver or trustee of
such Party or of its assets, or if such Party proposes a written
agreement of composition or extension of its debts, or if such Party
shall be served with an involuntary petition against it, filed in
any insolvency proceeding, and such petition shall not be dismissed
within sixty (60) days after the filing thereof, or if such Party
shall propose or be a party to any dissolution, or if such Party
shall make an assignment for the benefit of creditors.
(c) Change in Control During the Term. During the Term, if any Third
Party shall purchase substantially all the assets of Collateral or
if there is a change of control of Collateral, the other Party may
terminate this Agreement upon ninety
32
<PAGE>
(90) days written notice. As used herein, change of control shall
mean the acquisition by a Third Party which is a competitor of
Schering or Collateral, respectively, of forty-nine (49%) percent or
more of the voting stock of Collateral, respectively.
(d) Lack of Technical Feasibility. If the Steering Committee issues a
written report that research and development of a Product(s) is no
longer technically feasible, Schering may terminate this Agreement,
upon sixty (60) days written notice.
(e) No Acceptance of a Qualified Gene. If there has not been an
Acceptance of a Qualified Gene, Schering may in its sole discretion
terminate the Agreement upon five (5) days prior written notice to
Collateral. If Collateral fails to make the Gene Presentation(s) by
October 1, 1997, Schering, in its sole discretion, may terminate
this Agreement.
(f) Unresolved Chairman Dispute. In the event any dispute submitted to
the Chairmen of Berlex and Collateral pursuant to Section 3.6(b)
cannot be resolved, either Party may terminate this Agreement on
sixty (60) days notice to the other Party; provided however,
Collateral may not terminate this Agreement pursuant to this Section
1 5.2(f) during the Gene Presentation Period.
(g) Schering Unilateral Right to Terminate. Schering shall have a
unilateral right to terminate this Agreement by providing sixty
(60) days prior written notice to Collateral at any time for any
reason. Upon such termination notice, Schering shall (i) pay
Collateral Two Million Five Hundred Thousand and 00/100
($2,500,000.00) Dollars as a winddown payment ("Winddown
Payment"), and (ii) provide Collateral with copies of and the
right to reference any IND's anchor Drug Approval Applications.
If Collateral commercializes a Product or a product outside the
Field after such termination it shall reimburse Schering in the
amount of the Winddown Payment within three (3) years of the
first commercial sale of such Product or product outside the
Field.
(h) Rights in Law or Equity. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
HEREIN, TERMINATION BY EITHER PARTY PURSUANT TO THIS SECTION 15
SHALL NOT PREJUDICE ANY OTHER REMEDY THAT A PARTY MIGHT HAVE IN LAW
OR EQUITY, EXCEPT THAT NEITHER PARTY MAY CLAIM COMPENSATION FOR LOST
OPPORTUNITY OR LIKE CONSEQUENTIAL DAMAGES ARISING OUT OF THE FACT OF
SUCH TERMINATION.
15.3 Effect of Termination.
(a) Accrued Obligations. Termination of this Agreement for any reason
shall not release any Party hereto from any liability which, at the
time of such termination, has already accrued to the other Party or
which is attributable to a period prior to such termination nor
preclude either Party from pursuing all rights and remedies it may
have hereunder or at law or in equity with respect to any breach of
this Agreement.
33
<PAGE>
(b) Return of Materials. Upon any termination of this Agreement and upon
written request from the other Party, Schering or Collateral shall
promptly return to Me other Party all confidential Information,
including any biological materials, received from the other Party
(except one copy of which may be retained for archival purposes).
(c) Licenses.
(i) Termination by Schering.
(a) Termination Pursuant to Section 15.2 (a). In the event
of termination by Schering under Section 15.2 (a) above,
the licenses granted hereunder to Collateral shall
terminate; provided however, if the breach or material
breach relates only to a specific Product(s) or
product(s) for which there has been a material breach or
determination of a material breach then just the
licenses granted hereunder to Collateral for such
specific Product or product shall terminate and any
licenses granted by Collateral hereunder shall remain in
effect, subject to the terms and conditions of this
Agreement.
(b) Termination Pursuant to Section 15.2 (b) or (c). In the
event of termination by Schering pursuant to Section
15.2 (b) or (c) above, any licenses granted by Schering
to Collateral shall terminate and any licenses granted
by Collateral hereunder shall remain in effect, subject
to the terms and conditions of this Agreement.
(c) Termination Pursuant to Section 15.2 (d). In the event
of termination by Schering pursuant to Section 15.2 (d)
above, any licenses granted by Schering to Collateral
and by Collateral to Schering shall terminate
concurrently.
(d) Termination Pursuant to Section 15.2(e). In the event of
termination by Schering pursuant to Section 15.2(e)
above, the licenses granted by Collateral to Schering
pursuant to Sections 4.2 and 4.3 are in effect; provided
however, the Schering license to Collateral Base
Technology shall not include any gene Controlled solely
by Collateral. Collateral shall pay Schering royalties
pursuant to Section 8.6.
(e) Termination Pursuant to Section 15.2(f). In the event of
termination by Schering pursuant to Section 15.2(f)
above, any licenses, or sublicenses, as the case may be,
granted by Collateral to Schering shall terminate at the
end of the sixty (60) day notice.
34
<PAGE>
(f) Termination Pursuant to Section 15.2(g). In the event of
termination by Schering pursuant to Section 15.2(g)
above, any licenses or sublicenses, as the case may be,
granted by Collateral to Schering shall terminate at the
end of the sixty (60) day notice and the following
licenses shall be in effect: (i) Collateral grants
Schering a paid-up, irrevocable, royalty-free,
nonexclusive, worldwide license, with the right to
sublicense, to Collateral's rights in Developed
Technology, and (ii) Schering grants Collateral a
paid-up, irrevocable, royalty-free, nonexclusive,
worldwide license, with the right to sublicense, to
Schering's rights in Developed Technology, both to make,
have made, use, sell, offer to sell or import any
products.
(ii) Termination by Collateral.
(a) Termination Pursuant to Sections 15.2 (a). In the event
of termination by Collateral under Section 15.2 (a)
above, the licenses granted hereunder to Schering shall
terminate; provided however, if the breach or material
breach relates only to a specific Product(s) or
product(s) for which there has been a material breach or
determination of a material breach then just the
licenses granted hereunder to Schering for such specific
Product or product shall terminate and any licenses
granted by Schering hereunder shall remain in effect,
subject to the terms and conditions of this Agreement.
(b) Termination Pursuant to Sections 15.2 (b). In the event
of any termination by Collateral pursuant to Section
15.2 (b) above, any licenses granted by Collateral to
Schering shall terminate and any licenses granted by
Schering hereunder shall remain in effect, subject to
the terms and conditions of this Agreement.
(c) Termination Pursuant to Section 15.2(f). In the event of
termination by Collateral pursuant to Section 15.2(f),
the licenses granted by Collateral to Schering pursuant
to Section 4.5 shall automatically become the licenses
granted by Collateral to Schering pursuant to Sections
4.2 and 4.3 and Schering shall pay Collateral royalties
pursuant to Section 8.6.
15.4 Surviving Rights. The rights and obligations set forth in this Agreement
shall extend beyond the Term or termination of this Agreement only to the
extent expressly provided for herein, or to the extent that the survival
of such rights or obligations are necessary to permit their complete
fulfillment or discharge without limiting the foregoing, the Parties have
identified various rights and obligations which are understood to survive
as follows: Sections IV, VIII, IX, X, XI, XII, XIII, XV.
35
<PAGE>
XVI
MISCELLANEOUS
16.1 Notices. Any notice or other communication required or permitted to be
given by either Party under this Agreement shall be effective when
delivered, if delivered by hand or by electronic facsimile with receipt
verified or five days after mailing if mailed by registered or certified
mail, postage prepaid and return receipt requested, and shall be addressed
to each Party at the following addresses or such other address as may be
designated by notice pursuant to this Section:
If to Collateral: If to Schering:
Jack Reich, President Angela Staunton
9360 Towne Centre Drive Schering Legal Department
San Diego, CA 92121 Schering AG
Fax: 619-587-3518 13342 Berlin, Germany
Fax: 011-49-30-4684086
Vice President
Office of Corporate Development
Berlex Laboratories, Inc.
110 E. Hanover Avenue
Cedar Knolls, NJ 07927-2095
Fax: 201-305-4405
with copies to: with copies to:
Craig S. Andrews Leonard Slootmaker
Brobeck, Phleger & General Counsel
Harrison Berlex Biosciences
550 West C St., Ste. 1200 15049 San Pablo Avenue
San Diego, CA 92101 Richmond, CA 94804-0099
Fax: 619-234-3848 Fax: 510-262-7095
16.2 Amendments. No amendment, modification or addition hereto shall be
effective or binding on either Party unless set forth in writing and
executed by duly authorized representatives of both parties.
16.3 Waiver. No waiver of any rights under this Agreement shall be deemed
effective unless contained in writing signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed a waiver of any future breach or failure to perform or any other
right arising under this Agreement.
36
<PAGE>
16.4 Headings. The section headings contained in this Agreement are included
for convenience only and form no part of the agreement between the
Parties.
16.5 Applicable Law. This Agreement shall be governed by, subject to and
construed in accordance with the laws of the State of California.
16.6 Severability. If any provision of this Agreement is held to be invalid,
void or unenforceable for any reason, it shall be adjusted, if possible,
rather than voided in order to achieve the intent of the Parties to the
maximal extent possible. In any event, all other provisions of this
Agreement shall be deemed valid and enforceable to the fullest extent
possible.
16.7 Assignment; Binding Effect. Neither this Agreement, nor any rights granted
hereunder, shall be assignable by any Party hereto without the prior
written consent of the other Party; provided however, that either Party
may assign this Agreement without the consent of the other Party to its
Affiliates, if the assigning Party guarantees the full performance of its
Affiliates' obligations hereunder, or in connection with the sale or
transfer of all or substantially all of its assets relating to this
Agreement, whether by merger, sale of stock, operation of law or
otherwise. Any purported assignment in contravention of this Section
shall, at the option of the non-assigning Party, be null and void and of
no effect.
16.8 No Implied licenses. Only the licenses granted expressly herein shall be
of legal force and effect. No license rights shall be created hereunder by
implication, estoppel or otherwise.
16.9 Further Assurances. Each Party agrees to execute, acknowledge and deliver
such further instruments, and to do all such other acts as may be
necessary or appropriate in order to carry out the purposes and intent of
this Agreement.
16.10 Force Majeure. Except for royalty payments due to each other, no Party
shall be liable for any failure or delay in performance under this
Agreement to the extent such failure or delay arises from Force Majeure. A
Force Majeure is fire, explosion, earthquake, storm, flood, strike, labor
difficulties, war, insurrection, riot, act of God or the public enemy, or
any law, act, order, export or import control regulations, proclamation,
decree, regulation, ordinance, or instructions of local, state, federal or
foreign governmental or other public authorities, or judgment or decree of
a court of competent jurisdiction (but excluding a court injunction
against a Party's performance) and not otherwise arising out of breach by
such Party of this Agreement. In the event of the occurrence of such an
event, the Party so affected shall give prompt written notice to the other
Party, stating the period of time the occurrence is expected to continue
and shall use best efforts to end the failure or delay and ensure that the
effects of such Force Majeure are minimized.
37
<PAGE>
16.11 Negation of Agency. Nothing herein contained shall be deemed to create an
agency, joint venture, amalgamation, partnership, or similar relationship
between Schering and Collateral. The relationship between the Parties
established by this Agreement is that of independent contractors.
16.12 Publicity. No public announcement concerning the existence or the terms of
this Agreement shall be made, either directly or indirectly, by Collateral
or Schering, except as may be legally required by applicable laws,
regulations, or judicial order, without first obtaining the approval of
the other Party and agreement upon the nature, text, and timing of such
announcement, which approval and agreement shall not be unreasonably
withheld; provided however, it shall not be unreasonable for Schering to
withhold permission to use the name "Schering." The Party desiring to make
any such public announcement shall provide the other Party with a written
copy of the proposed announcement in sufficient time prior to public
release to allow such other Party to comment upon such announcement, prior
to public release. Neither Party shall issue any press release or make any
public announcement which includes or otherwise uses the name of the other
Party in any public statement or document except with the prior written
consent of such Party.
16.13 Registration and Filing of the Agreement. To the extent, if any, that a
Party concludes in good faith that it is required to file or register this
Agreement or a notification thereof with any governmental authority,
including without limitation the U.S. Securities and Exchange Commission
and the Competition Directorate of the Commission of the European
Communities, in accordance with applicable laws and regulations, such
Party may do so, and the other Party shall cooperate in such filing or
notification and shall execute all documents reasonably required in
connection therewith at the expense of the requesting party. The Parties
shall promptly inform each other as to the activities or inquiries of any
such governmental authority relating to this Agreement, and shall
cooperate to respond to an request for further information therefrom at
the expense of the requesting party.
16.14 Entire Agreement. This Agreement together with all Exhibits and the Stock
Agreement of even date herewith contains the entire agreement between the
Parties with respect to the subject matter hereof. Except for the
Nondisclosure Agreement previously entered into between the Parties, any
prior agreement, arrangement or undertaking, whether oral or in writing is
hereby superseded.
16.15 Beneficiaries. No person, other than Schering or Collateral and their
permitted assignees hereunder, shall be deemed an intended beneficiary
hereunder or have any right to enforce any obligation of this Agreement.
16.16 Affiliates of Parties. Each Party may perform its obligations hereunder
personally or through one or more Affiliates and shall be responsible for
the performance of such obligations, and any liabilities resulting
therefrom. Neither Party shall permit any of its Affiliates to commit any
act (including any act of omission) which such Party is prohibited
hereunder from committing directly.
38
<PAGE>
16.17 Compliance with Laws. In exercising their rights under this Agreement, the
parties shall fully comply with the requirements of any and all applicable
laws, regulations, rules and orders of any governmental body having
jurisdiction over the exercise of rights under this Agreement.
16.18 Patent Marking. Schering agrees to mark and have its Affiliates and
Sublicensees mark all Products sold pursuant to this Agreement in
accordance with the applicable statute or regulations relating to patent
marking in the country or countries of manufacture and sale thereof.
16.19 Ambiguities. Ambiguities, if any, in this Agreement shall not be construed
against any Party, irrespective of which Party may be deemed to have
authored the ambiguous provision.
THE REMAINDER OF THIS PAGE INTENTIONAL LEFT BLANK
39
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives as of the Effective Date.
SCHERING AKTIENGESELLSCHAFT COLLATERAL THERAPEUTICS,
INC.
By: /s/ illegible By: /s/ Jack W. Reich
------------------------- ----------------------------
Dr. Jack W. Reich,
Its: Member of Executive Board of Directors President
--------------------------------------
By: /s/ illegible By: /s/ Christopher J. Reinhard
------------------------ ----------------------------
Christopher J. Reinhard,
Its: Vice Chairman Secretary
------------------------
[SIGNATURE PAGE TO COLLABORATION LICENSE
AND ROYALTY AGREEMENT]
<PAGE>
EXHIBIT A
<PAGE>
[LETTERHEAD OF UNIVERSITY OF CALIFORNIA]
March 19, 1996
Schering AG
c/o Berlex Biosciences
15049 San Pablo Avenue
Richmond, CA 94804-0099
Re:
UC Case No.
Ladies and Gentlemen:
This letter will serve to confirm our agreement that, recognizing the
sublicense being granted by Collateral Therapeutics, Inc. ("Collateral") to
Schering AG ("Schering") under the Exclusive License Agreement dated September
27, 1995 (the "License Agreement"), the undersigned (1) will send Schering a
copy of any Notice of Default (as defined in Section 9.1 of the License
Agreement) sent to Collateral and (2) will permit Schering to cure any such
default under the License Agreement on behalf of Collateral which is capable of
being cured.
THE REGENTS OF THE UNIVERSITY OF
CALIFORNIA
By: /s/ illegible
-----------------------------------
(Authorized Signatory)
Title: Licensing Manager
--------------------------------
Approval as to legal form /s/ Mary Simpson 3/20/96
-------------------------------------- -------
P. Mary Simpson, President Counsel Date
Office of Technology Transfer
University of California
<PAGE>
EXHIBIT B
<PAGE>
[LETTERHEAD OF COLLATERAL THERAPEUTICS, INC.]
May 6, 1996
HAND DELIVERED
Schering AG
c/o Berlex Biosciences
15049 San Pablo Avenue
Richmond, CA 94804-0099
Re: U.C. Agreement Control Number 96-04-0203
Ladies and Gentlemen:
This letter will confirm our agreement that Collateral Therapeutics will
use its commercially reasonable efforts to obtain the agreement of The Regents
of the University of California under the Exclusive License Agreement dated
September 27, 1995, that upon termination of such Agreement for any reason, the
sublicenses granted to Schering AG under the Collaboration, License and Royalty
Agreement dated May 6, 1996, will not be cancelled but will be assigned to The
Regents.
If the Regents of the University of California do not agree to such a
request within ninety (90) days of the Effective Date of this Agreement,
Collateral hereby consents to Schering approaching The Regents of the University
of California directly to attempt to obtain such assurance.
Very truly yours,
/s/ Jack W. Reich, Ph.D.
------------------------------
Dr. Jack Reich, President
<PAGE>
EXHIBIT C
COLLATERAL THERAPEUTICS INC.
Budget Review - Annualized
<TABLE>
<CAPTION>
Research Admin. Total
-------- ------ -----
<S> <C> <C> <C>
Executive, Administrative
Regulatory, Research &
Development Salaries and
Related Employment Benefits *** *** ***
-------- -------- -------
Professional Fees & Services:
Legal Counsel *** *** ***
Patent Counsel *** *** ***
Public Accountants *** *** ***
Scientific Advisory Board $15,000 *** *** ***
Licensing Fees & Expenses *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Support Services:
Office Rent *** *** ***
Travel Expenses *** *** ***
Other, Supplies *** *** ***
Equipment Leases *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Research & Development *** *** *** ***
--- -------- -------- -------
Total *** *** ***
-------- -------- -------
-Percent *** *** ***
Research & Development: *** *** *** ***
--- -------- -------- -------
Grand Total *** *** ***
-------- -------- -------
-------- -------- -------
-Percent *** *** ***
</TABLE>
/s/ Jack W. Reich, Ph.D.
- ------------------------------ --------------------------------
By Schering AG By Collateral Therapeutics, Inc.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Exhibit 5.1
CTI8879A COLLATERAL THERAPEUTICS, INC.
Phase One First 6 Month Budget
<TABLE>
<CAPTION>
Research Admin. Total
-------- ------ -----
<S> <C> <C> <C>
Executive, Administrative,
Regulatory, Research &
Development Salaries
and Related Benefits *** *** ***
-------- -------- -------
Research & Development*
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Professional Fees & Services:
Legal Counsel *** *** ***
Patent Counsel *** *** ***
Public Accountants *** *** ***
Scientific Advisory Board *** *** ***
Licensing Fees & Expenses *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Support Services:
Office Rent *** *** ***
Travel Expenses *** *** ***
Supplies Utilities Etc *** *** ***
Other Misc. *** *** ***
Equipment Leasing *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Total 1996 Budget *** *** ***
-------- -------- -------
-Percent *** *** ***
Less: Collateral Funding ***
-------
Shering AG Funding (Net) ***
-------
-------
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
CTI8879A COLLATERAL THERAPEUTICS INC. -- 6 Mos. 1996
Exhibit 5.1
<TABLE>
<CAPTION>
Research Admin. Total
-------- ------ -----
<S> <C> <C> <C>
President & CEO *** *** ***
Vice President COO & CFO *** *** ***
Vice President - Reg. *** *** ***
Vice President - Admin/R&D Svs. *** *** ***
Vice President - R & D *** *** ***
Vice President - Medical *** *** ***
Director - Regulatory *** *** ***
Director - Accounting *** *** ***
Director - R & D *** *** ***
Administration - Regulatory *** *** ***
Administration - Clinical *** *** ***
Administration - Executive *** *** ***
Administration - General *** *** ***
Administration - Accounting *** *** ***
Administration - Reception *** *** ***
Accured & Deferred Salaries *** *** ***
Employment Benefits *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Research & Development
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Professional Fees & Services:
Legal Counsel *** *** ***
Patent Counsel *** *** ***
Public Accountants *** *** ***
Scientific Advisory Board *** *** ***
Licensing Fees & Expenses *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Support Services:
Office Rent *** *** ***
Travel Expenses *** *** ***
Supplies Utilities Etc *** *** ***
Other Misc. *** *** ***
Equipment Leasing *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Total 1996 Budget *** *** ***
-------- -------- -------
-------- -------- -------
-Percent *** *** ***
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
CTI8893 COLLATERAL THERAPEUTICS INC.
Budget Review - Annualized
<TABLE>
<CAPTION>
Research Admin. Total
-------- ------ -----
<S> <C> <C> <C>
Executive, Administrative,
Regulatory, Research &
Development Salaries and
Related Employment Benefits *** *** ***
-------- -------- -------
Professional Fees & Services:
Legal Counsel *** *** ***
Patent Counsel *** *** ***
Public Accountants *** *** ***
Scientific Advisory Board *** *** ***
Licensing Fees & Expenses *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Support Services:
Office Rent *** *** ***
Travel Expenses *** *** ***
Other, Supplies Utilities Etc *** *** ***
Equipment Leases *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Research & Development *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
-Percent *** *** ***
Research & Development: *** *** ***
-------- -------- -------
Grand Total *** *** ***
-------- -------- -------
-------- -------- -------
-Percent *** *** ***
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
CTI8893 COLLATERAL THERAPEUTICS INC.
Budget Review - Annualized
<TABLE>
<CAPTION>
Research Admin. Total
-------- ------ -----
<S> <C> <C> <C>
President & CEO *** *** ***
Vice President COO & CFO *** *** ***
Vice President - Reg. *** *** ***
Vice President - Admin. *** *** ***
Vice President - R & D *** *** ***
Vice President - Medical *** *** ***
Director - Regulatory *** *** ***
Director - Accounting *** *** ***
Director - R & D *** *** ***
Administration - Regulatory *** *** ***
Administration - Clinical *** *** ***
Administration - Executive *** *** ***
Administration - General *** *** ***
Administration - Accounting *** *** ***
Administration - Reception *** *** ***
Employment Benefits *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Professional Fees & Services:
Legal Counsel *** *** ***
Patent Counsel *** *** ***
Public Accountants *** *** ***
Scientific Advisory Board *** *** ***
Licensing Fees & Expenses *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Support Services:
Office Rent *** *** ***
Travel Expenses *** *** ***
Other, Supplies Utilities Etc *** *** ***
Equipment Leases *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
Other Research & Development *** *** ***
-------- -------- -------
Total *** *** ***
-------- -------- -------
-Percent *** *** ***
Research & Development - Berlex *** *** ***
-------- -------- -------
Grand Total *** *** ***
-------- -------- -------
-------- -------- -------
-Percent *** *** ***
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Exhibit D
Expenses for COGS
Expenses included in, but not limited to, the *** manufacturing cost:
1. Direct materials
2. Salaries, wages and benefits of personnel directly engaged in
manufacturing the product.
3. Overhead associated with direct production, including, but not limited to:
a. Depreciation, leasehold improvements and equipment leases
b. Repair and maintenance
c. Manufacturing supplies
4. Reasonable allocable General manufacturing overhead,
a. Manufacturing Administration
b. Materials Management
c. Validation and Calibration
d. Documentation and Compliance
e. Quality Assurance/Quality Control
f. Technical Services
g. Regulatory Compliance
5. Reasonable allocable General facilities overhead, including, but not
limited to:
a. Rent, utilities, property tax, insurance and other assigned general
facilities' costs
b. Purchasing
c. Environmental Health and Safety
d. Management Information Systems
e. Engineering
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
6. Royalties paid to Third Parties for the manufacturing process of the
Initial Product or Products.
<PAGE>
Exhibit E
Qualified Gene Criteria
(1) Efficacy in the pig chronic myocardial ischemia model
o Documented transgene expression in the heart (2 weeks)
o Significant improvement in function (systolic wall thickening
assessed by transthoracic echocardiography) and perfusion (contrast
echocardiography) 2 weeks following gene transfer
o Functional data should be sufficiently similar to results obtained
with FGF-5 to warrant further preclinical development
(2) Acceptable safety profile
o No evidence for presence of extracardiac transgene expression in
specific target organs from technically acceptable experiments
o No evidence of inflammation using histologic and immunocytochemical
criteria
(3) Proprietary position
o Ownership of or license for pending or issued patent
<PAGE>
Exhibit F
RESEARCH AND DEVELOPMENT PLAN
Research Plan: Major Milestone Years 1 - 5
Year 1
o ***
o ***
Year 2
o ***
o ***
o ***
o ***
Year 3
o ***
o ***
o ***
o ***
Year 4
o ***
o ***
o ***
o ***
***
***
o ***
o ***
Year 5
o ***
o ***
o ***
o ***
***
o ***
o ***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Exhibit 5.1
First Phase One Plan and Budget
Specific Studies to be Performed
***
***
***
***
***
o ***
***
o ***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
***
***
o ***
***
o ***
***
o ***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
SUMMARY
Critical Studies for First Six (6) Months and Budget
STUDY BUDGET*
----- -------
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
--------
Total $643,500
* ***
+ Funding to be determined following review of study proposal. Not included
in total.
/s/ Jack W. Reid, Ph.D.
- ---------------------------- ----------------------------------
By Schering AG By Collateral Therapeutics, Inc.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT 10.13
LICENSE AGREEMENT
This License Agreement (the "Agreement") effective as of the 17th day of
October, 1996 ("Effective Date") is made by and between Dimotech Ltd., a
corporation organized under the laws of the country of Israel, located at the
Gurtwith Science Based Industrial Center, Technion City, Haifa 32000 Israel
("Licensor"), Gera Neufeld, whose domicile is 23 Shoham Street, Haifa 34679
("Inventor") and Collateral Therapeutics, Inc. a corporation organized under the
laws of the state of California, located at 9360 Towne Center Drive, San Diego,
California 92121 ("Licensee").
Background
WHEREAS, Licensor is a wholly owned subsidiary of the Technion R & D
Foundation (the "Technion") and has the exclusive right to license and
commercialize any inventions developed by researchers or faculty members of the
Technion, and inventions developed at the Technion or developed using the
facilities or property of the Technion, and
WHEREAS, Inventor, a member of the faculty of the Technion, isolated and
genetically characterized a vascular endothelial growth factor comprising 145
amino acids ("VEGF-l45"), and identified for the first time biological
properties of VEGF-145 which may render it useful in the treatment of
cardiovascular disease including peripheral vascular disease, and
WHEREAS, Licensee is a company which focuses on developing gene therapies
for treating heart disease and desires to use a polynucleotide encoding VEGF-145
to develop potential therapies for heart disease.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
Licensor, Licensee and Inventor agree as follows:
1
<PAGE>
I. DEFINITIONS
"Licensed Field" means, and is limited to, the treatment of cardiovascular
disease, defined as the treatment of any and all diseases or disorders, whether
congenital or acquired, which affect the function or structure of the heart or
blood vessels or both, including but not limited to myocardial ischemia,
congestive heart failure, atherosoler resterosis, vascular or remodeling, and
peripheral vascular disease.
"Patent Rights" means any patents or patent applications assigned or
required to be assigned to the Technion or subsidiaries of the Technion
including Licensor, now or in the future, which claim VEGF-145, a vector
comprising VEGF-145, or the use of VEGF-145 in the Licensed Field. As used
herein, patents and patent applications shall include U.S. applications, U.S.
provisional applications, foreign patent applications, PCT international
applications, continuations, continuations-in-part, extensions, divisions,
provisionals, substitutions or additions to such applications and all patents
which are re-issues, re-validations and registrations based thereon. As used
herein, VEGA-145 shall include Analogues of VEGF-145.
"Analogues of VEGF-145" means peptides which have a structural homology to
VEGF-145 and which exert biological activity similar to that exerted by
VEGF-145.
"Technical Information" means information from Inventor, the Tectonic, its
faculty, staff, researchers, or students, including trade secrets, developments,
discoveries, data, drawings, techniques, documents, models and know-how, whether
or not patented or patentable, which relates in whole or in part to the Licensed
Field.
"Biological Material" means cell lines, nucleic acid, vectors, or other
biological materials, including the progeny and clones thereof, developed or
supplied by Inventor and/or the Technion, its faculty, staff, researchers, or
students, which relates in whole or in part to the Licensed Field.
"Proprietary Rights" shall mean the Patent Rights Technical Information,
and Biological Material.
"Licensed Process" means any process(es) which, in the absence of this
Agreement, infringe one or more claims of the patents set forth in the Patents
Rights that have not been held
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<PAGE>
invalid or unenforceable by an unappealed or unappealable judgment of a court of
competent jurisdiction.
"Licensed Products" means any products or tangible materials which, in the
absence of this Agreement, infringe one or more claims of the patents set forth
in the Patents Rights that have not been held invalid or unenforceable by an
unappealed or unappealable judgment of a court of competent jurisdiction.
"Net Sales" means the total gross receipts for sales of Licensed Products
or practice of Licensed Processes by or on behalf of Licensee, or its
sublicensees, and from leasing, renting, or otherwise making Licensed Products
available to others without sale, whether invoiced or not, less deductions for
(i) transportation charges, including insurance relating thereto; (ii) sales and
excise taxes or customs duties paid by selling party and any other governmental
charges imposed upon the sale of the Licensed Product(s); (iii) distributors
fees rebates or allowances actually granted, allowed or incurred; (iv) quantity
discounts, cash discounts or chargebacks actually granted, allowed, or incurred
in the ordinary course of business in connection with the sale of the Licensed
Product(s); and (v) allowances, or credits to customers, not in excess of the
selling price of the Licensed Product(s), on account of governmental
requirements, rejection, outdating, recalls or return of the Licensed
Product(s).
II. GRANT OF LICENSE
2.01 Licensor hereby grants to Licensee, under the Patent Rights and within only
the Licensed Field, the exclusive worldwide right and license to make, have
made, use, sell, have sold and import Licensed Products and Licensed Processes,
and the exclusive right to sublicense others to do the same provided the
sublicensee agrees to be bound by all terms set forth herein, except if modified
by prior agreement with Licensor.
III. BIOLOGICAL MATERIALS TRANSFER
Upon the execution of this Agreement, and as may be necessary or desirable
thereafter, Inventor and/or Licensor shall supply Licensee with Biological
Materials in Licensor's
3
<PAGE>
possession as reasonably required by Licensee and as reasonably available from
Licensor so as to assist Licensee in developing Licensed Product; and Licensed
Processes and shall make available to Licensee the Technical Information
relating thereto. Licensee acknowledges that it will hold the Biological
Materials which are delivered in confidence and as the sole property of the
Licensor. The Biological Materials provided will be for the sole purpose of the
Licensed Field and shall not be used for any other purpose by the Licensors
without the express written permission of Licensor. All supplies of Biological
Materials held by Licensee and its Sub-licensees shall, at Licensor's option, be
returned to Licensor or destroyed by Licensee upon the termination of this
Agreement.
IV RENUMERATION
4.01 License Fee. Within ten (10) days of execution of this Agreement, Licensee
shall pay to Licensor a non-refundable fee of sixteen thousand dollars
($16,000). This license fee shall be in addition to the royalties payable
pursuant to this License and, therefore, shall not be available for credit
against future royalties.
4.02 Minimum Annual Royalties. On or before the fifteenth day of January of
each calendar year beginning in the later of (a) the year 2004, or (b) the
issuance in the United States and/or the European Union of a patent with a
claim covering VEGF-145, a vecter comprising VEGF-145, or the use of VEGF-145
in the Licensed Field.
Licensee shall pay to Licensor a *** minimum annual royalty as
follows:
<TABLE>
<CAPTION>
Year Payment
---- -------
<S> <C> <C>
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
</TABLE>
4.03 Running Royalties. In addition to the License Fee of paragraph 4.01,
Licensee, on a quarterly basis, shall pay to Licensor a *** based on Net Sales
of all
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
4
<PAGE>
Licensed Products and Licensed Process. The running royalty to be paid shall be
offset against the minimum provided under paragraph 4.02.
4.04 Milestone Payments. In addition to the fees enumerated in paragraphs 4.01,
4.02 and 4.03, Licensee shall pay to Licensor, upon reaching the following
developmental / regulatory milestones with respect to a Licensed Product or
Licensed Process, the following non-refundable payments.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Milestone Target Date Payment to
Licensor
- --------------------------------------------------------------------------------
<S> <C> <C>
*** August 1, 1997 $25,000
***
***
- --------------------------------------------------------------------------------
*** *** , 1998 $100,000
***
***
- --------------------------------------------------------------------------------
*** *** ***
- --------------------------------------------------------------------------------
*** *** ***
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
4.05 Due Diligence. As an incentive for Licensee to reach the Milestones set
forth above in a timely manner, for any Milestone not reached within *** of
the Target Date, Licensee shall, within *** *** pay to Licensor a
non-refundable sum of fifty thousand dollars ($50,000) whereupon the Target
Dates for all unreached Milestones will advance by one year.
4.06 Sub-licensee Royalties. Licensor acknowledges that Licensee shall have the
right to grant sub-licenses in the Licensed Field, provided that Licensee shall
be responsible for payment of royalties to Licensor on Net Sales of such
sub-licenses as if such Net Sales were made by Licensee directly and pursuant to
the terms and conditions of this License Agreement.
4.07 Payments. Royalties on Licensed Products and Licensed Process shall accrue
at the time payment is received by Licensee. Royalties which have accrued in any
calendar quarter shall be
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
5
<PAGE>
payable within *** after the end of such calendar quarter. Any royalties not
paid to Licensor when due hereunder shall bear interest *** . *** is in effect
from time to time from the date such royalties were due to the date such
royalties are paid. Royalties shall be payable in U.S. dollars, at Licensor's
option, by a check payable to the order of "Dimotech" and drawn on a U.S. bank
or by wire transfer to a bank account designated by Licensor. Where it is
necessary to convert the amount of royalties due from another currency into U.S.
dollars, conversion shall be made at the spot rate or the mean of the buy and
sell spot rates, if no single rate is published, for the last business day of
the calendar quarter in which such royalties have accrued as published by West
Coast edition of The Wall Street Journal or if no rate(s) is (are) therein
published as prevailing at the close of business on such day at Chase Manhattan
Bank New York, New York.
4.08 Royalty Reports; Inspection. License agrees to keep accurate and correct
records of Licensed Products made, used, or sold and Licensed Processes
practiced under this Agreement appropriate to determine the amount of royalties
due Licensor. Upon *** prior notice to Licensee and during normal business
hours, but not more frequently than once per calendar year, an independent
auditor paid for and selected by Licensor (which selection shall be with the
reasonable consent of the Licensee) may inspect such books and records of
Licensee, its Affiliates and Sub-licensees at their respective facilities for
the *** immediately preceding the date of inspection, to verify the correctness
of the reports given to Licensor under, this Section 4.07. If an inspection
shows an underreporting or underpayment *** then Licensee shall reimburse
Licensor for the cost of the inspection.
V. PATENT PROSECUTION & MAINTENANCE PUBLICATIONS
5.01 Prosecution and Maintenance. The preparation, filing, prosecution, and
maintenance of all patent applications-- domestic, international, and foreign--
covering the Licensed Product and Licensed Process shall be made on behalf of
Licensor by attorneys representing Licensor. Licensee shall reimburse Licensor
for all reasonable and approved costs associated therewith Licensee and its
designated attorneys shall have the power to review and inspect all patents
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
6
<PAGE>
applications and amendments and other Patent Office submissions before the
filing thereof and shall receive copies of all Patent Office and International
Bureau notices and actions promptly after receipt by Licensor. Licensor and
License agree to cooperate in good faith in formulating and implementing patent
strategies agreeable to both parties.
5.02 Marking. Licensee shall comply with all United States and foreign
jurisdiction laws in respect of patent marking, if any.
5.03 Ownership. All Patents Rights, Technical Information, and Biological
Materials shall be the sole property of Licenser except as provided herein.
5.04 Infringement by Third Parties. Licensor shall promptly notify Licensee in
writing of any alleged or threatened infringement of any patent included within
Patent Rights, of which they become aware. Licensee shall have the sole right to
bring and control any action or proceeding with respect to such infringement at
its own expense and by counsel of its own choice. In the event Licensee brings
an infringement action, Licensor shall cooperate fully, including if required to
bring such action, the furnishing of a power of attorney or agreeing to be
joined as a party, the reasonable costs of which shall be at Licensee expense.
Any recovery realized as a result of such litigation after reimbursement of any
and all litigation expenses of Licensee, shall be treated as Net Sales for
purposes of the royalty provisions of this Agreement.
5.05 Infringement of Third Party Rights. Each parry shall promptly notify the
others in writing of any known infringement by Licensee or asserted infringement
by licensee of any third party's intellectual property (collectively, "Alleged
Third Parry Rights") by reason of the manufacture, import, use, sale or offer
for sale of any Licensed Product or Licensed Process. Licensee shall have the
right to control any defense of any claim of infringement of Alleged Third Party
Rights at its own expense and any counsel of its choice, and Licensor shall have
the right, at its own expense, to be represented in any such action by counsel
of its choice. In the event of any infringement or asserted infringement of
Alleged Third Party Rights, Licensor shall cooperate in good faith with Licensee
on a mutual and reasonable basis to negotiate and settle any dispute with any
such third party concerning the Alleged Third Party Rights. Licensor has
conducted no search to determine whether the Licensed Product or Licensed
Process infringes Alleged Third Party Rights.
7
<PAGE>
5.06 Cooperation in Connection with Infringement Disputes. In any suit or
dispute involving infringement or asserted infringement by a third party of a
patent included within the Patent Rights or infringement or asserted
infringement by Licensee of Alleged Third Party Rights, the parties shall
cooperate fully, and upon the request of and at the expense of Licensee,
Licensor shall make available to Licensee at reasonable times and under
appropriate conditions all relevant personnel, records, papers information,
samples, specimens and the like which are in its possession or control.
5.07 Publication. Each party to this Agreement recognizes that the publication
of papers regarding the subject matter of this Agreement, for example, subject
matter within Patent Rights, including oral presentations and abstracts, may be
beneficial to the parties provided such publications are subject to reasonable
controls to protect proprietary information and Patent Rights. In particular, it
will be the goal of the parties to maintain the confidentiality of any
proprietary information until a patent application covering said information has
been filed. Accordingly, Licensee shall have the right to review any paper
proposed for publication by Inventor, including oral presentations and
abstracts, which relates to the subject matter of this Agreement. Before any
such paper is submitted for publication, Inventor will deliver a complete copy
to Licensee at least 45 days prior to submitting the paper to a publisher.
Licensee shall review any such paper and give its comments to Licensor within
fifteen (15) days of the delivery of such paper to the receiving party. With
respect to oral presentation materials and abstracts, the parties shall make
reasonable efforts to expedite review of such materials and abstracts, and shall
return such items a soon as practicable to the publishing party with appropriate
comments, if any, but in no event later than ten (10) days from the date of
delivery to the receiving party. At Licensee's request, Inventor will delay (but
not prevent) a publication which relates to the subject matter of this Agreement
in order to allow a patent application to be prepared and filed. Under no
circumstances may one party publish data or information of the other without
permission of the other.
8
<PAGE>
VI. SCIENTIFIC CONSULTANTS
Licensee may contract directly with Inventor or other faculty members of
the Technion to utilize their services as scientific consultants. Licensor shall
be informed of such arrangement and receive copies of any agreement in a timely
manner. During the term of such consulting agreement the consultant shall have
the obligation to assign rights to any invention for which he/she is an inventor
(sole or joint) to Licensor. Licensee shall have a right of first refusal to
acquire an exclusive license for such inventions which result directly and
solely from the consulting arrangement under terms to be negotiated between the
parties in good faith.
VII. LIMITATION OF LIABILITY, INDEMNIFICATION, NEGATION OF WARRANTIES
7.01 Limitation of Liability. Licenser shall not be liable to Licensee, its
successors, assigns, affiliates or sub-licensees for any loss of profits, loss
of business, interruption of business, nor for indirect, special or
consequential damages of any kind whether under this Agreement or otherwise,
even if Licensor has been advised of the possibility of such loss.
7.02 Licensor's Patent Rights. Licensor hereby represents and warrants that, to
the best of its knowledge, it holds the exclusive right to license the Patent
Rights, free and clear of any and all liens, claims and encumbrances. Licensor
represents and warrants that it knows of no reason why any patents within Patent
Rights would be barred, unpatentable, invalid or unenforceable, that they are
not aware of any asserted or unassented claim or demand of any right in or to
any of the Patent Rights, including a claim or demand of inventorship by an
inventor that has not or will not transfer its rights to Licenser in due course,
and that they have disclosed all relevant information known to them regarding
the Patent Rights to Licensee.
7.03 No warranties. Except as set forth above, Licensor makes no representations
or warranties, expressly or impliedly, with respect to the Licensed Products,
Licensed Process, or Proprietary Rights. By way of example, but not of
limitation, Licensor makes no representations or warranties as to the safety,
medical efficacy, commercial utility, non-infringement, patentability or
validity of the Licensed Products, Licensed Process or Patent Rights. Licensor
9
<PAGE>
shall not be held to any liability with respect to any claim by a third party on
account of, or arising from, the use of the Licensed Products or Licensed
Process.
7.04 Indemnification. Licensee will defend, indemnify and hold Licensor and the
Technion, its subsidiaries, faculty, scientists, students, managers, directors
officers, employees and agents (collectively the "Indemnified Parties") harmless
against any and all liability, loss, damage, claim or expense (including
attorney's fees) (collectively the "'Indemnified Losses") arising out of or in
connection with any use, sale or other disposition by Licensee, its Affiliates,
sub-licensees, vendors, customers or other third parties of the Licensed
Products, Licensed Process, or Biological Materials. As examples, and in no way
limiting the generality of the foregoing, Licensee will indemnify, hold
harmless, and defend the Indemnified Parties against any and all of the
following claims (i) claims by or on behalf of a human subject of any clinical
trial or study, (ii) claims arising from failure to comply with all governmental
regulations or failure to obtain any required license, clearance or other
approval necessary to use, market or sell the Licensed Products or Licensed
Process, (iii) product liability claims of any nature, and (iv) claims by a
third party that Licensee's, its Affiliate's or its Sub-licensee's manufacture,
use, sale or other disposition of the Licensed Products, Licensed Processes, or
Biological Material violates any patent, copyright, trademark, other proprietary
or property rights of such third party. This indemnity shall survive termination
or expiration of this Agreement.
7.05 Insurance. Licensee shall maintain insurance in type and amount considered
to be reasonable and prudent given the types of risks involved in the
development, pre-commercialization and commercialization of the Licensed
Products and Licensed Process. The liability limits on such insurance shall be
reasonable for the risks involved.
VIII. CONFIDENTIALITY
8.01 Confidentiality. The Recipient (as defined below) shall keep confidential
and shall use only as set forth herein during the term of this Agreement and
thereafter all Technical Information, Biological Material, and any other
information supplied by or on behalf of a party (the "Disclosing party") with
the exception of (a) information and materials in the public domain through no
act of Recipient, (b) information known to Recipient at the time of receipt
thereof
10
<PAGE>
from Licensor, and (c) information disclosed to Recipient by a third party with
no obligation of confidentiality to the Disclosing party. In addition,
disclosure may be made (i) to governmental agencies to the extent required or
desirable to secure governmental approval for the marketing of Licensed Products
and Licensed Process or otherwise required by law, (ii) to pre-clinical and
clinical investigators where necessary or desirable for their information to the
extent normal and usual in the custom of the trade, and (iii) to Sub-licensees
to the extent necessary and under a secrecy agreement with essentially the same
confidentiality provisions contained herein.
8.02 Publicity. No public announcement concerning the existence or the terms of
this Agreement shall be made, either directly or indirectly, by either party,
except as may be legally required by applicable laws, regulations, or judicial
order, without first obtaining the approval of other party and agreement upon
the nature, text, and timing of such announcement, which approval and agreement
shall not be unreasonable withheld, provided however, it shall not be
unreasonable for License to withhold permission to use the name of the Licensee
or its sublicensees. The party desiring to make any such public announcement
shall provide the other party with a written copy of the proposed announcement
in sufficient time prior to public release to allow such other party to comment
upon such announcement, prior to public release. Neither parry shall issue any
press release or make any public announcement which included or otherwise uses
the name of the party in any public statement or document except with the prior
written consent of such party.
IX. TERMINATION
9.01 Term. The term of this Agreement and the rights and licenses granted
hereunder shall commence an October 17, 1996 and shall continue until expiration
of the last to expire of the patents within the Patent Rights, unless this
Agreement shall be earlier terminated
9.02 Failure to Pay. If Licensee shall at any time default in the payment of any
royalty or other payment obligation or shall commit any material breach of any
covenant or agreement herein contained or shall make any false report and shall
fail to remedy any such default or material breach within sixty (60) days after
receipt by Licensee of written notice thereof by Licensor, Licensor may, at its
option, cancel this agreement and revoke the rights and licenses
11
<PAGE>
herein granted, by notice in writing to such effect, but such act shall not
prejudice the right of Licensor to recover any royalty or other sums due prior
to the time of such cancellation, it being understood, however, that if within
sixty (60) days after receipt of any such notice Licensee shall have rectified
its default, then the rights and licenses herein granted shall remain in force
as if no breach or default had occurred on the part of Licensee.
9.03 Insolvency. If Licensee becomes insolvent or bankrupt, makes any assignment
for the benefit of creditors, fails generally to pay its debts as they become
due, is adjudged bankrupt, or if a receiver, custodian, or trustee of Licensee's
property or a mayor part of Licensee's property is appointed, or if any other
proceeding for relief under any bankruptcy law or similar law for the relief of
debtors is instituted by or against Licensee and, if instituted against
Licensee, is consented to or not dismissed within sixty (60) days after such
institution, then this Agreement and the licenses herein granted shall thereupon
automatically terminate.
9.04 Termination by Licensee. Licensee shall have a unilateral right to
terminate this Agreement by providing sixty (60) days prior written notice to
Licensor, but such act shall not prejudice the right of Licensor to recover
any royalty or other sums which accrued prior to the date of termination,
including reimbursement for the authorized parent costs set forth in
paragraph 5.01. Within ten (10) days of notifying Licensor of said
termination, Licensee will pay to Licensor a termination fee of thirty
thousand dollars ($30,000).
9.05 No Waiver. The right of either party to terminate this Agreement as
hereinabove provided shall not be affected in any way by its waiver of, or
failure to take action with respect to, any previous failure to perform
hereunder.
9.06 Rights Upon Termination. Upon termination of this Agreement, Licensee and
its Affiliates shall have the right, *** following such date of termination, to
dispose of Licensed Products completed or substantially completed on the date of
termination and to complete orders, outstanding on such date of termination, for
Licensed Products. Royalties shall be paid to Licensor with respect to such
permitted sales of Licensed Products following such date of termination as
though such termination had not occurred. Any sublicenses granted by Licensee
shall provide for the termination of the sublicense, or the conversion to a
license.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
12
<PAGE>
directly between such sublicensees and Licensor, at the option of the
sublicensee, upon termination this Agreement as provided herein.
X. NOTICE
10.1 All reports, communications, requests or notices required or permitted by
this Agreement to be given to a party shall be in writing and shall be deemed to
be duly given is mailed by certified or registered mail, or delivered by Post
Office Express Mail, Federal Express, DHL, or other express mail carrier, to the
party concerned at its address as set forth on page 1 hereof with a copy to be
mailed as follows:
Notice to Licensor (copy to): Notice of Licensee (copy to):
----------------------------- -----------------------------
Jonathan M. Cohen Bradford J. Duft
Wigman, Cohere, Leitner & Myers. P.C. Lyon & Lyon
The Farragut Building, 10th Floor 4250 Executive Square, Ste. 600
900 17th Street, N.W., Suite 1000 La Jolla, CA 92037
Washington, D.C. 20006
10.2 Severability. If any provision of this Agreement is deemed illegal or
unenforceable, the remainder of the provisions of the agreement shall not be
affected thereby.
10.3 No Partnership, Joint Venture or Agency. Nothing herein contained shall be
construed to constitute the parties hereto as partners or as joint venturers, or
as agent of the other and Licensee shall have no power to obligate or bind
Licensor in any manner whatsoever in its relationships with Licensee's
suppliers, contractors, customers, employees, agents, or otherwise. Licensor is
a corporation formed under the laws of the State of Israel and Licensor shall
have no liability for any action, inaction, agreement of Licensee.
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XI. MISCELLANEOUS
11.01 Adjudication and Governing Law. Any suit and/or proceeding relating to the
construction, performance, or effect of this Agreement (other than patent
infringement or validity disputes) will be brought and prosecuted only in the
county of the party against whom that suit and/or proceeding is instituted. This
Agreement shall be governed in all respects in accordance with the laws of the
State of California USA (other than for patent infringement or validity
disputes). Patent infringement or validity disputes shall be adjudicated in a
court having competent jurisdiction in the country in which the disputed patent
issued.
11.02 No Waiver. A waiver by either party of a breach or violation of any
provision of this Agreement will not constitute or be construed as a waiver of
any other breach or violation of this Agreement.
11.03 Entire Agreement. This Agreement embodies the entire understanding of the
parties relating to the subject matter hereof and supersedes all prior
understandings and agreements. No modification or amendment of this Agreement
shall be valid or binding except if in writing signed by each of the parties.
11.04 No Assignment. Neither this Agreement nor any rights granted hereunder,
shall be assignable by any party hereto without prior written consent of the
other party; provided however, that Licensee may assign this Agreement
without the consent of the Licensor (i) to its Affiliates, if Licensee
guarantees the full performance of its Affiliates' obligations hereunder,
(ii) to Schering AG or (iii) in connection with the sale or transfer of all
or substantially all of its assets, whether by merger, sale of stock,
operations of law or otherwise. Any purported assignment in contravention of
this section shall, at the option of the non-assigning party, be null and
void and of no effect.
11.05 Headings. Any headings and captions used in this Agreement are for
convenience and reference only and are not a part of this Agreement.
11.06 Construction. The parties acknowledge that this Agreement has been the
subject of full opportunity for negotiation and amendment and that the party who
has taken the role of drafter shall not suffer any adverse construction of any
terms or language of this Agreement because of such role.
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11.07 Multiple Products. A dispute as to whether a product made, used or sold by
Licensee is a Licensed Product will not cause termination of this Agreement with
respect to a different product made, used, or sold by Licensee if both parties
agree that said different product is a Licensed Product.
11.08 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and such
counterparts together shall constitute one agreement.
11.09 Initial patentability analysis. It is the sole responsibility of the
Licensee, within *** of the Effective Date, to determine to its satisfaction the
patentability and scope of Patent Rights, and Licensee may terminate this
agreement within *** of the Effective Date if it not satisfied with said
patentability and scope with no obligation to pay the termination fee set forth
in section 9.04 and without any claims or demands for any of the parties.
IN WITNESS WHEREOF, the parties hereto have duly executed this License
Agreement as of the date written.
Dimotech. Ltd.
By: /s/ Ami Lowenstein
--------------------------------
Ami Lowenstein
Title: Managing Director
Date: Oct 18 96
Inventor
By: /s/Gera Neufeld
--------------------------------
Gera Neufeld
Date: Nov 1, 1996
Collateral Therapeutics, Inc.
By: /s/ Jack W. Reich, Ph.D.
--------------------------------
Jack Reich
Title: President and CEO
Date: Oct. 28, 1996
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
Exhibit 10.14
Exclusive License Agreement
between
The Regents of the University of California
and
Collateral Therapeutics, Inc.
for
Gene Therapy for Congestive Heart Failure
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
--------------
U.C. AGREEMENT
CONTROL NUMBER
***
--------------
<PAGE>
Table of Contents
Recitals.................................................................... 1
1. Definitions........................................................... 4
2. Grant................................................................. 7
3. License Issue Fee..................................................... 9
4. Royalties............................................................. 10
5. Due Diligence......................................................... 14
6. Progress and Royalty Reports.......................................... 16
7. Books and Records..................................................... 18
8. Life of the Agreement................................................. 19
9. Termination by The Regents............................................ 20
10. Termination by Licensee............................................... 21
11. Disposition of Patent Products on Hand Upon Termination............... 21
12. Use of Names and Trademarks........................................... 22
13. Limited Warranty...................................................... 23
14. Patent Prosecution and Maintenance.................................... 24
15. Patent Marking........................................................ 28
16. Patent Infringement................................................... 28
17. Indemnification....................................................... 30
18. Notices............................................................... 32
19. Assignability......................................................... 33
20. Late Payments......................................................... 34
21. Waiver................................................................ 34
22. Failure to Perform.................................................... 34
23. Governing Laws........................................................ 35
24. Government approval or Registration................................... 35
25. Export Control Laws................................................... 36
26. Force Majeure......................................................... 36
27. Confidentiality....................................................... 37
28. Miscellaneous......................................................... 39
<PAGE>
***
Revised: 7/13/95 (SH)
Draft date: January 14, 1997
Exclusive License Agreement
for
Gene Therapy for Congestive Heart Failure
This license agreement ("Agreement") is effective this 22nd day of Jan.,
1997, by and between The Regents of the University of California ("The
Regents"), a California corporation, having its statewide administrative offices
at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 and Collateral
Therapeutics, Inc., ("Licensee"), a California corporation, having a principal
place of business at 9360 Towne Centre Drive, San Diego, California 92121.
Recitals
Whereas, certain inventions, relating to "Gene Therapy for Congestive
Heart Failure" ("Invention"), useful for enhancing myocardial B-adrenergic
responsiveness in mammalian hearts using gene therapy, were made at the
University of California, San Diego ("UCSD"), are described and claimed in a
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
--------------
U.C. AGREEMENT
CONTROL NUMBER
***
--------------
<PAGE>
U.S. Patent Application Serial No. *** naming *** H. Kirk Hammond *** and ***
as co-inventors, and are identified in the below defined Patent Rights;
Whereas, it is the intention of the Licensee to investigate the use of the
gene therapy method claimed in U.S. Patent Application Serial No. *** and
previously licensed to Licensee in the agreement entitled "Angiogenesis Gene
Therapy," executed on September 29, 1995, in the development of Patent Products
licensed herein;
Whereas, Licensee entered into a Letter of Intent ("Letter of Intent"),
having U.C. Agreement Control No. *** effective *** that provided the Licensee
with a time-limited exclusive right to negotiate for a license to the Patent
Rights;
Whereas, under 35 USC 200-212, The Regents may elect to retain title to
any invention (including the Invention) made by it, in whole or in part, under
U.S. Government funding;
Whereas, if The Regents elects to retain title to the Invention, then the
law requires that The Regents grant to the U.S. Government a nontransferable,
paid-up, nonexclusive, irrevocable license to use the Invention by or on behalf
of the U.S. Government throughout the world;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
Whereas, any patent application claiming an invention made by H. Kirk
Hammond, M.D. is subject to assignment to the *** absent a release to ***
from the ***;
Whereas, 37 CFR ss.501.6(a)(2) allows the *** to release the Invention
to Dr. Hammond, under certain conditions;
Whereas, Dr. Hammond, an employee of The Regents, is under obligation to
assign to The Regents the rights in the Invention that were released to him
by the ***;
Whereas, Dr. Hammond assigned to The Regents title to the Invention,
which was released to him from the *** and granted the required licenses to
the U.S. Government;
Whereas, Licensee is a "small entity" as defined in 37 CFR Section 1.9
and a "small-business concern" defined at 15 U.S.C. ss.632;
Whereas, both parties recognize that royalties due under this Agreement
will be paid on issued patents and pending patent applications that are being
prosecuted diligently and in good faith;
Whereas, Licensee requested an exclusive license to the Patent Rights
from The Regents; and
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
Whereas, The Regents wish to grant an exclusive license to the Patent
Rights to Licensee so that products and other benefits derived from the
Invention can be enjoyed by the general public.
- - oo O oo - -
The parties agree as follows:
1. Definitions
As used in this Agreement, the following terms will have the meaning set
forth below:
1.1 "Patent Rights" means all U.S. patents and patent applications and
foreign patents and patent applications assigned to The Regents, and in the
case of foreign patents and patent applications those requested under
Paragraph 14.4 herein, including any reissues, extensions, substitutions,
continuations, divisions, and continuations-in-part applications (only to the
extent, however, that claims in the continuations-in-part applications are
entitled to the priority filing date of the parent patent application) based
on and including any subject matter claimed in or described according to the
requirements of 35 USC Section 112 in U.S. Patent Application Serial
4
<PAGE>
Number *** entitled *** filed *** by Dr. H. Kirk Hammond, et al. and
assigned to The Regents.
1.2 "Patent Products" means:
1.2.1 any kit, composition of matter, material, or product;
1.2.2 any kit, composition of matter, material, or product to be
used in a manner requiring the performance of the Patent
Method; or
1.2.3 any kit, composition of matter, material, or product produced
by the Patent Method;
to the extent that the manufacture, use, or sale of such kit, composition of
matter, material, or product, in a particular country, would fall within the
scope of (1 ) an unexpired claim of a patent under Patent Rights in that
country or (2) a pending claim of a pending patent application that is being
prosecuted diligently and in good faith in that country, were it issued as a
application is pending. This definition of Patent Products also includes a
service either used by Licensee or provided by Licensee to its customers when
such service requires the practice of the Patent Method.
1.3 "Patent Method" means any process or method, the use or practice of
which in a country would fall within the scope of (1) an unexpired
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
claim of a patent under Patent Rights in that country or (2) a pending claim of
a pending application that is being prosecuted diligently and in good faith in
that country, were it issued as a claim in a patent under Patent Rights in that
country in which such application is pending.
1.4 "Net Sales" means the gross invoice prices from the sale of Patent
Products by Licensee, an Affiliate, a Joint Venture, or a sublicensee to
independent third parties for cash or other forms of consideration in
accordance with generally accepted accounting principles limited to the
following deductions (if not already deducted from the gross invoice price
and at rates customary within the industry): (a) allowances (actually paid
and limited to rejections, returns, and prompt payment and volume discounts
granted to customers of Patent Products, whether in cash or Patent Products
in lieu of cash); (b) freight, transport packing, insurance charges
associated with transportation; and (c) taxes, tariff, or import/export
duties based on sales when included in gross sales, but not value-added taxes
or taxes assessed on income derived from such sales.
1.5 "Affiliate(s)" of Licensee means any entity which, directly or
indirectly, controls Licensee, is controlled by Licensee, or is under common
control with Licensee ("control" for these purposes being defined as the
actual, present capacity to elect a majority of the directors of such
affiliate,
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<PAGE>
or if not, the capacity to elect the members that control fifty percent (50%)
of the outstanding stock or other voting rights entitled to elect directors)
provided, however, that in any country where the local law will not permit
foreign equity participation of a majority, then an "Affiliate" will include
any company in which Licensee will own or control, directly or indirectly,
the maximum percentage of such outstanding stock or voting rights permitted
by local law. Each reference to Licensee herein will be meant to include its
Affiliates.
1.6 "Joint Venture" means any separate entity established pursuant to
an agreement between a third party and Licensee to constitute a vehicle for
commercializing Patent Products, in which the separate entity manufactures,
uses, purchases, sells, or acquires Patent Products from Licensee. Each
reference to Licensee herein will be meant to include its Joint Venture(s).
2. Grant
2.1 Subject to the terms of this Agreement, subject to the licenses
granted to the U.S. Government as set forth in the Recitals above, and
subject to the provisions of Section 2.5 below, The Regents hereby grants to
Licensee exclusive licenses under Patent Rights to make, use, sell, offer for
7
<PAGE>
sale, and import Patent Products and to practice the Patent Method where
Patent Rights exist.
2.2 The Regents also grants to Licensee the exclusive right to issue
sublicenses to third parties to make, use, sell, offer for sale, and import
Patent Products and to practice the Patent Method, provided Licensee retains
current exclusive rights thereto under this Agreement. To the extent
applicable, such sublicenses will include all of the rights of and
obligations due to The Regents (and, if applicable, the U.S. Government,
including 35 USC Sections 200-212 and the implementing regulations),
including the payment of royalties in Article 4. (Royalties) that are
contained in this Agreement.
2.3 Licensee will notify The Regents of each sublicense granted
hereunder and provide The Regents with a copy of each sublicense. Licensee
will collect and pay all royalties due The Regents as set forth in Paragraph
4.1 below (and guarantee all such payments due from sublicensees). Licensee
will require sublicensees to provide it with progress and royalty reports in
accordance with the provisions herein, and Licensee will collect and deliver
to The Regents all such reports due from sublicensees.
8
<PAGE>
2.4 If this Agreement is terminated for any reason or the exclusive
licenses are reduced to nonexclusive licenses in accordance with Paragraph
5.4, then any or all sublicenses will be assigned to The Regents, provided
that The Regents will not be bound by any duties or obligations contained in
any sublicense that extend beyond the duties and obligations of The Regents
in this Agreement.
2.5 Nothing in this Agreement will be deemed to limit the right of The
Regents to publish any and all technical data resulting from any research
performed by The Regents relating to the Invention and to make and use Patent
Product(s), Patent Method(s), and associated technology solely for
educational and noncommercial research purposes.
3. License Issue Fee
3.1 As partial consideration for all the rights and licenses granted to
Licensee, Licensee will pay to The Regents a license issue fee of Six Hundred
and Fifty Thousand Dollars ($650,000) according to the following schedule:
3.1.1 One Hundred Thousand Dollars ($100,000) within thirty (30)
days after the execution of this Agreement by both parties;
3.1.2 *** on or before *** ;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
3.1.3 *** on or before *** ;
3.1.4 *** on or before *** ; and
3.1.5 *** on or before ***.
3.2 The fees set forth in Paragraph 3.1 above are non-refundable,
non-creditable, and not an advance against royalties.
4. Royalties
4.1 As further consideration for all the rights and licenses granted to
Licensee, Licensee also will pay to The Regents an earned royalty at the rate of
*** based on the Net Sales of Patent Products. In the event Patent Products also
employ the invention claimed in U.S. Patent Application Serial No. *** the
Licensee will pay to The Regents the royalty rate specified in the agreement
executed on September 29, 1995 covering such U.S. Patent Application Serial
No. *** in addition to the royalty rate specified herein.
4.2 Paragraphs 1.1, 1.2, and 1.3 define Patent Rights, Patent Product, and
Patent Method so that royalties will be payable only on Patent Products covered
by either a pending patent application that is being prosecuted diligently and
in good faith in a relevant country or by an issued
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
patent in a relevant country. Earned royalties will accrue in each country for
the duration of any issued patent within Patent Rights in that country and will
be payable to The Regents when Patent Products are invoiced, or if not invoiced,
when delivered to a third party for the purpose of patient administration or for
purposes other than clinical trials. Licensee, its Affiliates, Joint Ventures,
and sublicensees will not use Patent Products or Patent Methods for
administration to patients in any business of the Licensee, or of its
Affiliates, Joint Ventures, and sublicensees without payment of applicable
royalty on Net Sales to be calculated on retail sales prices as if the sales
transaction had occurred at arm's-length to an unrelated third party.
4.3 Royalties accruing to The Regents will be paid to The Regents
quarterly on or before the following dates of each calendar year:
February 28 for the calendar quarter ending December 31
May 31 for the calendar quarter ending March 31
August 31 for the calendar quarter ending June 30
November 30 for the calendar quarter ending September 30
Each such payment will be for royalties which accrued up to the most recently
completed calendar quarter of Licensee.
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4.4 Beginning in the year 2004, Licensee will pay to The Regents a minimum
annual royalty in the amounts and at the times set forth below:
<TABLE>
<CAPTION>
<S> <C> <C>
2004 - $ ***
2005 - $ ***
2006 - $ ***
2007 - $ ***
2008 - $ ***
</TABLE>
In each succeeding calendar year after the year 2008 Licensee will pay a
minimum annual royalty of Seven Hundred and Fifty Thousand ($750,000) for the
life of this Agreement. Each minimum annual royalty payment must be paid to
The Regents by February 28 of each year following the calendar year in which
royalties accrued. Royalties paid during the prior calendar year will be
credited against the minimum annual royalty payment due and owing for the
prior calendar year.
4.5 All monies due The Regents will be payable in United States funds
collectible at par in San Francisco, California. When Patent Products are sold
for monies other than United States dollars, the earned royalties will first be
determined in the foreign currency of the country in which such Patent Products
were sold and then converted into equivalent United States
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
funds. The exchange rate will be that rate quoted in the Wall Street Journal on
the last business day of the reporting period.
4.6 Earned royalties on sales of Patent Products occurring in any country
outside the United States will not be reduced by any taxes, fees, or other
charges imposed by the government of such country except those taxes, fees, and
charges allowed under the provisions of Paragraph 1.4 (Net Sales). Licensee will
be responsible for all bank transfer charges.
4.7 Notwithstanding the provisions of Article 26. (Force Majeure), if at
any time legal restrictions prevent prompt remittance of part or all royalties
owed to The Regents by Licensee with respect to any country where a Patent
Product is sold or distributed, Licensee will convert the amount owed to The
Regents into United States funds and will pay The Regents directly from another
source of funds for the amount impounded.
4.8 In the event that any patent or any claim thereof included within the
Patent Rights is held invalid or unenforceable in a final decision by a court of
competent jurisdiction and last resort and from which no appeal has or can be
taken, all obligation to pay royalties based on such patent of claim or any
claim patentably indistinct therefrom will cease as of the date of such final
decision. Licensee will not, however, be relieved from paying any
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<PAGE>
royalties that accrued before such decision or that are based on another patent
or claim that has not expired or that is not involved in such decision.
4.9 No royalties will be collected or paid hereunder to The Regents on
Patent Products sold to the account of the U.S. Government. Licensee and its
sublicensee will reduce the amount charged for Patent Products distributed to
the United States Government by an amount equal to the royalty for such Patent
Products otherwise due The Regents as provided herein.
5. Due Diligence
5.1 Licensee, upon execution of this Agreement, will diligently proceed
with the development, manufacture and sale of Patent Products. In this regard,
The Regents acknowledges that the technology covered by this Agreement has only
recently been invented and that substantial additional effort, expense and time,
as well as regulatory approval, will be required before manufacture and sales of
any Patent Products will be possible. Meeting the requirements of Section 5.3
below shall be deemed to satisfy the due diligence requirements of this Article
5.
5.2 Licensee will be entitled to exercise prudent and reasonable business
judgment in the manner in which it meets its due diligence
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<PAGE>
obligations hereunder, including under Section 5.3 below. In no case, however,
will Licensee be relieved of its obligations to meet each of the due diligence
provisions of Paragraph 5.3 below.
5.3 If Licensee is unable to perform any of the following:
5.3.1 file an Investigational New Drug application with the U.S.
Food and Drug Administration on or before *** *** ;
5.3.2 begin Phase I Clinical Trials in the United States for Patent
Products on or before *** ;
5.3.3 enter Pivotal Trials (a combination of Phase II and Phase III
Clinical Trials) in the United States for said Patent Products
on or before *** ;
5.3.4 file for marketing approval in the United States for said
Patent Products on or before *** ;
5.3.5 market Patent Products in the United States within *** after
receiving marketing approval of such Patent Products from the
U.S. Food and Drug Administration; and
5.3.6 diligently and earnestly fill the market demand for Patent
Products following commencement of marketing at any time
during the exclusive period of this Agreement;
then The Regents will have the right and option to terminate this Agreement or
reduce the exclusive licenses granted to Licensee to non-exclusive licenses in
accordance with Paragraph 5.4 hereof. The exercise of this right
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
15
<PAGE>
and option by The Regents supersedes the rights granted in Article 2. (Grant).
5.4 To exercise either the right to terminate this Agreement or reduce
the exclusive licenses granted to Licensee to non-exclusive licenses for lack
of any diligence requirement specified in this Article 5. (Due Diligence),
The Regents will give Licensee written notice of the deficiency. Licensee
thereafter has 60 (sixty) days to cure the deficiency. Licensee shall be
entitled to a one-time extension of each of the dates set forth in
Subparagraphs 5.3.1 through 5.3.4 (which have not been met) by one (1)
additional year to cure the deficiency upon payment of One Hundred Thousand
Dollars ($100,000) to The Regents, provided that such payment is received by
The Regents within sixty (60) days of receipt of written notice by The
Regents of Licensee's deficiency. The One Hundred Thousand Dollar ($100,000)
payment has the effect of extending the subject date and all subsequent dates
by one (1) year. If The Regents has not received the One Hundred Thousand
Dollar ($100,000) payment by the end of the sixty (60)-day period or written
tangible evidence satisfactory to The Regents that the deficiency has been
cured by the end of the sixty (60)-day period then The Regents may, at its
option, terminate this Agreement or reduce the exclusive
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<PAGE>
licenses granted to Licensee to non-exclusive licenses by giving written notice
to Licensee in accordance with Article 18. (Notices).
6. Progress and Royalty Reports
6.1 Beginning August 31, 1997, and semi-annually thereafter, Licensee will
submit to The Regents a progress report covering activities by Licensee related
to the development, including clinical trials and testing, of all Patent
Products and the obtaining of the governmental approvals necessary for
marketing. These progress reports will be provided to The Regents to cover the
progress of the research and development of the Patent Products until their
first commercial sale in the United States.
6.2 The progress reports submitted under Paragraph 6.1 will include, but
not be limited to, the following topics so that The Regents may be able to
determine the progress of the development of Patent Products:
o summary of work completed;
o summary of work in progress;
o current schedule of anticipated events or milestones specified
in Paragraph 5.3 and the dates when said milestones have been
met or will be met, as of the time of the report;
o market introduction date of Patent Products; and
o activities of sublicensees, if any.
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6.3 Licensee will also report to The Regents in its immediately subsequent
progress and royalty report the date of first commercial sale of a Patent
Product(s) in each country where the Licensee has sought marketing approval.
6.4 After the first commercial sale of a Patent Product, Licensee will
provide The Regents with quarterly royalty reports to The Regents on or before
each February 28, May 31, August 31, and November 30 of each year. Each such
royalty report will cover the most recently completed calendar quarter of
Licensee (October through December, January through March, April through June,
and July through September) and will show:
6.4.1 the gross sales and Net Sales of Patent Products sold by
Licensee and reported to Licensee as sold by its sublicensees
during the most recently completed calendar quarter;
6.4.2 the number of Patent Products sold or distributed by Licensee
and reported to Licensee as sold or distributed by its
sublicensees;
6.4.3 the royalties, in U.S. dollars, payable hereunder with respect
to Net Sales; and
6.4.4 the exchange rates used, if any.
6.5 If no sales of Patent Products have been made during any reporting
period after the first commercial sale of a Patent Product, then a statement to
this effect is required.
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7. Books and Records
7.1 Licensee will keep books and records accurately showing all Patent
Products manufactured, used, and/or sold under the terms of this Agreement. Such
books and records will be preserved for at least four (4) years after the date
of the royalty payment to which they pertain and will be open to inspection by
representatives or agents of The Regents at reasonable times to determine the
accuracy of the books and records and to determine compliance by Licensee with
the terms of this Agreement.
7.2 The fees and expenses of representatives of The Regents performing
such an examination will be borne by The Regents. However, if an error in
royalties of more than five percent (5%) of the total royalties due for any year
is discovered, then the fees and expenses of these representatives will be borne
by Licensee.
8. Life of the Agreement
8.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement will be
in force from the effective date recited on page one and will remain in effect
for the life of the last-to-expire patent licensed under this Agreement,
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<PAGE>
or until the last patent application licensed under this Agreement is abandoned.
8.2 Any termination of this Agreement will not affect the rights and
obligations set forth in the following Articles:
Article 3 License Issue Fee
Article 7 Books and Records
Article 11 Disposition of Patent Products on Hand Upon Termination
Article 12 Use of Names and Trademarks
Paragraph 14.6 Patent Prosecution and Maintenance
Article 17 Indemnification
Article 22 Failure to Perform
Article 27 Confidentiality
9. Termination by The Regents
9.1 If Licensee should violate or fail to perform any material term or
covenant of this Agreement, then The Regents may give written notice of such
default ("Notice of Default") to Licensee. If Licensee should fail to repair
such default within sixty (60) days after the date of such notice takes effect,
The Regents will have the right to terminate this Agreement and the licenses
herein by a second written notice ("Notice of Termination") to
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Licensee. If a Notice of Termination is sent to Licensee, this Agreement will
automatically terminate on the date such notice takes effect. Such termination
will not relieve Licensee of its obligation to pay any royalty or license fees
owing at the time of such termination and will not impair any accrued right of
The Regents. These notices will be subject to Article 18. (Notices).
10. Termination by Licensee
10.1 Licensee will have the right at any time to terminate this Agreement
in whole or as to any portion of Patent Rights by giving notice in writing to
The Regents. Such Notice of Termination will be subject to Article 18. (Notices)
and termination of this Agreement will be effective sixty (60) days after the
effective date thereof.
10.2 Any termination pursuant to the above paragraph will not relieve The
Regents or Licensee of any obligation or liability accrued hereunder prior to
such termination or rescind anything done by The Regents or Licensee or any
payments made to The Regents hereunder prior to the time such termination
becomes effective, and such termination will not affect in any manner any rights
of The Regents or Licensee arising under this Agreement prior to such
termination.
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11. Disposition of Patent Products on Hand Upon Termination
11.1 Upon termination of this Agreement, Licensee will have the privilege
of disposing of all previously made or partially made Patent Products, but no
more, within a period of one hundred twenty (120) days, provided, however, that
the sale of such Patent Products will be subject to the terms of this Agreement
including, but not limited to the payment of fees and reimbursement for patent
costs and the payment of royalties based on the Net Sales of Patent Products at
the rates and at the times provided herein and the rendering of reports in
connection therewith.
12. Use of Names and Trademarks
12.1 Nothing contained in this Agreement will be construed as conferring
any right to use in advertising, publicity, or other promotional activities any
name, trade name, trademark, or other designation of either party hereto by the
other (including contraction, abbreviation or simulation of any of the
foregoing). Unless required by law, the use by Licensee of the name "The Regents
of the University of California" or the name of any campus of the University of
California for use in advertising, publicity, or other promotional activities is
expressly prohibited.
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<PAGE>
12.2 It is understood that The Regents will be free to release to the
inventors and senior administrative officials employed by The Regents the terms
of this Agreement upon their request. If such release is made, The Regents will
request that such terms will be kept in confidence in accordance with the
provisions of Article 27. (Confidentiality) and not be disclosed to others. It
is further understood that should a third party inquire whether a license to
Patent Rights is available, The Regents may disclose the existence of this
Agreement and the extent of the grant in Article 2. (Grant) to such third party,
but will not disclose the name of Licensee, except where The Regents is required
to release such information under either the California Public Records Act or
other applicable law.
13. Limited Warranty
13.1 The Regents warrants to Licensee that it has the lawful right to
grant this license, and that it has not granted any rights or licenses to Patent
Rights, other than to the U.S. Government, in derogation of this Agreement.
13.2 This license and the associated Invention, Patent Rights, Patent
Products, and Patent Methods are provided WITHOUT WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESSED OR IMPLIED.
THE REGENTS MAKES NO
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<PAGE>
REPRESENTATION OR WARRANTY THAT THE INVENTION, PATENT PRODUCTS, OR PATENT METHOD
WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.
13.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF THE
INVENTION, PATENT METHOD, OR PATENT PRODUCTS.
13.4 Nothing in this Agreement will be construed as:
13.4.1 a warranty or representation by The Regents as to the
validity, enforceability, or scope of any Patent Rights;
or
13.4.2 a warranty or representation that anything made, used,
sold or otherwise disposed of under any license granted
in this Agreement is or will be free from infringement
of patents of third parties; or
13.4.3 an obligation to bring or prosecute actions or suits
against third parties for patent infringement except as
provided in Article 16. (Patent Infringement); or
13.4.4 conferring by implication, estoppel, or otherwise any
license or rights under any patents of The Regents other
than Patent Rights as defined herein, regardless of
whether such patents are dominant or subordinate to
Patent Rights; or
13.4.5 an obligation to furnish any know-how not provided in
Patent Rights.
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<PAGE>
14. Patent Prosecution and Maintenance
14.1 The Regents will diligently prosecute and maintain the United States
and foreign patents comprising Patent Rights using counsel of its choice. The
Regents will promptly provide Licensee with copies of all relevant documentation
so that Licensee may be currently and promptly informed and apprised of the
continuing prosecution and may comment upon such documentation sufficiently in
advance of any initial deadline for filing a response, provided, however, that
if Licensee has not commented upon such documentation prior to the initial
deadline for filing a response with the relevant government patent office, or
The Regents must act to preserve Patent Rights, The Regents will be free to
respond appropriately without consideration of comments by Licensee, if any.
Both parties hereto will keep this documentation in confidence in accordance
with the provisions of Article 27. (Confidentiality) herein. The Regents'
counsel will take instructions only from The Regents.
14.2 The Regents will use all reasonable efforts to amend any patent
application to include claims requested by Licensee and required to protect the
Patent Products contemplated to be sold or Patent Method to be practiced under
this Agreement.
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<PAGE>
14.3 The Regents and Licensee will cooperate in applying for an extension
of the term of any patent included within Patent Rights, if appropriate, under
the Drug Price Competition and Patent Term Restoration Act of 1984. Licensee
will prepare all such documents, and The Regents will execute such documents and
will take such additional action as Licensee may reasonably request in
connection therewith.
14.4 The Regents will, at the request of Licensee, file, prosecute, and
maintain patent applications and patents covered by Patent Rights in foreign
countries if available. Licensee must notify The Regents within nine (9) months
of the filing of the corresponding United States application of its decision to
request The Regents to file foreign counterpart patent applications. This notice
concerning foreign filing must be in writing and must identify the countries
desired. The absence of such a notice from Licensee to The Regents within the
nine (9)-month period will be considered an election by Licensee not to request
The Regents to secure foreign patent rights on behalf of Licensee. The Regents
will have the right to file patent applications at its own expense in any
country Licensee has not included in its list of desired countries, and such
applications and resultant patents, if any, will not be included in the licenses
granted under this Agreement unless Licensee agrees in writing to pay all costs
associated with any such patent
26
<PAGE>
application(s) and provided the rights of said patent application(s) are
available at the time Licensee agrees to pay the associated costs.
14.5 All past, present and future costs of preparing, filing, prosecuting
and maintaining all United States and foreign patent applications and all costs
and fees relating to the preparation and filing of patents covered by Patent
Rights in Paragraph 1.1 will be borne by Licensee. This includes all patent
preparation and prosecution costs incurred by The Regents prior to the execution
of this Agreement. Such costs will be due upon execution of this Agreement and
will be payable at the time that the license issue fee is payable. The costs of
all interferences and oppositions will be considered prosecution expenses and
also will be borne by Licensee. Licensee will reimburse The Regents for all
costs and charges within thirty (30) days following receipt of an itemized
invoice from The Regents for same.
14.6 The obligation of Licensee to underwrite and to pay patent
preparation, filing, prosecution, maintenance, and related costs will continue
for such costs as may be incurred during the three (3)-month period after
receipt by either party of a Notice of Termination for all non-cancelable
obligations made prior to the receipt of said Notice of Termination. Licensee
will reimburse The Regents for all patent costs incurred during the term of the
Agreement and for three (3) months thereafter whether or not invoices
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<PAGE>
for such costs are received during the three (3)-month period after receipt of a
Notice of Termination. Licensee may with respect to any particular patent
application or patent terminate its obligations to the patent application or
patent in any or all designated countries upon three months written notice to
The Regents. The Regents may continue prosecution and/or maintenance of such
application(s) or patent(s) at its sole discretion and expense, provided,
however, that Licensee will have no further right or licenses thereunder.
14.7 Licensee will have a continuing responsibility to keep The Regents
informed of its large/small entity status (as defined by the United States
Patent and Trademark Office) of itself and its sublicensees.
15. Patent Marking
15.1 Licensee will mark all Patent Products made, used or sold under the
terms of this Agreement, or their containers, in accordance with the applicable
patent marking laws.
16. Patent Infringement
16.1 In the event that Licensee learns of the substantial infringement of
any patent licensed under this Agreement, Licensee will call the attention of
The Regents thereto in writing and will provide The Regents with
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<PAGE>
reasonable evidence of such infringement. Both parties to this Agreement
acknowledge that during the period and in a jurisdiction where Licensee has
exclusive rights under this Agreement, neither will notify a third party of the
infringement of any of Patent Rights without first obtaining consent of the
other party, which consent will not be unreasonably withheld. Both parties will
use their best efforts in cooperation with each other to terminate such
infringement without litigation.
16.2 Licensee may request that The Regents take legal action against the
infringement of Patent Rights. Such request must be made in writing and must
include reasonable evidence of such infringement and damages to Licensee. If the
infringing activity has not been abated within ninety (90) days following the
effective date of such request, The Regents will have the right to elect to:
16.2.1 commence suit on its own account; or
16.2.2 refuse to participate in such suit
and The Regents will give notice of its election in writing to Licensee by the
end of the one hundredth (100th) day after receiving notice of such request from
Licensee. Licensee may thereafter bring suit for patent infringement if and only
if The Regents elects not to commence suit and if the infringement occurred
during the period and in a jurisdiction where Licensee had exclusive
29
<PAGE>
rights under this Agreement. However, in the event Licensee elects to bring suit
in accordance with this Paragraph, The Regents may thereafter join such suit at
its own expense, but the Licensee will control the lawsuit.
16.3 Such legal action as is decided upon will be at the expense of the
party on account of whom suit is brought and all recovered thereby will belong
to such party, provided, however, that legal action brought jointly by The
Regents and Licensee and participated in by both will be at the joint expense of
the parties and all recoveries will be allocated in the following order: a) to
each party reimbursement in equal amounts of the attorney's costs, fees, and
other related expenses to the extent each party paid for such costs, fees, and
expenses until all such costs, fees, and expenses are consumed for each party;
and b) any remaining amount shared jointly by them in proportion to the share of
expenses paid by each party.
16.4 Each party will cooperate with the other in litigation proceedings
instituted hereunder but at the expense of the party on account of whom suit is
brought. Such litigation will be controlled by the party bringing the suit,
provided, however, that The Regents may be represented by counsel of its choice
in any suit brought by Licensee.
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<PAGE>
17. Indemnification
17.1 Licensee will (and will require its sublicensees to) indemnify, hold
harmless, and defend The Regents, its officers, employees, and agents; the
sponsors of the research that led to the Invention; the inventors of any
invention covered by Patent Rights (including the Patent Products and Patent
Method contemplated thereunder) and their employers against any and all claims,
suits, losses, damage, costs, fees, and expenses resulting from or arising out
of exercise of this license or any sublicense. This indemnification will
include, but will not be limited to, any product liability.
17.2 Licensee, at its sole cost and expense, will insure its activities in
connection with the work under this Agreement and obtain, keep in force, and
maintain insurance as follows: (or an equivalent program of self insurance)
At the initiation of clinical trials, Comprehensive or Commercial Form
General Liability Insurance (contractual liability included) with limits as
follows up to and until Licensee enters Phase III Clinical Trials:
<TABLE>
<CAPTION>
<S> <C>
(a) Each Occurrence.................................... $3,000,000
(b) Products/Completed Operations Aggregate............ $3,000,000
(c) Personal and Advertising Injury.................... $3,000,000
(d) General Aggregate (commercial form only)........... $3,000,000
</TABLE>
31
<PAGE>
Comprehensive or Commercial Form General Liability Insurance (contractual
liability included) with limits as follows after Licensee enters Phase III
Clinical Trials:
<TABLE>
<CAPTION>
<S> <C>
(a) Each Occurrence.................................... $5,000,000
(b) Products/Completed Operations Aggregate............ $5,000,000
(c) Personal and Advertising Injury.................... $5,000,000
(d) General Aggregate (commercial form only)........... $5,000,000
</TABLE>
It should be expressly understood, however, that the coverages and limits
referred to under the above will not in any way limit the liability of Licensee.
Licensee will furnish The Regents with certificates of insurance evidencing
compliance with all requirements. Such certificates will:
(a) Provide for thirty (30)-day advance written notice to The
Regents of any modification;
(b) Indicate that The Regents has been endorsed as an additional
Insured under the coverages referred to under the above; and
(c) Include a provision that the coverages will be primary and
will not participate with nor will be excess over any valid
and collectable insurance or program of self-insurance carried
or maintained by The Regents.
17.3 The Regents will immediately notify Licensee in writing of any claim
or suit brought against The Regents in respect of which The Regents intends to
invoke the provisions of this Article 17. (Indemnification). Licensee will keep
The Regents informed as appropriate and necessary on a
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<PAGE>
current basis of its defense of any claims pursuant to this Article 17.
(Indemnification).
18. Notices
18.1 Any notice or payment required to be given to either party will be
deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five days after mailing if mailed by
first-- class certified mail, postage paid, to the respective addresses given
below, or to another address as it may designate by written notice given to the
other party.
In the case of Licensee: COLLATERAL THERAPEUTICS, INC.
9360 Towne Centre Drive
San Diego, CA 92121
Tel: (619) 622-4100
Fax: (619) 587-3518
Attention: Jack Reich, Ph.D.
In the case of The Regents: THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
1320 Harbor Bay Parkway, Suite 150
Alameda, California 94502
Tel: (510) 748-6600
33
<PAGE>
Fax: (510) 748-6639
Attention: Terence A. Feuerborn
Executive Director
Research Administration and
Technology Transfer
Referring to: ***
19. Assignability
19.1 This Agreement is binding upon and will inure to the benefit of The
Regents, its successors and assigns, but will be personal to Licensee and
assignable by Licensee only with the written consent of The Regents, which
consent shall not be unreasonably withheld.
20. Late Payments
20.1 In the event royalty payments or fees or patent prosecution costs are
not received by The Regents when due, Licensee will pay to The Regents interest
charges at a rate of *** simple interest per annum. Such interest will be
calculated from the date payment was due until actually received by The Regents.
Acceptance by The Regents of any late payment interest from Licensee under this
Paragraph 20 will in no way affect the provision of Article 21. (Waiver) herein.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
34
<PAGE>
21. Waiver
21.1 It is agreed that no waiver by either party hereto of any breach or
default of any of the covenants or agreements herein set forth will be deemed a
waiver as to any subsequent and/or similar breach or default.
22. Failure to Perform
22.1 In the event of a failure of performance due under the terms of this
Agreement and if it becomes necessary for either party to undertake legal action
against the other on account thereof, then the prevailing party will be entitled
to reasonable attorney's fees in addition to costs and necessary disbursements.
23. Governing Laws
23.1 THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA, excluding any choice of law rules that
would direct the application of the laws of another jurisdiction, but the scope
and validity of any patent or patent application will be governed by the
applicable laws of the country of such patent or patent application.
35
<PAGE>
24. Government Approval or Registration
24.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, Licensee will assume all legal obligations to do so. Licensee will
notify The Regents if it becomes aware that this Agreement is subject to a
United States or foreign government reporting or approval requirement. Licensee
will make all necessary filings and pay all costs including fees, penalties, and
all other out-of-pocket costs associated with such reporting or approval
process.
25. Export Control Laws
25.1 Licensee will observe all applicable United States and foreign laws
with respect to the transfer of Patent Products and related technical data to
foreign countries, including, without limitation, the International Traffic in
Arms Regulations (ITAR) and the Export Administration Regulations.
26. Force Majeure
26.1 The parties to this Agreement will be excused from any performance
required hereunder if such performance is rendered impossible
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<PAGE>
or unfeasible due to any acts of God, catastrophes, or other major events beyond
their reasonable control, including, without limitation, war, riot, and
insurrection; laws, proclamations, edicts, ordinances, or regulations; strikes,
lock-outs, or other serious labor disputes; and floods, fires, explosions, or
other natural disasters. However, any party to this Agreement will have the
right to terminate this Agreement upon thirty (30) days' prior written notice if
either party is unable to fulfill its obligations under this Agreement due to
any of the causes mentioned above and such inability continues for a period of
one year. Notices will be subject to Article 18. (Notices).
27. Confidentiality
27.1 Licensee and The Regents respectively will treat and maintain the
proprietary business, patent prosecution, software, engineering drawings,
process and technical information, and other proprietary information of the
other party ("Proprietary Information") in confidence using at least the same
degree of care as that party uses to protect its own proprietary information of
a like nature for a period from the date of disclosure until five (5) years
after the date of termination of this Agreement.
27.2 Proprietary Information will be labeled or marked confidential or as
otherwise similarly appropriate by the disclosing party, or if the
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<PAGE>
Proprietary Information is orally disclosed, it will be reduced to writing or
some other physically tangible form, marked and labeled as set forth above by
the disclosing party and delivered to the receiving party within thirty (30)
days after the oral disclosure as a record of the disclosure and the
confidential nature thereof. Notwithstanding the foregoing, Licensee and The
Regents may use and disclose Proprietary Information to its employees, agents,
consultants, and contractors having a need to know the Proprietary Information
and, in the case of Licensee, its sublicensees, provided that any such parties
are bound by a like duty of confidentiality.
27.3 Nothing contained herein will in any way restrict or impair the right
of Licensee or The Regents to use, disclose, or otherwise deal with any
Proprietary Information:
27.3.1 that recipient can demonstrate by written records was
previously known to it;
27.3.2 that is now, or becomes in the future, public knowledge
other than through acts or omissions of recipient;
27.3.3 that is lawfully obtained without restrictions by
recipient from sources independent of the disclosing
party;
27.3.4 that is required to be disclosed to a governmental
entity or agency in connection with seeking any
governmental or regulatory approval, or pursuant to the
lawful requirement or request of a governmental entity
or agency;
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<PAGE>
27.3.5 that is furnished to a third party by the recipient with
a need to know and with similar confidentiality
restrictions imposed on such third party, as evidenced
in writing, or
27.3.6 that The Regents is required to disclose pursuant to the
California Public Records Act or other applicable law.
27.4 Upon termination of this Agreement, Licensee and The Regents will
destroy or return to the disclosing party proprietary information received from
the other in its possession within fifteen (15) days following the effective
date of termination. Licensee and The Regents will provide each other, within
thirty (30) days following termination, with a written notice that Proprietary
Information has been returned or destroyed. Each party may, however, retain one
copy of Proprietary Information for archival purposes in nonworking files.
28. Miscellaneous
28.1 The headings of the several sections are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
28.2 The licenses and any sublicenses granted hereunder will be subject to
any legal obligations to the U.S. Government including those set forth in 35 U.
S. C. 200-212 and applicable governmental implementing
39
<PAGE>
regulations. Because this Agreement grants the exclusive right to use or sell
the Patent Products in the United States, Licensee acknowledges that Patent
Products will be manufactured substantially in the United States as required
under 35 USC Section 204.
28.3 The manufacture of Patent Products will be in accordance with any
applicable government importation laws and regulations of a particular country
on Patent Products made outside the particular country in which such Patent
Products are to be used or sold.
28.4 Licensee will obtain all necessary governmental approvals in each
country where it intends to sell or manufacture and use Patent Products or
permit others to manufacture, use, or sell Patent Products.
28.5 This Agreement will not be binding upon the parties until it has been
signed below on behalf of each party, in which event, it will be effective as of
the date recited on page one.
28.6 No amendment or modification hereof will be valid or binding upon the
parties unless made in writing and signed on behalf of each party,
28.7 This Agreement embodies the entire understanding of the parties and
will supersede all previous communications, representations or understandings,
either oral or written, between the parties relating to the
40
<PAGE>
subject matter hereof. The Letter of Intent specified in the Recitals in this
Agreement is hereby terminated.
28.8 In case any of the provisions contained in this Agreement are held to
be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability will not affect any other provisions hereof, but
this Agreement will be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
The Regents and Licensee execute this Agreement in duplicate originals by
their respective, authorized officers on the date indicated.
Collateral Therapeutics, Inc. The Regents of the University of
California
By /s/ Jack W. Reich, Ph.D. By /s/ Terence A. Feuerborn
------------------------------- --------------------------------
(Signature) (Signature)
Name Jack W. Reich, Ph.D. Name Terence A. Feuerborn
-----------------------------
(Please Print)
Title President and C.E.O. Title Executive Director
---------------------------- Research Administration and
Technology Transfer
Date January 20, 1997 Date January 22, 1997
------------------------------ ------------------------------
Approved as to legal form:
By /s/ Edwin H. Baker 1/14/97
------------------------------- ------------------------------
(Date)
Edwin H. Baker, Associate President Counsel
Office of Technology Transfer
University of California
41
<PAGE>
EXHIBIT 10.15
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
$600,000, payable in six equal consecutive installments of
$100,000, on the Effective Date and at six month intervals
following such Date.
(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.
<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 ten percent
(10%) 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 five hundred
thousand dollars ($500,000) in each Calendar Year,
CORPORATION will pay to NYU within one hundred thirty (130)
days after the end of each such Calendar Year, as
additional royalty the difference between the amount of the
total royalties paid to NYU by CORPORATION in such Calendar
Year and five hundred thousand dollars ($500,000), 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.
<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 sixty (60)
days 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 one
twelve (12) month period upon written certification to NYU that
CORPORATION is continuing product development work with respect to
a Licensed Product and payment to NYU of a fee equal to $100,000.
After the expiration of any such twelve-month period CORPORATION
may elect to further extend its diligence obligations under
Section 10(a) with respect to such Licensed Product for successive
one-year periods 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 three million dollars ($3,000,000) 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 $500,000
representing minimum annual royalties with respect to such Product.
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
60-day period shall be a material breach of this Agreement.
<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 $5,000,000.00 per incident and
$10,000,000.00 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 $250,000 annual
aggregate) such self-insurance program must be acceptable
to NYU.
<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, thirty (30) days (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
one hundred twenty (120) days 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 two
percent (2%) per annum in excess of the prime rate
previously at the Citibank, N.A., in New York. 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
<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 of $675,000, payable in six
successive semi annual installments, commencing on the Effective
Date; the first three installments shall be in the amount of
$100,000 each, the fourth installment shall be in the amount of
$175,000; the fifth and six installments shall be in the amount of
$100,000 each.
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
----------------------------- ------------------------------
<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>
EXHIBIT 10.16
- --------------------------------------------------------------------------------
LICENSE AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT is made on 25th March 1997 between:
1. AMRAD DEVELOPMENTS PTY LTD (ACN 006 923 904) incorporated in Victoria of
17-27 Cotham Road, Kew, Victoria, Australia (AMRAD); and
2. LUDWIG INSTITUTE FOR CANCER RESEARCH incorporated in New York, United
States of America, having an office at 1345 Avenue of the Americas, New
York, New York, 1015: (LUDWIG); and
3. COLLATERAL THERAPEUTICS INC incorporated in California, United States of
America, having an office at 9360 Towne Center Drive, San Diego,
California, 92121 (COLLATERAL).
RECITALS
A. Each of AMRAD Operations Pty Ltd and LUDWIG is the legal and beneficial
owner of certain intellectual property relating to the Technology and
Patent Rights (as defined in Clause 1.1. herein).
B. Pursuant to a Collaboration Agreement dated 6 December 1996 (Collaboration
Agreement); AMRAD and LUDWIG have agreed to collaborate in the
commercialization of the Technology and the Patent Rights in the manner
set out therein. AMRAD Operations Pty Ltd has subsequently licenced, with
the consent of LUDWIG, its rights under that Agreement and in respect of
the Patent Rights and Technology to AMRAD.
C. Pursuant to the Collaboration Agreement, AMRAD and LUDWIG may grant
licences to third parties to use and exploit the Technology and the Patent
Rights.
D. COLLATERAL is the exclusive licensee of a PCT patent application filed in
the name of The Regents of the University of California on 27 February
1996 under *** *** (which the University of California has internally
designated patent application *** *** ) covering an angiogenic
gene-containing adenovirus delivery system for use in in-vivo gene therapy
for cardiovascular disorders. COLLATERAL has conducted studies which in
its opinion support the possible therapeutic use of an angiogenic
gene-containing adenovirus for the treatment and prevention of
cardiovascular disorders.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Page 2
E. COLLATERAL has entered into an agreement with Schering AG (Schering AG
Agreement) to develop gene therapy products using the technology
referred to in Recital D above, pursuant to which agreement COLLATERAL
shall receive milestone payments and royalties.
F. During the course of negotiations with AMRAD in relation to this
Agreement, COLLATERAL has represented to AMRAD that COLLATERAL shall
receive approximately thirty per cent (30%) of the milestone payments
payable to COLLATERAL pursuant to the Schering AG Agreement during the
product development phase of the Schering AG Agreement, and that the
remaining payments are to be paid to COLLATERAL following first
commercial sale of products. Further, during the course of those
negotiations, COLLATERAL has represented to AMRAD that COLLATERAL shall
use the majority of the total milestone payments it receives pursuant
to the Schering AG Agreement to fund ongoing research and development
of Licensed Products or, depending on the results of that research, an
alternative gene product.
G. COLLATERAL wishes to receive an exclusive licence to use and exploit the
Technology and Patent Rights to develop cardiovascular gene therapy
products using at first instance the technology referred to in Recital D
above. Each of AMRAD and LUDWIG is willing to grant COLLATERAL such a
licence on the terms and conditions contained in this Agreement.
IT IS AGREED as follows.
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
The following definitions apply unless the context requires otherwise.
Affiliate with respect to a corporation, means a corporation which owns,
is owned by or is under common ownership with the first-named corporation.
For the purposes of this definition, the term "owns" as used with respect
to any person means ownership (directly or indirectly) of at least
fifty-one per cent (51%) of the outstanding voting securities of a
corporation or a comparable equity interest in a corporation (or such
lesser percentage, being the maximum percentage of ownership allowed by
law in a particular jurisdiction).
Agreement means this Licence Agreement.
AMRAD Patent Application means the patent application described in
Schedule l.
<PAGE>
Page 3
Benchmark means the benchmarks referred to in Clause 5.3 and/or described
in Schedule 3.
Collaboration Agreement means the Collaboration Agreement between AMRAD
Operations Pty Ltd and LUDWIG dated 6 December 1996.
Effective Date means the date of execution of this Agreement.
Field means gene therapy for the treatment and prevention of
cardiovascular disease but excludes the use of any product or technology
described or claimed within the Patent Rights for any purpose relating to
the treatment and prevention of malignant diseases or acute wounds or
other diseases (except as described above) and also excludes any product
or technology within the Patent Rights for the manufacture of recombinant
proteins (other than proteins produced in the human body as a result of
gene therapy) for any purpose and also excludes, for the avoidance of
doubt, any other use of the Patent Rights or Technology.
IND means investigational new drug, and a reference to the filing thereof
is a reference to the filing of an application with the United States of
America Food and Drug Administration to initiate clinical trials thereof.
Indication means any indications to be treated using Licensed Products as
described in the definition of Field including coronary artery disease,
congestive heart failure and peripheral vascular disease.
Licence Fee means any amount payable by COLLATERAL to AMRAD or LUDWIG
pursuant to this Agreement.
Licensed Product means any product including a nucleic acid sequence
encoding VRF/VEGF-B gene for use solely in the Field, the manufacture, use
or sale of which falls within the scope of one or more subsisting and
unexpired claims within the Patent Rights which has not been permanently
revoked, held unenforceable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal, and which has not been admitted to be
invalid or unenforceable through reissue or disclaimer or otherwise. For
the avoidance of doubt, Licenced Products excludes any protein, peptide or
receptors for VRF/VEGF-B.
LICENSOR means, collectively, AMRAD and LUDWIG.
LUDWIG Patent Applications means the patent applications described in
Schedule 2.
<PAGE>
Page 4
Net Revenue means royalty payments received by COLLATERAL on Net Sales
made by Schering AG or other sub-licensees of COLLATERAL, less, if
the Licensed Products involve in any way whatsoever the technology
claimed in *** if payable to the Regents of the University of
California pursuant to an exclusive licence agreement between the said
Regents and COLLATERAL entitled *** dated 28 September 1995 as amended
***.
Net Sales means gross proceeds from sales of Licensed Products by a
sub-licensee or COLLATERAL less deductions for:
(a) transportation charges, including insurance relating thereto;
(b) sales and excise taxes or customs duties paid by the person selling
or distributing any Licensed Product or any other governmental
charges imposed upon the sale or distribution of any Licensed
Product;
(c) distributors' fees. rebates or allowances actually granted. allowed
or incurred:
(d) quantity 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;
(e) allowances or credits to customers, not in excess of the selling
price of any Licensed Product, on account of governmental
requirements, rejection, outdating, recalls or returns of such
Licensed Product.
Patent Rights means the AMRAD Patent Applications and the LUDWIG Patent
Applications and any patent subsequently issued thereon in any country
(including any additions, divisions, continuations, continuations-in-part,
reissues, registrations or extensions of the said patents or patent
applications and any special protection certificates issued in connection
with any of the said patents or patent applications).
Phase 3 Clinical Trials has the same meaning as that term has in the
United States of America Government's Food and Drug Code of Federal
Regulations (edition of 1 April 1993), 21CFR CH.1S 312.21.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Page 5
Pig Studies means, for the purposes of this Agreement, in vivo studies
conducted in pigs to determine the efficacy of the use of the VRF/VEGF-B
gene (delivered by an adenoviral vector) in the establishment and
development of collateral circulation in the ameroid pig model of
myocardial ischaemia for the treatment and prevention of coronary artery
disease.
PLA means a product licence application to a regulatory authority
incorporating data and information for the purpose of obtaining
authorization to market the said product.
Schering AG means Schering AG, a company incorporated in Germany having
an office at 133342 Berlin, Germany.
Technology means any and all technical data, information, materials and
know-how related, directly or indirectly to the Patent Rights, which is
needed in the practice of the Patent Rights in the Field and includes the
Biological Materials described in Clause 4 hereof which have been provided
on a confidential basis.
Territory means the entire world.
Third Party means any person other than AMRAD, LUDWIG or COLLATERAL.
VRF/VEGF-B gene means nucleic acid sequences described and claimed in the
Patent Rights, but for the avoidance of doubt does not include recombinant
proteins manufactured by the expression of those nucleic acid sequences in
a host cell (other than proteins produced in the human body as a result of
gene therapy) and also excludes any protein, peptide or receptors for
VRF/VEGF-B.
1.2 Interpretation
Headings are for convenience only and do not affect interpretation. The
following rules apply unless the context requires otherwise.
(a) The singular includes the plural and conversely.
(b) A gender includes all genders.
(c) If a word or phrase is defined, its other grammatical forms have a
corresponding meaning.
<PAGE>
Page 6
(d) A reference to a person, corporation trust, partnership,
unincorporated body or other entity includes any of them.
(e) A reference to a Clause or Schedule is a reference to a clause of or
a schedule to this Agreement.
(f) A reference to an agreement or document (including, without
limitation, a reference to this Agreement) is to the agreement or
document as amended, varied, supplemented, novated or replaced,
except to the extent prohibited by this Agreement or that other
agreement or document.
(g) A reference to a party to this Agreement or another agreement or
document includes the party's successors, permitted substitutes and
permitted assigns and, where applicable, the party's legal personal
representatives.
(h) A reference to legislation or to a provision of legislation includes
a modification or reenactment of it, a legislative provision
substituted for it and a regulation or statutory instrument issued
under it.
(i) A reference to conduct includes, without limitation, an omission,
statement or undertaking, whether or not in writing.
(j) A reference to an agreement includes any undertaking, deed,
agreement and legally enforceable arrangement, whether or not in
writing, and a reference to a document includes an agreement (as so
defined) in writing and any certificate, notice, instrument and
document of any kind.
(k) A reference to dollars and $ is to the currency of the United States
of America.
(l) A reference to a right or obligation of any two or more persons
confers that right, or imposes that obligation, as the case may be.
jointly and severally.
1.3 Consents or Approvals
If the doing of any act, matter or thing under this Agreement is dependent
on the consent or approval of a party or is within the discretion of a
party, the consent or approval may be given or the discretion may be
exercised conditionally or unconditionally or withheld by the party in its
absolute discretion unless express provision to the contrary has been
made.
<PAGE>
Page 7
2. REPRESENTATIONS AND WARRANTIES
2.1 Authorisation
Each party to this Agreement warrants and represents to the others that it
has the legal rights and power to extend the rights and licences granted
in this Agreement, that each has the full right to enter into this
Agreement and to perform its obligations hereunder, and that it has not
made nor will make any commitments to others in conflict with or in
derogation of its rights and obligations under this Agreement. Each party
to this Agreement further represents to the other parties to this
Agreement that it is not aware of any legal obstacles, including patent
rights of others, which could prevent it from carrying out the provisions
of this Agreement.
2.2 Patent Validity
(a) Nothing in this Agreement shall be construed as a warranty or
representation by the LICENSOR as to the validity or scope of any
Patent Rights or that the exercise of any rights granted under this
Agreement will not infringe any Third Party rights.
(b) Subject to Clause 2.2(a), as at the Effective Date:
(i) AMRAD is not aware that the exercise of any rights granted
under this Agreement in respect of the AMRAD Patent
Applications will infringe any Third Party rights; and
(ii) LUDWIG is not aware that the exercise of any rights granted
under this Agreement in respect of the LUDWIG Patent
Applications will infringe any Third Party rights.
2.3 Warranties
(a) LUDWIG hereby warrants to COLLATERAL that the statements contained
in Recitals A, B and C to this Agreement are true and correct in
every particular.
(b) AMRAD hereby warrants to COLLATERAL that the statements contained in
Recitals A, B and C to this Agreement are true and correct in every
particular.
<PAGE>
Page 8
(c) COLLATERAL hereby warrants to the LICENSOR that the statements
contained in Recitals D, E, F G, and H to this Agreement are true
and correct in every particular and that the representations
referred to in said Recital G are true and correct in every
particular.
3. LICENCE
3.1 Grant of Licence
(a) The LICENSOR hereby grants to COLLATERAL an exclusive licence under
the Patent Rights and the Technology to manufacture, have
manufactured, import, use, sell and offer for sale Licensed Product
for use in the Field throughout the Territory for the term of this
Agreement.
(b) COLLATERAL acknowledges that LICENSOR has represented that all of
the Patent Rights and the Technology are owned or controlled by the
LICENSOR or third parties who have granted licences to the LICENSOR
and that COLLATERAL's rights to the Technology are pursuant to this
Agreement and as a licensee only.
3.2 Acknowledgement by the Parties
The parties acknowledge that COLLATERAL is not seeking, and the
LICENSOR is not making, any warranties or representations as to the
merchantability or suitability for any particular purpose of the
Technology, the capacity of any of the Patent Rights to infringe any
Third Party Rights or the validity of any of the Patent Rights.
3.3 Right to Sub-license
(a) COLLATERAL may sub-license the rights granted under Clause 3.1 to
Schering AG or an Affiliate of Schering AG provided that COLLATERAL
procures that Schering AG or any Affiliate of Schering AG to whom
a sub-license is granted pursuant to this Clause 3.3(a) shall enter
into an agreement with COLLATERAL on terms which are consistent with
the terms of this Agreement.
(b) COLLATERAL may sub-license the rights granted under Clause 3.1 to a
Third Party other than Schering AG or an Affiliate of Schering AG
provided that:
<PAGE>
Page 9
(i) COLLATERAL and the LICENSOR shall first negotiate and agree on
a fee to be paid by COLLATERAL to the LICENSOR upon the grant
of such sublicence:
(ii) COLLATERAL obtains the LICENSOR's prior written consent to any
such sub-licence;
(iii) COLLATERAL shall procure that any person to whom a sub-licence
is granted pursuant to this Clause 3.3 shall enter into an
agreement with COLLATERAL on terms which are consistent with
the terms of this Agreement;
(iv) any sub-licence granted to a person pursuant to this Clause
3.3 shall expressly prohibit any right to further sub-license
or to transfer or assign the sub-licence; and
(v) upon termination of this Agreements, all rights granted to any
person pursuant to this Clause 3.3 shall immediately cease.
(c) Notwithstanding the provisions of Clause 3.3(b) (i) the parties
agree that *** shall be payable by COLLATERAL to the LICENSOR with
respect to COLLATERAL's exercising its rights to grant a sub-licence
under Clause 3.3(b) to an Affiliate of COLLATERAL or to a Third
Party which has purchased all of the assets or capital stock of
COLLATERAL.
(d) For the avoidance of doubt, COLLATERAL shall procure that any person
to whom a sub-licence is granted pursuant to this Clause 3.3 shall
be bound by the terms and conditions of this Agreement.
COLLATERAL shall be liable to the LICENSOR for any failure of a
sub-licensed person to perform the obligations ascribed to
COLLATERAL under this Agreement. Any such failure shall be taken
to be a failure of COLLATERAL to perform the obligations ascribed
to COLLATERAL under this Agreement.
(e) Except as expressly permitted by this Clause 3.3, COLLATERAL shall
not sub-license any, or any part of, the rights under Clause 3.1 of
this Agreement.
*** Portions of this page have been omitted pursuant to a request for
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4. MATERIALS
The parties acknowledge that, pursuant to an Agreement to Provide
Biological Materials between AMRAD and COLLATERAL, effective on 7 October
1996, AMRAD has sent to COLLATERAL, and COLLATERAL has received, the
Biological Materials (as defined in that agreement) on the terms and
conditions stated in that agreement. Any further Biological Materials or
Technology to be supplied to COLLATERAL shall be supplied on terms and
conditions as shall be agreed between the parties from time to time.
5. PAYMENTS BY COLLATERAL
5.1 Method of Payment
All payments due by COLLATERAL to the LICENSOR pursuant to this Agreement
shall be:
(a) net payments and no deductions shall be made in respect of
withholding tax or other charges except in accordance with Clause
5.10;
(b) made by bank draft or telegraphic transfer and shall be paid as to
*** to AMRAD and as to *** to LUDWIG;
(c) non-refundable; and
(d) payable in the currency of the United States of America and paid
into such accounts as AMRAD and LUDWIG may direct.
*** Portions of this page have been omitted pursuant to a request for
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5.2 Licence Fees
COLLATERAL has agreed to pay licence fees as follows:
(a) Within five (5) working days of the Effective Date, COLLATERAL shall
pay to the LICENSOR the licence fee of $250,000; and
(b) On June 15, 1997 COLLATERAL shall pay to the LICENSOR a further
licence fee of $750,000
(c) On 30 October 1997, COLLATERAL shall pay to the LICENSOR a further
licence fee of $150,000
5.3 Licence Fee - Milestone Payments
(a) Within thirty (30) days of the date of the completion of any
Initial Public Offering for the purchase of any shares in
COLLATERAL being listed on any stock exchange in the United
States or the expiration of eighteen (18) months from the
Effective Date, whichever is the first to occur, COLLATERAL shall
forthwith pay to the LICENSOR a further licence fee of
$1,000,000. In the event that COLLATERAL fails to pay to LICENSOR
such fee within ten (10) days from when such fee is due and
payable this Agreement shall, subject to any agreement between
the parties to allow this Agreement to continue in full force and
fefect, be deemed to have terminated with immediate effect.
(b) Within *** of achievement of any of the following Benchmarks in
relation to any Indication, COLLATERAL shall pay to the LICENSOR a
*** as follows:
***
***
***
***
***
***
*** Portions of this page have been omitted pursuant to a request for
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***
***
***
***
it being understood however, that except as provided in Clause 5.4
with respect to an additional *** *** once a *** has been paid for
any Licensed Product, COLLATERAL's obligation to pay that *** shall
be extinguished, such that each of the above *** shall be due and
payable by COLLATERAL to the LICENSOR only once, irrespective of how
many Licensed Products may reach a *** has already been paid.
5.4 Licence Fee - Additional Indications
Within *** other than for an Indication in respect of which COLLATERAL
has paid the LICENSOR a Benchmark fee under Clause 5.3(b)(iv), COLLATERAL
shall pay to the LICENSOR a single one time licence fee of $1,000,000
for each such Indication.
5.5 Licence Fee - Annual Licence Fee
On 1 January 2002 and upon each successive anniversary of the Effective
Date thereafter, COLLATERAL shall pay to the LICENSOR a licence fee of
$1,500,000 such licence fees to be off-set against any amounts received
by the LICENSOR pursuant to Clause 5.6.
5.6 Licence Fee - Royalty
(a) In addition to the payments set out in Clauses 5.2 to 5..5,
COLLATERAL shall pay to the LICENSOR a royalty equal to ***
(b) The payments due by COLLATERAL to the LICENSOR pursuant to Clause
5.6(a) shall be made to the LICENSOR within *** of the end of each
calendar quarter, and each such payment shall be accompanied by a
written report signed by an officer of COLLATERAL and in a form
satisfactory to the LICENSOR containing the calculation of the
payment due to the LICENSOR for the said calendar quarter.
*** Portions of this page have been omitted pursuant to a request for
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(c) If COLLATERAL or any of its sub-licensees receives any cash or
non-cash benefit or otherwise derives any other cash or non-cash
benefit in connection with the exploitation of the Technology or
Licensed Products other than pursuant to an arm's length licence
agreement with a Third Party, for the purposes of calculating the
amount payable to the LICENSOR pursuant to this Clause 5.6,
COLLATERAL or its sub-licensees (as the case may be) shall be taken
to have received a royalty payment that would have been received on
an arm's length licence agreement.
(d) Without limiting Clause 5.6(c), if COLLATERAL sells any Licensed
Product to any Third Party then COLLATERAL shall pay the LICENSOR a
royalty on that sale, being an amount equal to the amount COLLATERAL
would have received from Schering AG pursuant to the Schering AG
Agreement had Schering AG sold such Licensed Product and paid
royalties to COLLATERAL in accordance with the terms and conditions
of the Schering AG Agreement.
5.7 CPI Adjustment
The Licence Fees set out in Clauses 5.3 and 5.4 shall be annually adjusted
in accordance with the increase in the United States of America Consumer
Price Index in the period from the first anniversary of the Effective Date
to the date on which the payment is made. For the purposes of this
Agreement, the Index at a particular time shall be the Index most recently
published by the United States Bureau of Economics and Statistics at that
time.
5.8 Records
COLLATERAL shall keep, and shall cause any person to whom it was granted a
sub-licence pursuant to Clause 3.3 to keep for a minimum of *** complete
records of all matters which are relevant for determining the Licence Fees
which are to be paid to the LICENSOR pursuant to this Agreement and shall
allow the authorised representatives of the LICENSOR reasonable access no
more than twice per year to examine and make copies of such records.
5.9 Default Interest
If COLLATERAL fails to make any payment due pursuant to this Agreement by
the due date, then it shall pay the LICENSOR interest on the amount due
from the date payment fell due until the amount is paid at the rate of:
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(a) *** per month for *** from the date payment fell due; and
(b) *** per month thereafter.
5.10 Withholding Taxes
Notwithstanding anything else contained in this Agreement if COLLATERAL is
required to pay withholding tax on any payments to be made hereunder it
shall forthwith provide the LICENSOR with documentary evidence that such
tax has been paid to an appropriate authority to enable the LICENSOR to
obtain the credit for such tax payment in its country of incorporation.
5.11 Prior Termination
Unless LICENSOR advises COLLATERAL in writing *** of the due date
otherwise in the event that any of the payments described in this clause 5
are not made by the due date this Agreement will terminate with immediate
effect on *** following such due date PROVIDED THAT such termination will
not effect the LICENSOR's right to receive the payments then owing
pursuant to this clause.
6. INTELLECTUAL PROPERTY
6.1 Infringement by Third Parties
(a) A party shall promptly notify the other parties in writing of any
alleged or threatened infringement within the Field of any patent
included within the Patent Rights of which such party becomes aware.
COLLATERAL shall have the right to bring and control any action or
proceeding with respect to such alleged or threatened infringement
within the Field (Proceeding) at its own expense and represented by
legal advisers of its own choice.
(b) In the event COLLATERAL brings a Proceeding, the LICENSOR shall
co-operate fully with COLLATERAL including, if required, undertaking
any action or agreeing to be joined as a party to such Proceeding,
the reasonable costs of which shall be at COLLATERAL's expense,
provided that:
(i) the LICENSOR shall retain the right to be represented by legal
advisers of its own choice at its expense;
*** Portions of this page have been omitted pursuant to a request for
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(ii) COLLATERAL shall keep the LICENSOR fully informed of the
status of such Proceeding on a regular basis or, as reasonably
requested by the LICENSOR, from time to time; and
(iii) the LICENSOR shall retain the right to become involved in any
negotiations, including without limitation any settlement
negotiations, in which the parties to such Proceeding may be
engaged from time to time.
(c) In the event COLLATERAL commences a Proceeding, any recovery
realised as a result of such Proceeding, after reimbursement of any
and all litigation expenses and reasonable costs of COLLATERAL,
shall be treated as Net Revenue under this Agreement.
(d) In the event the LICENSOR notifies COLLATERAL in writing of any
infringement referred to in Clause 6.1(a) and COLLATERAL fails to
commence a Proceeding within a reasonable time of being so notified
by the LICENSOR, provided that such time shall not, in any event,
exceed ninety (90) days, the LICENSOR may commence a Proceeding at
its own expense and may be represented by legal advisers of its own
choice. In the event the LICENSOR brings a Proceeding, COLLATERAL
shall provide all reasonable assistance to the LICENSOR in relation
to such Proceeding and on the terms as set out in Clause 6.1 (b) as
if COLLATERAL were the LICENSOR and the LICENSOR were COLLATERAL
(e) In the event the LICENSOR brings a Proceeding pursuant to Clause
6.1(d), the LICENSOR shall be entitled to any recovery realised as a
result of such Proceeding.
6.2 Infringement of Third Party Rights
Each party shall promptly notify the other parties in writing in the event
that any allegation of infringement of any Third Party patent is raised by
reason of the exercise by COLLATERAL or any of its sub-licencees of any
rights pursuant to Clause 3.1 or 3.3 (Alleged Third Party Patent Rights)
In the event that such an action is brought by a Third Party COLLATERAL,
or any sub-licensee of COLLATERAL, as may be determined by COLLATERAL,
shall have the right to control any defence of any such action at its own
expense and represented by legal advisers of its own choice and the
LICENSOR shall have the right, at its own expense, to be represented in
any such action by legal advisers of its own choice. In the event of any
infringement or alleged infringement of any Alleged Third Party Patent
Rights, the LICENSOR shall co-operate in good faith with
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COLLATERAL or any sub-licensee of COLLATERAL (as the case may be) on a
reasonable basis to negotiate and settle any dispute with a Third Party in
relation to such infringement or alleged infringement of any Alleged Third
Party Patent Rights and otherwise resolve any such infringement or alleged
infringement and secure COLLATERAL's continued rights to the Alleged Third
Party Patent Rights, if necessary or desirable.
6.3 Co-operation in Connection with Infringement Disputes
In any suit or dispute involving infringement or alleged infringement
within the Field by a Third Party of a patent included within the Patent
Rights, or infringement or alleged infringement by COLLATERAL of any
Alleged Third Party Patent Rights, the parties shall co-operate fully and,
upon the request and at the reasonable expense of COLLATERAL, the LICENSOR
shall make available to COLLATERAL or its sub-licensees at reasonable
times and under appropriate conditions all relevant personnel, records,
papers, information, samples, specimens and the like which are in its
possession or control provided however that the LICENSOR shall not be
obliged to provide such assistance if to do so would materially disrupt
its normal business activities.
6.4 Prosecution and Maintenance of Patent Rights
The LICENSOR shall make determinations with respect to, shall be solely
responsible for, and shall bear all of its reasonably incurred expenses
from and after the Effective Date in connection with prosecuting to
issuance patent applications, for filing and prosecuting all patent
re-issues and re-examinations, for applying for and obtaining any patent
term extensions, and for paying all maintenance fees on all patents.
relating to the Patent Rights; provided however that the LICENSOR shall
file and prosecute to issuance applications claiming the subject matter of
those applications described in Schedule 1 and Schedule 2 in the United
States of America, Australia, Canada, the European Patent Office and
Japan. The LICENSOR shall keep COLLATERAL reasonably informed of the
status of all such applications and patents.
7. OBLIGATIONS OF THE PARTIES
7.1 Best Endeavours
COLLATERAL and its sub-licensees shall use its commercially reasonable
efforts consistent with its best business and scientific judgement and
conduct itself according to international pharmaceutical industry
standards in attempting to develop and commercialise Licensed Products.
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7.2 Achievement of Benchmarks
(a) COLLATERAL shall achieve the Benchmarks described in Schedule 3 as
follows:
(i) in relation to completion of Pig Studies by October 30, 1997;
(ii) in relation to *** Provided That COLLATERAL shall be entitled
to extend the time to complete this Benchmark for no more than
two (2) periods of three (3) months by the payment of
$150,000 per each three month period.
Within *** of achieving a Benchmark, COLLATERAL shall notify the
LICENSOR that the said Benchmark has been achieved.
(b) If COLLATERAL fails to achieve a Benchmark within the time
stipulated in Clause 7.2(a)(i) and/or (ii) then this Agreement
shall, subject to any agreement between the parties to allow this
Agreement to continue in full force and effect, be deemed to have
terminated with effect from the day following the time stipulated in
Clause 7.2(a). Time is of the essence with respect to COLLATERAL's
compliance with the requirements stated in Clause 7.2(a).
7.3 Pig Studies
(a) The parties to this Agreement acknowledge that the Pig Studies are
being conducted to support a clinical development program for the
use of Licensed Products in the Field for the treatment and
prevention of coronary artery disease and COLLATERAL agrees that it
shall conduct the Pig Studies in accordance with this aim.
(b) COLLATERAL shall notify the LICENSOR of the completion of the Pig
Studies in accordance with Clause 7.2(a) and with such notification
shall provide a report containing the data and results of the Pig
Studies to the LICENSOR for its review.
(c) In the event that the Pig Studies have achieved all of the criteria
established under Schedule 4 and provided that COLLATERAL notify the
LICENSOR of their intention to continue with the development of the
Licensed Products this licence shall, subject to the terms and
conditions set out herein remain in full force and effect.
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(d) In the event that the Pig Studies fail to meet some or all of the
criteria established under Schedule 4, within *** of receiving the
report described in Clause 7.3 (b) and after consultation with
COLLATERAL, LICENSOR may elect at its total discretion to allow
further development of the Technology and/or Licenced Products as
provided for in Clause 7.3(e). In the event that the LICENSOR does
not exercise its discretion under this Clause 7.3(d) this Agreement
will be deemed to have terminated effective as of 30 October 1997.
(e) If the LICENSOR exercises its discretion pursuant to Clause 7.3(d)
then COLLATERAL shall be entitled to conduct further Pig Studies in
myocardial ischaemia or peripheral vascular disease and/or
congestive heart failure aimed at supporting a clinical development
program for the use of Licensed Products on the same terms and
conditions as contained in this Agreement provided that, prior to
COLLATERAL being entitled to conduct such studies, the LICENSOR and
COLLATERAL shall discuss and agree upon new benchmarks and dates for
the achievement of such benchmarks for the use of the VRF/VEGF-B
gene in these further studies.
(f) If the LICENSOR and COLLATERAL do not agree in relation to the
benchmarks under Clause 7.3(e), within thirty (30) days of the end
of the period commencing 30 October 1997, this Agreement shall,
subject to any agreement between the parties to allow this Agreement
to continue in full force and effect, be deemed to have terminated
with effect from 30 October 1997.
7.4 Reporting
Within *** of the conclusion of the period of *** after the Effective
Date, COLLATERAL shall submit a written report to the LICENSOR, which
report shall include reasonable details of such matters as the LICENSOR
may from time to time reasonably request including, but not limited to:
(a) current status of research and development conducted in relation to
the Technology, Patent Rights and Licensed Products;
(b) current status of exploitation of the Technology, Patent Rights and
Licensed Products;
(c) current status of any applications for regulatory approval in
relation to the Technology, Patent Rights and Licensed Products;
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(d) current status of any manufacturing being conducted by or on behalf
of COLLATERAL or by or on behalf of and of its sub-licensees in
relation to any exploitation of the Technology, Patent Rights and
Licensed Products;
(e) any sub-licences granted by COLLATERAL pursuant to Clause 3.3;
(f) marketing and sales in relation to any exploitation of the
Technology, Patent Rights and Licensed Products conducted during the
said period of six (6) calendar months;
(g) any manufacturing, marketing, sales plans or projections in relation
to any exploitation of the Technology, Patent Rights and Licensed
Products; to be conducted for the subsequent period of six (6)
calendar months and the remainder of the applicable calendar year;
and
Thereafter, COLLATERAL shall submit a written report to the LICENSOR,
which report shall include the above details, within ten (10) days of the
conclusion of each successive period of six (6) calendar months for the
remainder of the term of this Agreement and provide such other comments
and advice to the LICENSOR as reasonably requested by the LICENSOR from
time to time upon reasonable notice to COLLATERAL.
7.5 Assistance
If AMRAD agrees to assist COLLATERAL in relation to the planning and
review of development programs relating to the exploitation of the
Technology it shall do so on terms and conditions as shall be agreed
between the parties from time to time.
8. CONFIDENTIALITY
8.1 Obligations
Except as otherwise provided in this Clause 8, during the term of this
Agreement. and thereafter until the date of expiration of the last of any
patent within the Patent Rights both the LICENSOR and COLLATERAL shall
maintain in confidence and use only for the purposes of this Agreement
information and data resulting from or related to the use or development
of the Technology in the Field pursuant to this Agreement, or supplied by
the LICENSOR pursuant to this Agreement (Information).
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8.2 Permitted Disclosures
To the extent it is reasonably necessary to fulfil its obligations or
exercise its rights pursuant to this Agreement, COLLATERAL may disclose
Information it is otherwise obligated pursuant to this Clause 8 not to
disclose to an Affiliate, a permitted sub-licensee or a potential
sub-licensee of the Technology on a need-to-know basis on condition that
such person or persons (as the case may be) agree to keep the Information
confidential for the same time periods and to the same extent as
COLLATERAL is required to keep the Information confidential. COLLATERAL
may also disclose such information to government or other regulatory
authorities to the extent that such disclosure is reasonably necessary to
obtain a patent or authorization to conduct a clinical trial with or to
commercially market any product arising out of the Technology. The
obligation not to disclose Information shall not apply to any part of such
Information that:
(a) is or becomes patented, published or otherwise part of the public
domain other than by acts of the person obligated not to disclose
such Information in the contravention of this Agreement;
(b) is disclosed to the receiving party by a Third Party, provided such
Information was not obtained from such Third Party directly or
indirectly from the LICENSOR or COLLATERAL (as the case may be);
(c) prior to disclosure pursuant to this Agreement, was already in the
possession of the receiving party, provided such Information was not
obtained directly or indirectly from the LICENSOR or COLLATERAL (as
the case may be);
(d) is developed independently of the Information obtained from the
LICENSOR or COLLATERAL (as the case may be), as demonstrated by
written evidence; or
(e) is disclosed by either the LICENSOR or COLLATERAL with the prior
written consent of the other.
8.3 Terms of this Agreement
The LICENSOR and COLLATERAL agree not to disclose any financial terms or
conditions of this Agreement to any Third Party without the prior written
consent of the other, except as required by applicable law or to persons
with whom the LICENSOR or COLLATERAL (as the case may be) has entered into
or proposes to enter into a business relationship provided that Third
Party is bound by confidentiality obligations. Notwithstanding the
foregoing:
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(a) COLLATERAL shall be permitted to disclose the material financial
terms of this Agreement to any potential acquirer, merger partner or
other bona fide potential strategic partner of COLLATERAL provided
that any such potential acquirer, merger, partner or other bona fide
strategic partner is bound by confidentiality obligations consistent
with this Agreement and further provided that the LICENSOR is
advised of the existence but not the identity of such potential
acquirer, merger partner or other bona fide strategic partner and
the nature of the disclosure to be made by COLLATERAL prior to such
disclosure being made; and
(b) the LICENSOR and COLLATERAL shall be permitted to disclose the terms
or conditions of this Agreement in accordance with the requirements
of the rules of any stock exchange or securities body without the
prior written consent of the other but only to the extent required
by such rules.
8.4 Public Comment
Notwithstanding anything contained in this Clause 8, COLLATERAL shall not
make any public comment either verbally or in writing concerning or
arising from this Agreement without first providing the other parties with
*** to review, and provide their approval for such announcement. The other
parties shall have the right to not unreasonably withhold approval of such
announcement provided that if no comments are provided to COLLATERAL
within *** the announcement will be deemed to be approved.
8.5 Survival of Obligations
This Clause 8 survives the termination of this Agreement.
9. LIMITATION OF LIABILITY AND INDEMNITY
(a) To the extent permitted by law, *** and any of their respective
servants, agents, sub-contractors or nominees are not liable for any
liabilities, losses, damages, charges, claims, actions, costs and
expenses suffered or incurred by *** ***.
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(b) Without limiting Clause 9(a), *** and any of their respective
servants. agents, sub-contractors or nominees are not liable for any
form of special, indirect, incidental or consequential loss or
damage (including loss of profits and loss or damage that was, or
may reasonably be supposed to have been, in the contemplation of the
parties as at the date of this Agreement as a probable result of any
such act or omission) *** ***.
(c) *** hereby indemnifies and shall keep indemnified and agrees to
defend *** and *** and any of their respective servants, agents,
sub-contractors or nominees against all liabilities, losses,
damages, charges, claims, actions, costs and expenses (including
without limitation legal fees calculated on a solicitor/client
basis) of any kind whatsoever suffered or incurred by any of them as
a result of or in connection with *** ***.
10. INSURANCE
(a) COLLATERAL shall maintain public and product liability insurance
with respect to the use and exploitation of the Patent Rights and
the production and distribution of any Licensed Products in such
amount as is customarily maintained in accordance with good practice
for the pharmaceutical industry. COLLATERAL shall maintain such
insurance for so long as it continues to use and exploit any of the
Patent Rights or produce or distribute any Licensed Products, and
thereafter for so long as COLLATERAL maintains insurance for itself
covering supply of such product.
(b) COLLATERAL shall, upon the request of the LICENSOR:
(i) produce evidence of the currency of such insurance; and
(ii) note the interest of the LICENSOR in the manner directed by
the LICENSOR on the policy in respect of such insurance.
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Confidential Treatment and filed separately with the Commission.
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11. TERM AND EARLY TERMINATION
11.1 Term
Unless terminated earlier pursuant to Clauses 5.11, 7.2 or 7.3, or l1.3
this Agreement shall continue until the date of expiration of the last to
expire of any patent within the Patent Rights.
11.2 Effect of Termination
Upon termination of this Agreement for any reason whatsoever by either
party:
(a) all licences granted pursuant to this Agreement shall immediately
cease and COLLATERAL shall cease to make any use of the Technology
and the Patent Rights; and
(b) COLLATERAL shall immediately:
(i) return to the LICENSOR any materials provided to COLLATERAL
pursuant to Clause 4;
(ii) supply to the LICENSOR all documents, reports, notes,
memoranda, computer media or other materials which record,
contain or relate in any way to the Patent Rights or the
Technology and which were provided to or obtained by
COLLATERAL or prepared or made by or for or on behalf of
COLLATERAL except certain notes, documents and other materials
that are considered to be privileged or confidential or that
must be maintained to comply with regulatory requirements;
(iii) despite anything else in this Agreement, cease to make use of
anything subject to the confidentiality obligations in Clause
8,
and shall confirm in writing to the LICENSOR promptly when it has
complied with these obligations.
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(c) LICENSOR acknowledges that in respect of materials supplied in
clause 11.2 (b) arising from human clinical trials of Licensed
Products that it shall not be entitled to utilise such materials for
regulatory submissions seeking marketing approval of Licensed
Products in the Field, without the consent of COLLATERAL where such
consent is not to be unreasonably withheld. For the avoidance of
doubt the parties acknowledge that the LICENSOR can utilise any
other material supplied pursuant to clause 11.2(b) for regulatory
submission purposes.
11.3 Early Termination
(a) In addition to any rights it may have hereunder the LICENSOR may
terminate this Agreement with immediate effect upon the occurrence
of any of the following:
(i) upon or after the bankruptcy, insolvency, dissolution or
winding up of COLLATERAL (other than dissolution or winding up
for the purposes of a solvent reconstruction or amalgamation);
or
(ii) upon or after the breach of any material provision of this
Agreement by COLLATERAL, if COLLATERAL has not remedied the
breach within thirty (30) days after written notice thereof by
the LICENSOR.
(b) COLLATERAL may terminate this Agreement at any time on thirty (30)
days' notice to the LICENSOR provided that COLLATERAL shall not
terminate this Agreement for any reason whatsoever prior to the
completion of the Pig Studies or 30 October 1997, whichever is the
latter.
11.4 Survival of Accrued Obligations
Expiration or termination of this Agreement shall not relieve the parties
of any obligation accruing prior to such expiration or termination.
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12. RESOLUTION OF DISPUTES
12.1 Disputes Committee
If any dispute or difference shall arise between the LICENSOR and
COLLATERAL pursuant to this Agreement then, prior to either party taking
any further action as by referring the matter to arbitration or commencing
legal proceedings, the matter in dispute shall be referred to a disputes
committee which shall consist of the respective chief executives of AMRAD,
LUDWIG and COLLATERAL (Disputes Committee). The chief executives shall
confer together in an endeavour to settle the dispute on some fair and
equitable commercial basis with regard to the basic legal rights of AMRAD,
LUDWIG and COLLATERAL. Any discussions or proceedings of the Disputes
Committee shall be on a without prejudice basis.
12.2 Use of Expert
Subject to agreement of all members of the Disputes Committee, the
Disputes Committee may, at its option, refer any dispute or difference to
an independent Third Park to act as an expert and not as an arbitrator in
settling the same, on terms that the decision of such independent Third
Party shall be binding on AMRAD, LUDWIG and COLLATERAL.
13. NOTICES
Any notice, demand, consent or other communication (Notice) given or made
under this Agreement:
(a) must be in writing and signed by a person duly authorised by the
sender;
(b) must either be delivered to the intended recipient by prepaid post
(if posted to an address in another country, by airmail) or by hand
or fax to the address or fax number below or the address or fax
number last notified by the intended recipient to the sender:
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(i) to LUDWIG institute
of Cancer Research: 1345 Avenue of the Americas
New York, New York,
United States of America 1015
Attention: President
Fax No: (212) 765 6720
with a copy to its London Office:
Fax No: (171) 828 5427
(ii) to Collateral
Therapeutics Inc: 9360 Towne Center Drive
San Diego, California
United States of America 92121
Attention: President
Fax No: (619) 587 3518
(iii) to AMRAD Development
Pty Ltd: 576 Swan Street
Burnley, Victoria, 3121
Attention: Managing Director
Fax No: (613) 92084089
(c) will be taken to be duly given or made:
(i) in the case of delivery in person, when delivered:
(ii) in the case of delivery by post, five business days after the
date of posting (if posted to an address in the same country)
or fourteen business days after the date of posting (if posted
to an address in another country); and
(iii) in the case of fax, on receipt by the sender of a transmission
control report from the despatching machine showing the
relevant number of pages and the correct destination fax
machine number or name of recipient and indicating that the
transmission has been made without error,
but if the result is that a Notice would be taken to be given or
made on a day that is not a business day in the place to which the
Notice is sent or is later than 4:00pm (local time) it will be taken
to have been duly given or made at the commencement of business on
the next business day in that place.
14. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties with
respect to its subject matter and supersedes all prior agreements and
understandings between the parties in connection with it.
<PAGE>
Page 27
15. AMENDMENT
No amendment or variation of this Agreement is valid or binding on a party
unless made in writing executed by all parties.
16. ASSIGNMENT
16.1 No Assignment Without Consent
Neither party may assign or otherwise transfer this Agreement or any of
its rights or obligation herein without the prior written consent of the
other party, which consent shall not be unreasonably withheld.
16.2 Permitted Assignments
(a) Notwithstanding Clause 16.1, COLLATERAL may assign this Agreement:
(i) subject to Clause 16.3, to Schering AG on written notice to the
LICENSOR but without the prior written consent of the LICENSOR
provided that Schering AG undertakes in writing to the LICENSOR
to be bound by all of the terms and conditions of this Agreement
prior to any such assignment and LICENSOR is notified within five
(5) days of such assignment taking place;
(ii) without the prior written consent of the LICENSOR in connection
with the sale of all or substantially all of the assets of
COLLATERAL to an Affiliate of COLLATERAL in connection with a
corporate reorganisation, provided that such Affiliate undertakes
in writing to be bound by all the terms and conditions in this
Agreement and LICENSOR is notified within five (5) days of such
assignment taking place; and
(b) Notwithstanding Clause 16.1 AMRAD or LUDWIG may assign this
Agreement to an Affiliate provided that such Affiliate undertakes
to be bound by the terms and conditions of this Agreement.
16.3 Assignment to Schering AG
In the event that COLLATERAL assigns this Agreement to Schering AG
pursuant to Clause 16.2(a), the following amendments to this Agreement
shall be made:
<PAGE>
Page 28
(a) in Clause 1.1, substitute for the definition of Net Revenue:
"Net Revenue means the prescribed percentage (as defined in
Clause 5.6(d)) of Net Sales made by Schering AG or royalty
payments received by Schering AG on Net Sales made by any
permitted sub-licensees less, in the event the exclusive
licence agreement between the Regents of the University of
California and COLLATERAL entitled *** dated 28 September
1995 as amended *** *** has been assigned to Schering AG
and the Licensed Products involve in any way whatsoever the
technology claimed in *** *** if payable to the said
Regents pursuant to the said exclusive licence agreement";
(b) in Clause 1.1, substitute for the definition of Net Sales:
"Net Sales" means gross proceeds from sales of Licensed
Products by Schering AG or by any permitted sub-licensees
less deductions for:
(a) transportation charges, including insurance relating
thereto;
(b) sales and excise taxes or customs duties paid by the
person selling or distributing any Licensed Product or
any other governmental charges imposed upon the sale or
distribution of any Licensed Product;
(c) distributors' fees, rebates or allowances actually
granted, allowed or incurred;
(d) quantity 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;
(e) allowances or credits to customers not in excess of the
selling price of any Licensed Product, on account of
governmental requirements, rejection, outdating, recalls
or returns of such Licensed Product.";
(c) substitute for Clause 5.6(c):
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Page 29
"If Schering AG or any of its sub-licensees receives any
non-cash benefit or otherwise derives any non-cash
commercial benefit in connection with the exploitation of
the Technology other than pursuant to an arm's length sale
agreement with a Third Party, for the purposes of
calculating the amount payable to Schering AG pursuant to
this Clause 5.7, Schering AG or its sublicensees (as the
case may be) shall be taken to have received revenue that
would have been received on an arm's length sale
agreement."; and
(d) substitute for Clause 5.6(d):
"For the purposes of the definition of Net Revenue in Clause
1.1, the prescribed percentage referred to therein shall be
the percentage royalty on Net Sales which COLLATERAL had paid
to LICENSOR prior to the assignment of this Agreement to
Schering AG. Upon assignment of this Agreement to Schering AG,
Schering AG shall notify the LICENSOR of the prescribed
percentage."
17. NO WAIVER
No failure to exercise nor any delay in exercising any right, power or
remedy by a party operates as a continuing waiver. A single or partial
exercise of any right, power or remedy does not preclude any other or
further exercise of that or any other right, power or remedy. A waiver is
not valid or binding on the party granting that waiver unless made in
writing.
18. FURTHER ASSURANCES
Each party agrees to do all things and execute all deeds, instruments,
transfers or other documents as may be necessary or desirable to give full
effect to the provisions of this Agreement and the transactions
contemplated by it.
19. RELATIONSHIP OF THE PARTIES
This Agreement does not set up or create an employer/employee
relationship, partnership of any kind, an association or trust between the
parties, each party being individually responsible only for its
obligations as set out in this Agreement and in addition the parties agree
that their relationship is one of independent contractors. COLLATERAL is
not authorised or empowered to act as agent on behalf of AMRAD or LUDWIG
and COLLATERAL shall not on behalf of AMRAD or LUDWIG
<PAGE>
Page 30
enter into any contract, warranty or representation as to any matter.
AMRAD or LUDWIG shall not be bound by the acts or conduct of COLLATERAL.
None of AMRAD, or LUDWIG are authorised or empowered separately or
together, to act as agent on behalf of COLLATERAL and none of AMRAD or
LUDWIG, separately or together, may enter any contract, warranty or
representations as to any matter on behalf of COLLATERAL. COLLATERAL shall
not be bound by the acts or conduct of any of AMRAD or LUDWIG, whether
acting alone or together.
20. COSTS AND STAMP DUTY
Each party shall bear its own costs arising out of the negotiation,
preparation and execution of this Agreement.
21. GOVERNING LAW AND JURISDICTION
This Agreement is governed by the laws of England. Subject to Clause 13,
each party submits to the non-exclusive jurisdiction of courts
exercising jurisdiction there in connection with matters concerning
this Agreement.
22. COUNTERPARTS
This Agreement may be executed in any number of counterparts. All
counterparts together will be taken to constitute one instrument.
<PAGE>
Page 31
- -------------------------------------------------------------------------------
SCHEDULE 1
- -------------------------------------------------------------------------------
AMRAD Patent Applications
Patent Applications filed by AMRAD
***
Inventors: Haywood, N.;
Weber, G;
Grimmond, S.;
Nordenskjold, M;
Larsson, C.
Claiming priority from:
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Page 32
- -------------------------------------------------------------------------------
SCHEDULE 2
- -------------------------------------------------------------------------------
LUDWIG Patent Applications
US Patent Applications filed by LUDWIG
*** ***
Inventors: Ulf Eriksson and Birgitta Olofsson (Stockholm Branch, LICR).
*** ***
Inventors: Ulf Eriksson and Birgitta Olofsson of the Stockholm Branch,
LICR and Katri Pajusola and Kari Alitalo (University of
Helsinki).
*** ***
Inventors: Ulf Eriksson and Birgitta Olofsson of the Stockholm Branch,
LICR and Katri Pajusolo and Kari Alitalo (University of
Helsinki).
*** ***
***
Inventors: Ulf Eriksson and Birgitta Olofsson of the Stockholm Branch,
LICR and Katri Pajusola and Kari Alitalo (University of
Helsinki).
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Page 33
- -------------------------------------------------------------------------------
SCHEDULE 3
- -------------------------------------------------------------------------------
Benchmarks
Completion of Pig Studies in the ameroid pig model of
myocardial ischaemia 30 October 1997
*** ***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Page 34
- -------------------------------------------------------------------------------
SCHEDULE 4
- -------------------------------------------------------------------------------
CRITERIA FOR GENE EFFICACY IN PIG MYOCARDIAL ISCHEMIA MODEL
(1) Efficacy in the pig chronic myocardial ischemia model
o Documented selective transgene expression in the heart at 2 weeks
after gene transfer: Method and Criteria: PCR ( ~ ) for gene in
cardiac tissue.
o Statistically significant (p lesser than 0.05) improvement in
Function (systolic wall thickening assessed by transthoracic
echocardiography) and Perfusion (contrast echocardiography)
2 weeks following gene transfer:
Criteria:
(1) Improvement in both Perfusion and Function during pacing
induced stress compared to stress prior to gene transfer in
the same animal.
Improved Function and Performance will be:
(1) statistically significant (p lesser than 0 05), and
(2) improved from pre-gene-transfer stress by at least
50(degree)'~ relative to the baseline stress. Data will be the
mean of between 5 and ~ pigs instrumented and injected
essentially as described in Nature Medicine, 2: 534-534, 1996.
(2) Acceptable safety profile
No evidence of significant inflammation using histologic and
immunocytochemical criteria in the heart and in other tissues.
<PAGE>
Page 35
EXECUTED as an agreement.
THE COMMON SEAL of AMRAD )
DEVELOPMENT PTY LTD was duly affixed in ) [SEAL]
the presence of: )
/s/ John Grace /s/ Robert J. Klupais
- ----------------------------------- ----------------------------------
Director Secretary
John Grace Robert Klupais
- ----------------------------------- ----------------------------------
Print Name Print Name
SIGNED SEALED AND DELIVERED by )
)
a duly authorised officer of LUDWIG )
INSTITUTE OF CANCER RESEARCH in the )
presence of: )
/s/ Linda Anne Lenthau /s/ RDJ Walker
- ----------------------------------- /s/ Edward A. McDermott Jr
Witness ----------------------------------
Duly Authorised Officer
Linda Anne Lenthau Edward A. McDermott Jr.
- ----------------------------------- Richard DJ Walker
Print Name ----------------------------------
Print Name
SIGNED SEALED AND DELIVERED by )
)
a duly authorised officer of COLLATERAL )
THERAPEUTICS INC in the presence of: )
)
/s/ H Kirk Hammond MD /s/ Jack W. Reich, Ph.D.
- ----------------------------------- ----------------------------------
Witness Duly Authorised Officer
H. Kirk Hammond, MD Jack W. Reich, Ph.D.
- ----------------------------------- ----------------------------------
Print Name Print Name
<PAGE>
[LOGO]
EXHIBIT 10.17
RESEARCH AGREEMENT BETWEEN UNIVERSITY OF WASHINGTON &
COLLATERAL THERAPEUTICS, INC.
This Agreement is by and between the University of Washington, a public
institution of higher education with offices at Seattle, Washington 98195,
hereinafter referred to as University, and Collateral Therapeutics, Inc. a for
profit firm with offices at 9360 Towne Centre Drive, Suite 110, San Diego, CA
92121, hereinafter referred to as Sponsor:
Whereas, University has an active research program concerning *** ;
Whereas, Sponsor is also interested in that research and wishes to encourage and
assist in supporting certain aspects of the research;
Whereas, University and Sponsor wish to combine their mutual interest in this
research;
Therefore, University and Sponsor hereby agree to the terms stated below.
1. Scope of Work
The Scope of Work shall be as described in the research proposal entitled ***
***, hereinafter referred to as Proposal, by Charles E. Murry, M.D.,
Ph.D.***. The Proposal is incorporated by reference into this Agreement.
2. Best Efforts
As an independent agent, University will apply its best efforts to complete the
research described in the Scope of Work statement. Commonly accepted
professional standards of workmanship will be followed.
3. Key Personnel
The project director will be Charles Murry, M.D., Ph.D., who may select and
supervise other project staff as needed. No other person will be substituted
for the project director except with Sponsor's approval. Sponsor may exercise
Termination provision of this Agreement (see 17) if a satisfactory substitute
is not identified.
4. Control of Research
Control of the research will rest entirely with University. However, it is
agreed that University, through its project director, will maintain continuing
communication with a designated liaison for the Sponsor. The frequency and
nature of these communications will be mutually defined by University's project
director and Sponsor's liaison person.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
[LOGO]
5. Funding and Payment
Sponsor will provide funding in the amount of $85,788 ***. Payment of ***
***. The *** of *** ***. Checks should be made payable to the University of
Washington and sent to the Director, Grant and Contract Accounting, ND-22,
University of Washington, Seattle, Washington 98195.
6. Project Period
The Agreement will be effective for twelve (12) months beginning May 1, 1997
and ending April 30, 1998. This period may be amended by mutual written
agreement by authorized representatives of University and Sponsor.
7. Invention Rights
Title to any invention, whether or not patentable, derived from research under
this Agreement will vest in University. Sponsor is hereby granted a royalty free
license to use all such inventions within Sponsor's own organization, including
subsidiaries if 50% or more owned. In the event that marketing such inventions
is of interest to Sponsor, Sponsor is guaranteed a first right to negotiate for
an exclusive commercial license based on financial terms and conditions to be
negotiated. Consistent with University policy, its rights in such inventions may
be assigned to the Washington Research Foundation or other agent for negotiation
of an appropriate License Agreement.
8. Publication
University will be free to publish the results of research conducted under this
Agreement within a reasonable time. Prior to submission for publication of a
manuscript or outline/notes for a symposium, the University agrees to send the
Sponsor a copy of the manuscript/outline to be submitted, and shall allow the
Company forty-five (45) days from receipt to determine whether the
manuscript/outline contains subject matter for which patent protection should be
sought prior to publication or public disclosure. Should the Sponsor believe the
subject matter of the manuscript contains a patentable invention to which it may
have rights under this Agreement, the Sponsor shall have until the end of such
45-day period to notify the University that it wishes to either seek to obtain
patent protection or that it wishes to keep the information non-public, and
University agrees to provide reasonable cooperation to the Sponsor and to take
no action inconsistent with the Sponsor's decision (including withholding
publication for a reasonable period of time upon request in order to file for
patent protection). In order to fully protect the rights of University and
Sponsor, any contemplated publication containing details of an invention,
whether or not patentable, will be withheld until a patent application is filed
or other appropriate steps to protect commercial value have been completed.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
[LOGO]
9. Hold Harmless
University and Sponsor each agree to indemnify and to hold harmless the other
party from damage to persons or property resulting from any act or omission on
the part of itself, its employees, its agents, or its officers.
10. Use of Names
University and Sponsor each agree that they will not use the name, trademark, or
other identifier of the other for any advertising, promotion, or other
commercially related purpose except with advance written approval.
11. Assignment
The sponsor shall have the right to assign or transfer any rights or obligations
arising from this Agreement with the prior written notice to the University.
12. Disclaimer of Warranties
All information received from or technology developed with the University is
experimental in nature and the University makes no express or implied warranties
or representations with respect to its utility, safety, merchantability, or
fitness for a particular purpose. All warranties, express or implied arising out
of or in connection with the furnishing, performance, or use of any University
technology are hereby disclaimed.
13. Applicable Law and Venue
This Agreement shall be governed by and enforced according to the laws of the
State of Washington without giving effect to the conflict of laws provisions
thereof. Exclusive jurisdiction and venue of any dispute under this Agreement
shall lie with the United States District Court for the Western District of
Washington (Seattle division) or the Superior Court of Washington for King or
Thurston County.
14. Nonperformance
Nonperformance by the University shall not operate as a breach of the terms of
this Agreement if due to strikes or other labor disputes or to prevention or
prohibition by law, the loss or injury to products in transit, an Act of God, or
war or other cause beyond the control of the University.
15. Severability
If any of the provisions of this Agreement shall be determined to be illegal or
unenforceable by a court of competent jurisdiction, the other provision shall
remain in full force and effect.
<PAGE>
[LOGO]
16. Notices
Unless otherwise indicated elsewhere in this Agreement, all notices and
communications in connection with this Agreement will be addressed to
University/Sponsor officials who sign this Agreement.
17. Termination
Either University or Sponsor may terminate this Agreement by giving thirty (30)
days written notice to the other. In the event of such termination. University
will cease further obligation of project funds and will take all reasonable
steps to cancel or otherwise reduce outstanding obligations. Sponsor will be
obligated to pay actual costs and firm obligations as reduced by diligent
efforts of University. In the event of a termination by the University, the
Sponsor shall have the right to technology pursuant to Section 7 resulting from
the research as defined in Section 1.
18. Amendments
Any amendment to this Agreement must be in writing and signed by authorized
representatives of University and Sponsor. No waiver ot this Agreement shall be
valid and enforceable unless in writing and signed bv the authorized
representative for the party granting the waiver. The waiver by any party of a
breach of any of the provisions of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by any party or a breach of the
entire Agreement. The authorized representative for the University is the
Director, Grant and Contract Services. Faculty members and other research
personnel are not authorized to bind the University.
19. Entire Agreement
This Agreement expresses the entire agreement between the parties. All prior
negotiations, understandings, promises and agreements, oral or written, are
superseded hereby.
Agreement of University and Sponsor in the terms stated above is indicated by
signatures affixed below.
For University: For Sponsor:
/s/ Donald W. Allen /s/ Jack W. Reich
- -------------------------- ----------------------------
Signature Signature
Donald W. Allen, Director Jack W. Reich, Ph.D.
Grant and Contract Services President & CEO
Apr 21 1997 April 15, 1997
- -------------------------- ----------------------------
Date Date
<PAGE>
[LOGO]
RESEARCH BUDGET FOR UNIVERSITY OF WASHINGTON
(CHARLES E. MURRY, M.D., Ph.D.) AND COLLATERAL
THERAPEUTICS, INC.
Research Grant
Personnel
*** ***
*** ***
----
***
Services
*** ***
*** ***
----
***
Supplies
*** ***
*** ***
----
***
*** ***
*** ***
----
Research Grant Total ***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
RESEARCH PROPOSAL TO COLLATERAL THERAPEUTICS
March 10, 1997
***
Charles E. Murry, M.D., Ph.D., Principal Investigator
Rationale
***
***
***
***
***
***
***
Specific Aims
***
***
***
***
***
***
***
Specific Aim 2. To determine the effects of *** into *** .
***
***
***
***
***
***
Specific Aim 3. To develop promoter constructs that prevent *** in *** .
***
***
***
Time Table
***
***
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
[LOGO]
FELLOWSHIP SUPPORT AGREEMENT
This agreement is between the University of Washington, a public institution of
higher education, with an office in Seattle, Washington 98195, hereafter
referred to as university, and Collateral Therapeutics, Inc., a for profit firm
with offices at 9360 Towne Centre Drive, San Diego, CA 92121.
Collateral Therapeutics, Inc. is interested in supporting a research fellow
in the laboratory of Charles Murry, M.D., Ph.D. to further his work in the
area of *** ***. The funds provided for in the attached budget are solely for
the purpose of fellowship support in Dr. Murry's laboratory, under his direct
supervision, for research in the general area of gene transfer and myocyte
differentiation. There are no other specific restrictions on these funds.
Collateral Therapeutics, Inc. will provide funding in the amount of *** support
of the research fellowship. A payment of $17,105 will be made upon initiation of
this agreement on May 1, 1997 and a similar payment of *** will be due upon
receipt of invoices from the University of Washington six months after
initiation of this agreement.
The individual employed in this fellowship will be an employee of the University
of Washington and will bear no responsibility to Collateral Therapeutics.
Agreement of University and Sponsor in the terms stated above is indicated by
signatures affixed below.
For University: For Sponsor:
/s/ Donald W. Allen /s/ Jack W. Reich
- ---------------------------- ---------------------------
Signature Signature
Donald W. Allen, Director Jack W. Reich, Ph.D.
Grant and Contract Services President & CEO
Apr 30 1997 April 17, 1997
- ---------------------------- ---------------------------
Date Date
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
RESEARCH FELLOWSHIP FOR THE LAB OF
CHARLES E. MURRY, M.D., Ph.D. AT UNIVERSITY OF WASHINGTON
Personnel
*** ***
*** ***
----
***
Supplies ***
*** ***
*** ***
----
Fellowship Total ***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
FELLOWSHIP SUPPORT AGREEMENT AMENDMENT
Whereas, the University of Washington and Collateral Therapeutics, Inc.
executed a Fellowship Support Agreement on April 30, 1997 and April 17, 1997
respectively; and
Whereas, that Agreement provided funding to support a fellow in the
laboratory of Dr. Charles Murry for a period of one year beginning May 1,
1997; and
Whereas, both parties wish to amend that Agreement to provide additional
funding and to extend the period;
Therefore, the parties agree as follows:
1. The expiration date of the Agreement will be extended for one year from
4/30/98 to 4/30/99.
2. Funding from Collateral Therapeutics, Inc. will be increased by $56,791
to $96,001 from $34,210.
3. Collateral Therapeutics, Inc., will make two payments of $28,395.50 each.
The first payment is due upon execution of this Amendment and the second
payment is due November 1, 1998.
Agreement of the parties to this Amendment is indicated by signatures affixed
below.
For University: For Sponsor:
/s/ DONALD W. ALLEN /s/ JACK W. REICH, Ph.D.
---------------------------- --------------------
Donald W. Allen, Director Jack W. Reich, Ph.D.
Grant and Contract Services President & CEO
Date June 2, 1998 Date June 19, 1998
<PAGE>
EXHIBIT 10.18
EXCLUSIVE LICENSE AGREEMENT
between
The Regents of the University of California
and
Collateral Therapeutics, Inc.
for
Angiogenic Gene Therapy for Congestive Heart Failure
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
----------------------
U.C. AGREEMENT
CONTROL NUMBER
***
----------------------
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Recitals...................................................................1
1. Definitions..........................................................4
2. Grant................................................................8
3. License Issue Fee...................................................10
4. Royalties...........................................................11
5. Due Diligence.......................................................15
6. Progress and Royalty Reports........................................18
7. Books and Records...................................................20
8. Life of the Agreement...............................................21
9. Termination by The Regents..........................................22
10. Termination by Licensee.............................................22
11. Disposition of Patent Products on Hand Upon Termination.............23
12. Use of Names and Trademarks.........................................24
13. Limited Warranty....................................................25
14. Patent Prosecution and Maintenance..................................26
15. Patent Marking......................................................30
16. Patent Infringement.................................................30
17. Indemnification.....................................................32
18. Notices.............................................................34
19. Assignability.......................................................35
20. Late Payments.......................................................35
21. Waiver..............................................................36
22. Failure to Perform..................................................36
23. Governing Laws......................................................36
24. Government Approval or Registration.................................37
25. Export Control Laws.................................................37
26. Force Majeure.......................................................37
27. Confidentiality.....................................................38
28. Miscellaneous.......................................................40
</TABLE>
<PAGE>
***
Revised: 7/13/95 (SH)
Draft date: June 3, 1997
Exclusive License Agreement
for
Angiogenic Gene Therapy for Congestive Heart Failure
This license agreement ("Agreement") is effective this 18th day of June,
1997, by and between The Regents of the University of California ("The
Regents"), a California corporation, having its statewide administrative offices
at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 and Collateral
Therapeutics, Inc., ("Licensee"), a California corporation, having a principal
place of business at 9360 Towne Centre Drive, San Diego, California 92121.
Recitals
Whereas, certain inventions, relating to "Angiogenic Gene Therapy for
Congestive Heart Failure" ("Invention"), useful for the treatment of congestive
heart failure through the use of gene therapy, were made at the
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
----------------------
U.C. AGREEMENT
CONTROL NUMBER
***
----------------------
<PAGE>
University of California, San Diego ("UCSD"), and are described and claimed
in U.S. Patent Application Serial No._____________ naming Dr. H. Kirk Hammond
an inventor employed by The Regents and *** an inventor not affiliated with
The Regents and are identified in Patent Rights defined below;
Whereas, *** has entered into an agreement with Licensee that provides for
assignment of her undivided interest in Patent Rights to Licensee;
Whereas, it is the intention of the Licensee to investigate the use of the
gene therapy method claimed in U.S. Patent Application Serial No. *** and
previously licensed to Licensee in the agreement entitled "Angiogenesis Gene
Therapy," executed on September 29, 1995, in the development of Patent Products
licensed herein;
Whereas, this Agreement will be executed in conjunction with an amendment
to the above referenced license granted to Licensee, dated September 29, 1995,
which amendment will provide Licensee with an additional year to meet the
requirements of Subparagraphs 5.3.1 through 5.3.4 of said license agreement;
Whereas, Licensee entered into a Letter of Intent ("Letter of Intent"),
having U.C. Agreement Control No. *** effective ***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
2
<PAGE>
that provided the Licensee with a time-limited exclusive right to negotiate for
a license to the Patent Rights;
Whereas, under 35 U.S.C. ss.ss. 200-212, The Regents may elect to retain
title to any invention (including the Invention) made by it, in whole or in
part, under U.S. Government funding;
Whereas, if The Regents elects to retain title to the Invention, then the
law requires that The Regents grant to the U.S. Government a nontransferable,
paid-up, nonexclusive, irrevocable license to use the Invention by or on behalf
of the U.S. Government throughout the World;
Whereas, any patent application claiming an invention made by H. Kirk
Hammond M.D., is subject to assignment to the *** absent a release to Dr.
Hammond from the ***;
Whereas, 37 C.F.R. ss. 501.6(a)(2) allows the *** to release the Invention
to Dr. Hammond under certain conditions;
Whereas, Dr. Hammond, an employee of The Regents, is under an obligation
to assign to The Regents the rights in the Invention that were released to
him by the ***;
Whereas, Dr. Hammond assigned to The Regents title to the Invention,
which was released to him from the *** and granted the required licenses to
the U.S. Government;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
3
<PAGE>
Whereas, Licensee is a "small entity" as defined in 37 C.F.R. ss. 1.9 and
a "small-business concern" defined at 1 5 U.S.C. ss. 632;
Whereas, both parties recognize that royalties due under this Agreement
will be paid on issued patents and pending patent applications that are being
prosecuted diligently and in good faith;
Whereas, Licensee requested an exclusive license to the Patent Rights from
The Regents; and
Whereas, The Regents wishes to grant to Licensee an exclusive license to
the entire interest owned by The Regents in Patent Rights so that products and
other benefits derived from the Invention can be enjoyed by the general public.
-- oo O oo --
The parties agree as follows:
1. Definitions
As used in this Agreement, the following terms will have the meaning set
forth below:
4
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1.1 "Patent Rights" means all U.S. patents and patent applications and
foreign patents and patent applications assigned in whole or in part to The
Regents, and in the case of foreign patents and patent applications those
requested under Paragraph 14.4 herein, including any reissues, extensions,
substitutions, continuations, divisions, and continuations-in-part
applications (only to the extent, however, that claims in the
continuations-in-part applications are entitled to the priority filing date
of the parent patent application) based on and including any subject matter
claimed in or described according to the requirements of 35 U.S.C. ss. 112 in
U.S. Patent Application Serial Number __________________ entitled *** ***
filed *** by Dr. H. Kirk Hammond, et al., and now assigned, in part, to The
Regents.
1.2 "Patent Products" means:
1.2.1 any kit, composition of matter, material, or product;
1.2.2 any kit, composition of matter, material, or product to be used in a
manner requiring the performance of the Patent Method; or
1.2.3 any kit, composition of matter, material, or product produced by the
Patent Method;
to the extent that the manufacture, use, or sale of such kit, composition of
matter, material, or product, in a particular country, would fall within the
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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scope of (1) an unexpired claim of a patent under Patent Rights in that country
or (2) a pending claim of a pending patent application that is being prosecuted
diligently and in good faith in that country were it issued as a claim in a
patent under Patent Rights in that country in which such application is pending.
This definition of Patent Products also includes a service either used by
Licensee or provided by Licensee to its customers when such service requires the
practice of the Patent Method.
1.3 "Patent Method" means any process or method, the use or practice of
which in a country would fall within the scope of (1) an unexpired claim of a
patent under Patent Rights in that country or (2) a pending claim of a pending
application that is being prosecuted diligently and in good faith in that
country were it issued as a claim in a patent under Patent Rights in that
country in which such application is pending.
1.4 "Net Sales" means the gross invoice prices from the sale of Patent
Products by Licensee, an Affiliate, a Joint Venture, or a sublicensee to
independent third parties for cash or other forms of consideration in accordance
with generally accepted accounting principles limited to the, following
deductions (if not already deducted from the gross invoice price and at rates
customary within the industry): (a) allowances (actually paid and limited to
rejections, returns, and prompt payment and volume discounts
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granted to customers of Patent Products, whether in cash or Patent Products in
lieu of cash); (b) freight, transport packing, insurance charges associated with
transportation; and (c) taxes, tariff, or import/export duties based on sales
when included in gross sales, but not value-added taxes or taxes assessed on
income derived from such sales.
1.5 "Affiliate" of Licensee means any entity which, directly or
indirectly, controls Licensee, is controlled by Licensee, or is under common
control with Licensee ("control" for these purposes being defined as the actual,
present capacity to elect a majority of the directors of such affiliate, or if
not, the capacity to elect the members that control fifty percent (50%) of the
outstanding stock or other voting rights entitled to elect directors) provided,
however, that in any country where the local law will not permit foreign equity
participation of a majority, then an "Affiliate" will include any company in
which Licensee will own or control, directly or indirectly, the maximum
percentage of such outstanding stock or voting rights permitted by local law.
Each reference to Licensee herein will be meant to include its Affiliates.
1.6 "Joint Venture" means any separate entity established pursuant to an
agreement between a third party and Licensee to constitute a vehicle for
commercializing Patent Products, in which the separate entity
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manufactures, uses, purchases, sells, or acquires Patent Products from Licensee.
Each reference to Licensee herein will be meant to include its Joint Ventures.
2. Grant
2.1 Subject to the terms of this Agreement, subject to the licenses
granted to the U.S. Government as set forth in the Recitals above, and subject
to the provisions of Paragraph 2.5 below, The Regents hereby grants to Licensee
exclusive licenses in the entire interest owned by The Regents in Patent Rights
to make, use, sell, offer for sale, and import Patent Products and to practice
the Patent Method where Patent Rights exist.
2.2 The Regents also grants to Licensee the exclusive right in the entire
interest owned by The Regents in Patent Rights to issue sublicenses to third
parties to make, use, sell, offer for sale, and import Patent Products and to
practice the Patent Method, provided Licensee retains the current exclusive
rights in the entire interest owned by The Regents in Patent Rights thereto
granted under Paragraph 2.1 of this Agreement. To the extent applicable, such
sublicenses will include all of the rights of and obligations due to The Regents
(and, if applicable, the U.S. Government, including 35
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U.S.C. ss.ss. 200-212 and the implementing regulations), including the payment
of royalties in Article 4. (Royalties) that are contained in this Agreement.
2.3 Licensee will notify The Regents of each sublicense granted hereunder
and provide The Regents with a copy of each sublicense. Licensee will collect
and pay all royalties due The Regents as set forth in Paragraph 4.1 below (and
guarantee all such payments due from sublicensees). Licensee will require
sublicensees to provide it with progress and royalty reports in accordance with
the provisions herein, and Licensee will collect and deliver to The Regents all
such reports due from sublicensees.
2.4 If this Agreement is terminated for any reason or the exclusive
licenses in the entire interest owned by The Regents in Patent Rights are
reduced to nonexclusive licenses in accordance with Paragraph 5.4, then any or
all sublicenses will be assigned to The Regents, provided that The Regents will
not be bound by any duties or obligations contained in any sublicense that
extend beyond the duties and obligations of The Regents in this Agreement.
2.5 Nothing in this Agreement will be deemed to limit the right of The
Regents to publish any and all technical data resulting from any research
performed by The Regents relating to the Invention and to make and use
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Patent Product(s), Patent Method(s), and associated technology solely for
educational and noncommercial research purposes.
3. License Issue Fee
3.1 As partial consideration for all the rights and licenses granted to
Licensee, Licensee will pay to The Regents a license issue fee of Three
Hundred and Twenty-Five Thousand Dollars ($325,000) according to the
following schedule:
3.1.1 *** within *** after the execution of this Agreement by both
parties;
3.1.2 *** on or before *** ;
3.1.3 *** on or before *** ;
3.1.4 *** on or before *** ; and
3.1.5 *** on or before *** .
3.2 The fees set forth in Paragraph 3.1 above are non-refundable,
non-creditable, and not an advance against royalties.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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4. Royalties
4.1 As further consideration for all the rights and licenses granted to
Licensee, Licensee also will pay to The Regents an earned royalty at the rate
of *** based on the Net Sales of Patent Products. In the event Patent
Products also employ the invention claimed in U.S. Patent Application Serial
No. *** the Licensee will pay to The Regents the royalty rate based on Net
Sales of Patent Products specified in the agreement executed on September 29,
1995 covering such U.S. Patent Application Serial No. *** in addition to the
royalty rate based on Net Sales of Patent Products specified herein.
4.2 Paragraphs 1.1, 1.2, and 1.3 define Patent Rights, Patent Products,
and Patent Methods so that royalties will be payable only on Patent Products and
Patent Methods covered by either a pending patent application that is being
prosecuted diligently and in good faith in a relevant country or by an issued
patent in a relevant country. Earned royalties will accrue in each country for
the duration of any issued patent within Patent Rights in that country and will
be payable to The Regents when Patent Products are invoiced, or if not invoiced,
when delivered to a third party for the purpose of patient administration or for
purposes other than clinical trials. Licensee, its Affiliates, Joint Ventures,
and sublicensees will not use
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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Patent Products or Patent Methods for administration to patients in any business
of the Licensee, or of its Affiliates, Joint Ventures, and sublicensees without
payment of applicable royalty on Net Sales to be calculated on retail sales
prices as if the sales transaction had occurred at arm's-length to an unrelated
third party.
4.3 Royalties accruing to The Regents will be paid to The Regents
quarterly on or before the following dates of each calendar year:
February 28 for the calendar quarter ending December 31;
May 31 for the calendar quarter ending March 31;
August 31 for the calendar quarter ending June 30; and
November 30 for the calendar quarter ending September 30. Each
such payment will be for royalties which accrued up to the most recently
completed calendar quarter of Licensee.
4.4 Beginning in the year 2005 Licensee will pay to The Regents a
minimum annual royalty in the amounts and at the times set forth below:
2005 - $ ***
2006 - $ ***
2007 - $ ***
2008 - $ ***
2009 - $ ***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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In each succeeding calendar year after the year 2009 Licensee will pay a
minimum annual royalty of Three Hundred Thousand Dollars ($300,000) for the
life of this Agreement. Each minimum annual royalty payment must be paid to
The Regents by February 28 of each year following the calendar year in which
royalties accrued. Royalties paid during the prior calendar year will be
credited against the minimum annual royalty payment due and owing for the
prior calendar year.
4.5 In the event that the market for Patent Products will not support the
minimum annual royalty payments specified in Paragraph 4.4 above, then The
Regents and Licensee shall enter into good-faith negotiations to appropriately
reduce the minimum annual royalties, provided that Licensee can show sufficient
written evidence satisfactory to The Regents of the reduced market for Patent
Products. Such reduction of minimum annual royalties shall be based on *** of
the anticipated annual earned royalties due The Regents from sales of Patent
Products in light of the new market projections.
4.6 All monies due The Regents will be payable in United States funds
collectible at par in San Francisco, California. When Patent Products are sold
for monies other than United States dollars, the earned royalties will first be
determined in the foreign currency of the country in which such
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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Patent Products were sold and then converted Into equivalent United States
funds. The exchange rate will be that rate quoted in the Wail Street Journal on
the last business day of the reporting period.
4.7 Earned royalties on sales of Patent Products occurring in any country
outside the United States will not be reduced by any taxes, fees, or other
charges imposed by the government of such country except those taxes, fees, and
charges allowed under the provisions of Paragraph 1.4 (Net Sales). Licensee will
be responsible for all bank transfer charges.
4.8 Notwithstanding the provisions of Article 26. (Force Majeure), if at
any time legal restrictions prevent prompt remittance of part or all royalties
owed to The Regents by Licensee with respect to any country where a Patent
Product is sold or distributed, Licensee will convert the amount owed to The
Regents into United States funds and will pay The Regents directly from another
source of funds for the amount impounded.
4.9 In the event that any patent or any claim thereof included within the
Patent Rights is held invalid or unenforceable in a final decision by a court of
competent jurisdiction and last resort and from which no appeal has or can be
taken, all obligation to pay royalties based on such patent or claim or any
claim patentably indistinct therefrom will cease as of the date of such final
decision. Licensee will not, however, be relieved from paying any
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royalties that accrued before such decision or that are based on another patent
or claim that has not expired or that is not involved in such decision.
4.10 No royalties will be collected or paid hereunder to The Regents on
Patent Products sold to the account of the U.S. Government. Licensee and its
sublicensee will reduce the amount charged for Patent Products distributed to
the United States Government by an amount equal to the royalty for such Patent
Products otherwise due The Regents as provided herein.
5. Due Diligence
5.1 Licensee, upon execution of this Agreement, will diligently proceed
with the development, manufacture and sale of Patent Products. In this regard,
The Regents acknowledges that the technology covered by this Agreement has only
recently been invented and that substantial additional effort, expense and time,
as well as regulatory approval, will be required before manufacture and sales of
any Patent Products will be possible. Meeting the requirements of Paragraph 5.3
below shall be deemed to satisfy the due diligence requirements of this Article
5.
5.2 Licensee will be entitled to exercise prudent and reasonable business
judgment in the manner in which it meets its due diligence
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obligations hereunder, including under Paragraph 5.3 below. In no case, however,
will Licensee be relieved of its obligations to meet each of the due diligence
provisions of Paragraph 5.3 below.
5.3 If Licensee is unable to perform any of the following:
5.3.1 file an Investigational New Drug application with the U.S.
Food and Drug Administration on or before *** ;
5.3.2 begin Phase I Clinical Trials in the United States for Patent
Products on or before *** ;
5.3.3 enter Pivotal Trials (a combination of Phase II and Phase III
Clinical Trials) in the United States for said Patent Products
on or before *** ;
5.3.4 file for marketing approval in the United States for said
Patent Products on or before *** ;
5.3.5 market Patent Products in the United States within *** after
receiving marketing approval of such Patent Products from the
U.S. Food and Drug Administration; and
5.3.6 diligently and earnestly fill the market demand for Patent
Products following commencement of marketing at any time
during the exclusive period of this Agreement;
then The Regents will have the right and option to terminate this Agreement or
reduce the exclusive licenses in the entire interest owned by The Regents in
Patent Rights granted to Licensee to non-exclusive licenses in accordance
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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with Paragraph 5.4 hereof. The exercise of this right and option by The
Regents supersedes the rights granted in Article 2. (Grant).
5.4 To exercise either the right to terminate this Agreement or reduce
the exclusive licenses in the entire interest owned by The Regents in Patent
Rights granted to Licensee to non-exclusive licenses for lack of any
diligence requirement specified in this Article 5. (Due Diligence), The
Regents will give Licensee written notice of the deficiency. Licensee
thereafter has 60 (sixty) days to cure the deficiency. Licensee shall be
entitled to a one-time extension of each of the dates set forth in
Subparagraphs 5.3.1 through 5.3.4 (which have not been met) by one (1)
additional year to cure the deficiency upon payment of One Hundred Thousand
Dollars ($100,000) to The Regents, provided that such payment is received by
The Regents within sixty (60) days of receipt of written notice by The
Regents of Licensee's deficiency. The One Hundred Thousand Dollar ($100,000)
payment has the effect of extending the subject date and all subsequent dates
by one (1) year. If The Regents has not received the One Hundred Thousand
Dollar ($100,000) payment by the end of the sixty (60)-day period or written
tangible evidence satisfactory to The Regents that the deficiency has been
cured by the end of the sixty (60)-day period then The Regents may, at its
option, terminate this Agreement or reduce the exclusive licenses to the
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entire interest owned by The Regents in Patent Rights granted to Licensee to
non-exclusive licenses by giving written notice to Licensee in accordance with
Article 18. (Notices).
6. Progress and Royalty Reports
6.1 Beginning February 28, 1998, and semi-annually thereafter, Licensee
will submit to The Regents a progress report covering activities by Licensee
related to the development, including clinical trials and testing, of all Patent
Products and the obtaining of the governmental approvals necessary for
marketing. These progress reports will be provided to The Regents to cover the
progress of the research and development of the Patent Products until their
first commercial sale in the United States.
6.2 The progress reports submitted under Paragraph 6.1 will include, but
not be limited to, the following topics so that The Regents may be able to
determine the progress of the development of Patent Products:
o summary of work completed;
o summary of work in progress;
o current schedule of anticipated events or milestones specified
in Paragraph 5.3 and the dates when said milestones have been
met or will be met, as of the time of the report;
o market introduction date of Patent Products; and
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o activities of sublicensees, if any.
6.3 Licensee will also report to The Regents in its immediately subsequent
progress and royalty report the date of first commercial sale of a Patent
Product(s) in each country where the Licensee has sought marketing approval.
6.4 After the first commercial sale of a Patent Product, Licensee will
provide The Regents with quarterly royalty reports to The Regents on or before
each February 28, May 31, August 31, and November 30 of each year. Each such
royalty report will cover the most recently completed calendar quarter of
Licensee (October through December, January through March, April through June,
and July through September) and will show:
6.4.1 the gross sales and Net Sales of Patent Products sold by
Licensee and reported to Licensee as sold by its sublicensees
during the most recently completed calendar quarter;
6.4.2 the number of Patent Products sold or distributed by Licensee
and reported to Licensee as sold or distributed by its
sublicensees;
6.4.3 the royalties, in U.S. dollars, payable hereunder with respect
to Net Sales; and
6.4.4 the exchange rates used, if any.
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6.5 If no sales of Patent Products have been made during any reporting
period after the first commercial sale of a Patent Product, then a statement to
this effect is required.
7. Books and Records
7.1 Licensee will keep books and records accurately showing all Patent
Products manufactured, used, and/or sold under the terms of this Agreement. Such
books and records will be preserved for at least four (4) years after the date
of the royalty payment to which they pertain and will be open to inspection by
representatives or agents of The Regents at reasonable times to determine the
accuracy of the books and records and to determine compliance by Licensee with
the terms of this Agreement.
7.2 The fees and expenses of representatives of The Regents performing
such an examination will be borne by The Regents. However, if an error in
royalties of more than five percent (5%) of the total royalties due for any year
is discovered, then the fees and expenses of these representatives will be borne
by Licensee.
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8. Life of the Agreement
8.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement will be
in force from the effective date recited on page one and will remain in effect
for the life of the last-to-expire patent licensed under this Agreement, or
until the last patent application licensed under this Agreement is abandoned.
8.2 Any termination of this Agreement will not affect the rights and
obligations set forth in the following Articles:
Article 3 License Issue Fee
Article 7 Books and Records
Article 11 Disposition of Patent Products on Hand Upon
Termination
Article 12 Use of Names and Trademarks
Paragraph 14.6 Patent Prosecution and Maintenance
Article 17 Indemnification
Article 22 Failure to Perform
Article 27 Confidentiality
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9. Termination by The Regents
9.1 If Licensee should violate or fail to perform any material term or
covenant of this Agreement, then The Regents may give written notice of such
default ("Notice of Default") to Licensee. If Licensee should fail to repair
such default within sixty (60) days after the date such notice takes effect, The
Regents will have the right to terminate this Agreement and the licenses herein
by a second written notice ("Notice of Termination") to Licensee. If a Notice of
Termination is sent to Licensee, this Agreement will automatically terminate on
the date such notice takes effect. Such termination will not relieve Licensee of
its obligation to pay any royalty or license fees owing at the time of such
termination and will not impair any accrued right of The- Regents. These notices
will be subject to Article 18. (Notices).
10. Termination by Licensee
10.1 Licensee will have the right at any time to terminate this Agreement
in whole or as to any portion of Patent Rights by giving notice in writing to
The Regents. Such Notice of Termination will be subject to Article 18 (Notices)
and termination of this Agreement will be effective sixty (60) days after the
effective date thereof.
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10.2 Any termination pursuant to the above paragraph will not relieve The
Regents or Licensee of any obligation or liability accrued hereunder prior to
such termination or rescind anything done by The Regents or Licensee or any
payments made to The Regents hereunder prior to the time such termination
becomes effective, and such termination will not affect in any manner any rights
of The Regents or Licensee arising under this Agreement prior to such
termination.
11. Disposition of Patent Products on Hand Upon Termination
11.1 Upon termination of this Agreement, Licensee will have the privilege
of disposing of all previously made or partially made Patent Products, but no
more, within a period of one hundred twenty (120) days, provided, however, that
the sale of such Patent Products will be subject to the terms of this Agreement
including, but not limited to the payment of fees and reimbursement for patent
costs and the payment of royalties based on the Net Sales of Patent Products at
the rates and at the times provided herein and the rendering of reports in
connection therewith.
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12. Use of Names and Trademarks
12.1 Nothing contained in this Agreement will be construed as conferring
any right to use in advertising, publicity, or other promotional activities any
name, trade name, trademark, or other designation of either party hereto by the
other (including contraction, abbreviation or simulation of any of the
foregoing). Unless required by law, the use by Licensee of the name "The Regents
of the University of California" or the name of any campus of the University of
California for use in advertising, publicity, or other promotional activities is
expressly prohibited.
12.2 It is understood that The Regents will be free to release to the
inventors and senior administrative officials employed by The Regents the terms
of this Agreement upon their request. If such release is made, The Regents will
request that such terms will be kept in confidence in accordance with the
provisions of Article 27. (Confidentiality) and not be disclosed to others. It
is further understood that should a third party inquire whether a license to
Patent Rights is available, The Regents may disclose the existence of this
Agreement and the extent of the grant in Article 2. (Grant) to such third party,
but will not disclose the name of Licensee, except where The Regents is required
to release such information under either the California Public Records Act or
other applicable law.
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13. Limited Warranty
13.1 The Regents warrants to Licensee that it has the lawful right to
grant this license, and that it has not granted any rights or licenses to Patent
Rights, other than to the U.S. Government, in derogation of this Agreement.
13.2 This license and the associated Invention, Patent Rights, Patent
Products, and Patent Methods are provided WITHOUT WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. THE
REGENTS MAKES NO REPRESENTATION OR WARRANTY THAT THE INVENTION, PATENT PRODUCTS,
OR PATENT METHODS WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.
13.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM THE EXERCISE OF THIS LICENSE OR THE USE OF
THE INVENTION, PATENT PRODUCTS, OR PATENT METHODS.
13.4 Nothing in this Agreement will be construed as:
13.4.1 a warranty or representation by The Regents as to the
validity, enforceability, or scope of any Patent Rights; or
13.4.2 a warranty or representation that anything made, used, sold
or otherwise disposed of under any license granted in this
Agreement is or will be free from infringement of patents of
third parties; or
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13.4.3 an obligation to bring or prosecute actions or suits against
third parties for patent infringement except as provided in
Article 16 (Patent Infringement); or
13.4.4 conferring by implication, estoppel, or otherwise any license
or rights under any patents of The Regents other than Patent
Rights as defined herein, regardless of whether such patents
are dominant or subordinate to Patent Rights; or
13.4.5 an obligation to furnish any know-how not provided in Patent
Rights.
14. Patent Prosecution and Maintenance
14.1 The Regents will diligently prosecute and maintain the United States
and foreign patents comprising Patent Rights using counsel of its choice. The
Regents will promptly provide Licensee with copies of all relevant documentation
so that Licensee may be currently and promptly informed and apprised of the
continuing prosecution and may comment upon such documentation sufficiently in
advance of any initial deadline for filing a response, provided, however, that
if Licensee has not commented upon such documentation prior to the initial
deadline for filing a response with the relevant government patent office, or
The Regents must act to preserve Patent Rights, The Regents will be free to
respond appropriately without consideration of comments by Licensee, if any.
Both parties hereto will keep this documentation in confidence in accordance
with the provisions of Article
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27. (Confidentiality) herein. The Regents' counsel will take instructions only
from The Regents.
14.2 The Regents will use all reasonable efforts to amend any patent
application to include claims requested by Licensee and required to protect the
Patent Products contemplated to be sold or Patent Method to be practiced under
this Agreement.
14.3 The Regents and Licensee will cooperate in applying for an extension
of the term of any patent included within Patent Rights, if appropriate, under
the Drug Price Competition and Patent Term Restoration Act of 1984. Licensee
will prepare all such documents, and The Regents will execute such documents and
will take such additional action as Licensee may reasonably request in
connection therewith.
14.4 The Regents will, at the request of Licensee, file, prosecute, and
maintain patent applications and patents covered by Patent Rights in foreign
countries if available. Licensee must notify The Regents within nine (9) months
of the filing of the corresponding United States application of its decision to
request The Regents to file foreign counterpart patent applications. This notice
concerning foreign filing must be in writing and must identify the countries
desired. The absence of such a notice from Licensee to The Regents within the
nine (9)-month period will be considered
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an election by Licensee not to request The Regents to secure foreign patent
rights on behalf of Licensee. The Regents will have the right to file patent
applications at its own expense in any country Licensee has not included in its
list of desired countries, and such applications and resultant patents, if any,
will not be included in the licenses granted under this Agreement unless
Licensee agrees in writing to pay all costs associated with any such patent
applications and provided the rights of said patent applications are available
at the time Licensee agrees to pay the associated costs.
14.5 All past, present and future costs of preparing, filing, prosecuting
and maintaining all United States and foreign patent applications and all costs
and fees relating to the preparation and filing of patents covered by Patent
Rights in Paragraph 1.1 will be borne by Licensee. This includes all patent
preparation and prosecution costs incurred by The Regents prior to the execution
of this Agreement. Such costs will be due upon execution of this Agreement and
will be payable at the time that the license issue fee is payable. The costs of
all interferences and oppositions will be considered prosecution expenses and
also will be borne by Licensee. Licensee will reimburse The Regents for all
costs and charges within thirty (30) days following receipt of an itemized
invoice from The Regents for same.
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14.6 The obligation of Licensee to underwrite and to pay patent
preparation, filing, prosecution, maintenance, and related costs will continue
for such costs as may be incurred during the three (3)-month period after
receipt by either party of a Notice of Termination for all non-cancelable
obligations made prior to the receipt of said Notice of Termination. Licensee
will reimburse The Regents for all patent costs incurred during the term of the
Agreement and for three (3) months thereafter whether or not invoices for such
costs are received during the three (3)-month period after receipt of a Notice
of Termination. Licensee may with respect to any particular patent application
or patent terminate its obligations to the patent application or patent in any
or all designated countries upon three months written notice to The Regents. The
Regents may continue prosecution and/or maintenance of such applications) or
patent(s) at its sole discretion and expense, provided, however, that Licensee
will have no further right or licenses thereunder.
14.7 Licensee will have a continuing responsibility to keep The Regents
informed of its large/small entity status (as defined by the United States
Patent and Trademark Office) of itself and its sublicensees.
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15. Patent Marking
15.1 Licensee will mark all Patent Products made, used or sold under the
terms of this Agreement, or their containers, in accordance with the applicable
patent marking laws.
16. Patent Infringement
16.1 In the event that Licensee learns of the substantial infringement of
any patent licensed under this Agreement, Licensee will call the attention of
The Regents thereto in writing and will provide The Regents with reasonable
evidence of such infringement. Both parties to this Agreement acknowledge that
during the period and in a jurisdiction where Licensee has exclusive rights
under this Agreement, neither will notify a third party of the infringement of
any of Patent Rights without first obtaining consent of the other party, which
consent will not be unreasonably withheld. Both parties will use their best
efforts in cooperation with each other to terminate such infringement without
litigation.
16.2 Licensee may request that The Regents take legal action against the
infringement of Patent Rights. Such request must be made in writing and must
include reasonable evidence of such infringement and damages to Licensee. If the
infringing activity has not been abated within ninety (90)
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days following the effective date of such request, The Regents will have the
right to elect to:
16.2.1 commence suit on its own account; or
16.2.2 refuse to participate in such suit
and The Regents will give notice of its election in writing to Licensee by the
end of the one hundredth (100th) day after receiving notice of such request from
Licensee. Licensee may thereafter bring suit for patent infringement if and only
if The Regents elects not to commence suit and if the infringement occurred
during the period and in a jurisdiction where Licensee had exclusive rights
under this Agreement. However, in the event Licensee elects to bring suit in
accordance with this Paragraph 16.2, The Regents may thereafter join such suit
at its own expense, but the Licensee will control the lawsuit.
16.3 Such legal action as is decided upon will be at the expense of the
party on account of whom suit is brought and all recoveries recovered thereby
will belong to such party, provided, however, that legal action brought jointly
by The Regents and Licensee and participated in by both will be at the joint
expense of the parties and all recoveries will be allocated in the following
order: a) to each party reimbursement in equal amounts of the attorney's costs,
fees, and other related expenses to the extent each party paid for such costs,
fees, and expenses until all such costs, fees, and
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expenses are consumed for each party; and b) any remaining amount shared jointly
by them in proportion to the share of expenses paid by each party.
16.4 Each party will cooperate with the other in litigation proceedings
instituted hereunder but at the expense of the party on account of whom suit is
brought. Such litigation will be controlled by the party bringing the suit,
provided, however, that The Regents may be represented by counsel of its choice
in any suit brought by Licensee.
17. Indemnification
17.1 Licensee will (and will require its sublicensees to) indemnify, hold
harmless, and defend The Regents, its officers, employees, and agents; sponsors
of the research that led to the Invention; the inventors of any invention
covered by Patent Rights (including the Patent Products and Patent Method
contemplated thereunder) and their employers against any and all claims, suits,
losses, damage, costs, fees, and expenses resulting from or arising out of
exercise of this license or any sublicense. This indemnification will include,
but will not be limited to, any product liability.
17.2 Licensee, at its sole cost and expense, will insure its activities in
connection with the work under this Agreement and obtain, keep in force,
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and maintain insurance as follows (or an equivalent program of self insurance):
At the initiation of clinical trials, Comprehensive or Commercial Form
General Liability Insurance (contractual liability included) with limits as
follows up to and until Licensee enters Phase III Clinical Trials:
(a) Each Occurrence.........................................$3,000,000
(b) Products/Completed Operations Aggregate.................$3,000,000
(c) Personal and Advertising Injury.........................$3,000,000
(d) General Aggregate (commercial form only)................$3,000,000
Comprehensive or Commercial Form General Liability Insurance (contractual
liability included) with limits as follows after Licensee enters Phase III
Clinical Trials:
(a) Each Occurrence.........................................$5,000,000
(b) Products/Completed Operations Aggregate.................$5,000,000
(c) Personal and Advertising Injury.........................$5,000,000
(d) General Aggregate (commercial form only)................$5,000,000
It should be expressly understood, however, that the coverages and limits
referred to under the above will not in any way limit the liability of Licensee.
Licensee will furnish The Regents with certificates of insurance evidencing
compliance with all requirements. Such certificates will:
(a) Provide for thirty (30)-day advance written notice to The Regents of
any modification;
(b) Indicate that The Regents has been endorsed as an additional Insured
under the coverages referred to under the above; and
33
<PAGE>
(c) Include a provision that the coverages will be primary and will not
participate with nor will be excess over any valid and collectable
insurance or program of self-insurance carried or maintained by The
Regents.
17.3 The Regents will immediately notify Licensee in writing of any claim
or suit brought against The Regents in respect of which The Regents intends to
invoke the provisions of this Article 17 (Indemnification). Licensee will keep
The Regents informed as appropriate and necessary on a current basis of its
defense of any claims pursuant to this Article 17 (Indemnification).
18. Notices
18.1 Any notice or payment required to be given to either party will be
deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five days after mailing if mailed by
first-class certified mail, postage paid, to the respective addresses given
below, or to another address as it may designate by written notice given to the
other party.
In the case of Licensee: COLLATERAL THERAPEUTICS, INC.
9360 Towne Centre Drive
San Diego, CA 92121
Tel: (619) 622-4100
Fax: (619) 587-3518
Attention: Jack Reich, Ph.D.
34
<PAGE>
In the case of The Regents: THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
1320 Harbor Bay Parkway, Suite 150
Alameda, CA 94502
Tel: (510) 748-6600
Fax: (510) 748-6639
Attention: Terence A. Feuerborn
Executive Director
Research Administration and
Office of Technology Transfer
Referring to: ***
19. Assignability
19.1 This Agreement is binding upon and will inure to the benefit of The
Regents, its successors and assigns, but will be personal to Licensee and
assignable by Licensee only with the written consent of The Regents, which
consent shall not be unreasonably withheld.
20. Late Payments
20.1 In the event royalty payments or fees or patent prosecution costs are
not received by The Regents when due, Licensee will pay to The Regents interest
charges at a rate of *** simple interest per annum. Such interest will be
calculated from the date payment was due until actually received by The Regents.
Acceptance by The Regents of any late payment interest from Licensee under this
Paragraph 20.1 will in no way affect the provision of Article 21. (Waiver)
herein.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
35
<PAGE>
21. Waiver
21.1 It is agreed that no waiver by either party hereto of any breach or
default of any of the covenants or agreements herein set forth will be deemed a
waiver as to any subsequent and/or similar breach or default.
22. Failure to Perform
22.1 In the event of a failure of performance due under the terms of this
Agreement and if it becomes necessary for either party to undertake legal action
against the other on account thereof, then the prevailing party will be entitled
to reasonable attorney's fees in addition to costs and necessary disbursements.
23. Governing Laws
23.1 THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA, excluding any choice of law rules that
would direct the application of the laws of another jurisdiction, but the scope
and validity of any patent or patent application will be governed by the
applicable laws of the country of such patent or patent application.
36
<PAGE>
24. Government Approval or Registration
24.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, Licensee will assume all legal obligations to do so. Licensee will
notify The Regents if it becomes aware that this Agreement is subject to a
United States or foreign government reporting or approval requirement. Licensee
will make all necessary filings and pay all costs including fees, penalties, and
all other out-of-pocket costs associated with such reporting or approval
process.
25. Export Control Laws
25.1 Licensee will observe all applicable United States and foreign laws
with respect to the transfer of Patent Products and related technical data to
foreign countries, including, without limitation, the International Traffic in
Arms Regulations (ITAR) and the Export Administration Regulations.
26. Force Majeure
26.1 The parties to this Agreement will be excused from any performance
required hereunder if such performance is rendered impossible
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<PAGE>
or unfeasible due to any acts of God, catastrophes, or other major events beyond
their reasonable control, including, without limitation, war, riot, and
insurrection; laws, proclamations, edicts, ordinances, or regulations; strikes,
lock-outs, or other serious labor disputes; and floods, fires, explosions, or
other natural disasters. However, any party to this Agreement will have the
right to terminate this Agreement upon thirty (30) days' prior written notice if
either party is unable to fulfill its obligations under this Agreement due to
any of the causes mentioned above and such inability continues for a period of
one year. Notices will be subject to Article 18. (Notices).
27. Confidentiality
27.1 Licensee and The Regents respectively will treat and maintain the
proprietary business, patent prosecution, software, engineering drawings,
process and technical information, and other proprietary information of the
other party ("Proprietary Information") in confidence using at least the same
degree of care as that party uses to protect its own proprietary information of
a like nature for a period from the date of disclosure until five (5) years
after the date of termination of this Agreement.
27.2 Proprietary Information will be labeled or marked confidential or as
otherwise similarly appropriate by the disclosing party, or if the
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Proprietary Information is orally disclosed, it will be reduced to writing or
some other physically tangible form, marked and labeled as set forth above by
the disclosing party and delivered to the receiving party within thirty (30)
days after the oral disclosure as a record of the disclosure and the
confidential nature thereof. Notwithstanding the foregoing, Licensee and The
Regents may use and disclose Proprietary Information to its employees, agents,
consultants, and contractors having a need to know the Proprietary Information
and, in the case of Licensee, its sublicensees, provided that any such parties
are bound by a like duty of confidentiality.
27.3 Nothing contained herein will in any way restrict or impair the right
of Licensee or The Regents to use, disclose, or otherwise deal with any
Proprietary Information:
27.3.1 that recipient can demonstrate by written records was
previously known to it;
27.3.2 that is now, or becomes in the future, public knowledge
other than through acts or omissions of recipient;
27.3.3 that is lawfully obtained without restrictions by
recipient from sources independent of the disclosing
party;
27.3.4 that is required to be disclosed to a governmental
entity or agency in connection with seeking any
governmental or regulatory approval, or pursuant to the
lawful requirement or request of a governmental entity
or agency;
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<PAGE>
27.3.5 that is furnished to a third party by the recipient with
a need to know and with similar confidentiality
restrictions imposed on such third party, as evidenced
in writing, or
27.3.6 that The Regents is required to disclose pursuant to the
California Public Records Act or other applicable law.
27.4 Upon termination of this Agreement, Licensee and The Regents will
destroy or return to the disclosing party proprietary information received from
the other in its possession within fifteen (15) days following the effective
date of termination. Licensee and The Regents will provide each other, within
thirty (30) days following termination, with a written notice that Proprietary
Information has been returned or destroyed. Each party may, however, retain one
copy of Proprietary Information for archival purposes in nonworking files.
28. Miscellaneous
28.1 The headings of the several sections are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
28.2 The licenses and any sublicenses granted hereunder will be subject to
any legal obligations to the U.S. Government including those set forth in 35
U.S.C. ss.ss. 200-212 and applicable governmental implementing
40
<PAGE>
regulations. Because this Agreement grants the exclusive right to use or sell
the Patent Products in the United States, Licensee acknowledges that Patent
Products will be manufactured substantially in the United States as required
under 35 U.S.C. ss. 204.
28.3 The manufacture of Patent Products will be in accordance with any
applicable government importation laws and regulations of a particular country
on Patent Products made outside the particular country in which such Patent
Products are to be used or sold.
28.4 Licensee will obtain all necessary governmental approvals in each
country where it intends to sell or manufacture and use Patent Products or
permit others to manufacture, use, or sell Patent Products.
28.5 This Agreement will not be binding upon the parties until it has been
signed below on behalf of each party, in which event, it will be effective as of
the date recited on page one.
28.6 No amendment or modification hereof will be valid or binding upon the
parties unless made in writing and signed on behalf of each party.
28.7 This Agreement embodies the entire understanding of the parties and
will supersede all previous communications, representations or understandings,
either oral or written, between the parties relating to the
41
<PAGE>
subject matter hereof. The Letter of Intent specified in the Recitals in this
Agreement is hereby terminated.
28.8 In case any of the provisions contained in this Agreement are held to
be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability will not affect any other provisions hereof, but
this Agreement will be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
The Regents and Licensee execute this Agreement in duplicate originals by
their respective, authorized officers on the date indicated.
Collateral Therapeutics, Inc. The Regents of the
University of California
By /s/ Jack W. Reich, Ph.D. /s/ Terence A. Feverborn
- ------------------------------- ---------------------------
(Signature) (Signature)
Name Jack W. Reich, Ph.D. Name Terence A. Feuerborn
- -------------------------------
(Please Print)
Title President & CEO Title Executive Director
Research Administration and
Office of Technology Transfer
Date June 16, 1997 Date 6-18-97
- ------------------------------- ---------------------
Approved as to legal form: /s/ Edward H. Baker 6/9/97
----------------------------- ------
Edwin H. Baker President Counsel Date
Office of Technology Transfer
University of California
42
<PAGE>
EXHIBIT 10.20
SPONSORED RESEARCH CONTRACT
THE CURATORS OF THE UNIVERSITY OF MISSOURI
This Contract by and between The Curators of the University of Missouri on
behalf of the University of Missouri-Columbia with its principal offices at 310
Jesse Hall, Office of Sponsored Program Administration, Columbia, Missouri 65211
(hereafter referred to as the University) and Collateral Therapeutics with its
principal offices at San Diego, California 92121, (hereafter referred to as
Sponsor), is made under the following terms:
ARTICLE 01. STATEMENT OF WORK
The University will undertake the sponsored research project entitled *** under
the direction of *** *** of the College of Veterinary Medicine, Veterinary
Biomedical Sciences Department, at the University of Missouri - Columbia
substantially in accordance with the proposed program and toward the goals set
forth in the research proposal dated *** (attached hereto as Attachment A and
made a part of this contract). Any change in the scope of work must be approved
in writing by both the University and Sponsor.
ARTICLE 02. PERIOD OF PERFORMANCE
This Contract shall be for the period beginning October 15, 1997 through July
15, 1998 unless otherwise amended or extended by mutual written agreement of
the parties.
ARTICLE 03. PROJECT COSTS/AWARD
It is agreed that the total project costs to the Sponsor for this Contract
shall not exceed Seventy-Six Thousand and Eighty-Three and 00/dollars
($76,083) unless changed by written amendment to this Contract. The
University's budget is set forth in Attachment A.
ARTICLE 04. INVOICE SUBMISSION AND PAYMENTS
Upon acceptance of this Contract by both parties, the University will invoice
Sponsor in accordance with the following schedule and for the stated amounts:
$ 45,650 Sixty percent (60%) of the award amount upon the start date of the
designated project or upon full execution of this Contract,
whichever is later.
*** ***
*** ***
Within *** of the end of the Contract period, the University will provide
Sponsor with a final statement of expenditures. Any balance of funds unexpended,
if applicable, at the conclusion of the Contract period must be returned to
Sponsor.
All invoices and the final statement of expenditures pertaining to this Contract
will be sent to:
Kathy Rooney
Vice President, Administration
Collateral Therapeutics
9360 Towne Center Drive
San Diego. California 92121
Telephone: 619/824-6503/FAX:619/587-3518
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
All payments for effort under this Contract will be made payable to The Curators
of the University of Missouri. Checks will be sent to:
Ms. Deborah Caselman
Associate Director/Fiscal Affairs
Office of Sponsored Program Administration
University of Missouri - Columbia
310 Jesse Hall
Columbia, Missouri 65211
Telephone: 314/882-0174/FAX: 314/884-4078
ARTICLE 05. TITLE TO EQUIPMENT
Title to all equipment, materials and supplies purchased under this Contract
shall vest in the University at the time of acquisition of the items.
ARTICLE 06. DELIVERABLES/REPORTS
The University shall provide such reports as required by Sponsor and a final
report due within *** after completion or termination of the Contract, whichever
occurs first.
ARTICLE 07. RECORDS
The University shall maintain such records and accounts necessary to assure a
proper accounting of all project funds. These records shall be available to
Sponsor or any of its authorized representatives during the period of this
Contract, and for three (3) years after completion or termination of the
project, whichever is later. In the event of audit or dispute, records will be
retained until resolution thereof.
ARTICLE 08. TERMINATION
This Contract may be terminated, with or without cause, by either party upon
written notice to the other thirty (30) days prior to the official date of
termination. Upon receipt of notice of termination, the University shall make
every effort to reduce or cancel outstanding commitments and shall incur no
additional expenses. Sponsor shall reimburse the University for outstanding
expenses incurred up to the date of termination, including uncancellable
obligations and reasonable termination costs, but in no event will such costs
exceed the total funds presently allocated to this Contract.
ARTICLE 09. PUBLICATION
The University reserves the right to publish the results of this research
project. At least ninety (90) days before publishing, the University shall
notify Sponsor of its intention to publish, and shall, upon request, submit the
manuscript to Sponsor for review and comment. Any comments shall be in writing
and shall be submitted to the University within ninety (90) days of receipt of
the manuscript by Sponsor. The comments shall be given due consideration by the
University.
ARTICLE 10. PATENTS AND COPYRIGHTS
It is expressly agreed that neither Sponsor nor the University transfers by
operation under this Contract to the other party any patent rights, copyrights,
or other proprietary rights either party owns as of the commencement date of
this Contract, except as specifically set forth herein.
The University retains all ownership to any patents, copyrights, processes,
inventions and other proprietary intellectual property of any nature developed
as a result of the research or investigation conducted under this Contract. The
University hereby grants Sponsor a six (6) month option from the date of notice
to Sponsor by University for an exclusive commercial license based on financial
terms and conditions to be negotiated.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
2
<PAGE>
ARTICLE 11. CONFIDENTIAL INFORMATION
During the term of this Contract and for a period of five (5) years thereafter,
the University and Sponsor shall use their best efforts to protect the
confidentiality of proprietary information provided it by the other party and
identified in writing as confidential and proprietary. This obligation of
confidentiality shall not apply to information which (a) is or becomes known
publicly through no fault of the other party; (b) is obtained or learned by the
receiving party from a third party entitled to disclose it; (c) is already known
to the receiving party at the time of disclosure, as shown by the receiving
party's prior written records; or (d) is developed by the receiving party
independent of any disclosure made hereunder. This obligation of confidentiality
does not apply when such disclosure of information is required by law.
ARTICLE 12. PUBLICITY/USE OF UNIVERSITY NAME
Sponsor will not use directly or by implication the name of the University or
the name of any member of the University's technical staff working on this
research project or any information or data relating to the research project for
any product promotion or commercial publicity or advertising purposes, nor in
any way the aims, policies, programs, products, or opinions of the Sponsor
without the prior written approval of the University.
ARTICLE 13. NOTICES
All notices required by this Contract shall be made in writing and sent prepaid
by certified mail. For purposes of this Contract, the addresses of the parties
are as follows:
University: (Technical) ***
College of Veterinary Medicine
Department of Veterinary Biomedical Sciences
University of Missouri - Columbia
E102 Veterinary Medicine Building
Columbia, Missouri 65211
Telephone: 573/882-7011
(Business) Ms. Joyce M. Pfaff, Assistant Director
Office of Sponsored Program Administration
University of Missouri - Columbia
310 Jesse Hall
Columbia, Missouri 65211
Telephone 314/882-9592 / FAX: 314/994-4078
Sponsor: Kathy Rooney
Vice President, Administration
Collateral Therapeutics
9360 Towne Center Drive
San Diego, California 92121
Telephone: 619/824-6503/FAX: 619/587-3518
ARTICLE 14. RELATIONSHIP OF PARTIES
The relationship of the University to Sponsor shall be that of an independent
contractor and nothing contained in this Contract shall be construed to create
the appearance of an employer/employee relationship. The University shall have
no authority to represent itself as an agent of Sponsor or to bind Sponsor for
any obligation or expense not specifically stated in this Contract.
ARTICLE 15. ASSIGNMENT
This Contract shall not be assigned by either party without the prior written
approval of the other party.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
3
<PAGE>
ARTICLE 16. CONTRACT MODIFICATION
Any agreement to change the terms of this Contract in any way shall be valid
only if the change is made in writing and approved by mutual agreement of the
authorized representatives of the parties hereto.
ARTICLE 17. INDEMNIFICATION
Sponsor shall indemnify, defend and hold harmless the University, its employees,
officers and agents from any and all liability, loss, damage and expenses
(including attorney fees) they may suffer as a result of claims, demands, costs
or judgments which may be made or instituted against them or any of them by
reason of personal injury (including death) to any person or damage to property
arising out of or connected with the performance of the activities to be carried
out under the statement of work provided. Any such liability, loss or damage
resulting from negligence or willful malfeasance by the University, its
employees, officers and agents is excluded from this agreement to indemnify,
defend and hold harmless.
ARTICLE 18. APPLICABLE LAW
This Contract shall be governed by the laws of the State of Missouri.
ARTICLE 19. USE OF PURCHASE ORDER
Sponsor hereby agrees that, should Sponsor use a purchase order to fund this
Contract. any terms and conditions contained in the purchase order shall be
considered deleted and not applicable for purposes of this Contract.
ARTICLE 20. ENTIRE CONTRACT
This Contract and attachments hereto contain the entire agreement between the
two parties. All modifications must be in writing and signed by the duly
authorized officials of both parties. No oral agreements or conversation with
any officer or employee of either party shall affect or modify any of the terms
and conditions of this Contract.
FOR THE CURATORS OF THE FOR Collateral Therapeutics
UNIVERSITY OF MISSOURI
/s/ Joyce M. Pfaff /s/ Christopher J. Reinhard
- ------------------ ---------------------------
By: Joyce M. Pfaff By: Christopher J. Reinhard
Title: Assistant Director Title: CFO/COO
Date: 10/13/97 Date: 10-22-97
Proposal No. 9810444-1
4
<PAGE>
ATTACHMENT A
STATEMENT OF WORK/BUDGET
<PAGE>
***
***
Principal Investigator: ***
Department of Veterinary Biomedical Sciences
E 102 Vet Med Bld
University of Missouri
Columbia, Missouri U.S.A. 65211
Phone: (573) 882-2635
FAIR: (573) 884-6890
E-mail: *** showme.missouri.edu
PURPOSE:
***
***
***
RATIONALE:
***
***
***
EXPERIMENTAL DESIGN:
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Page 1
<PAGE>
Experimental Groups. ***
***
***
*** Transfer. ***
***
***
METHODS: ***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Page 2
<PAGE>
***
***
REFERENCES:
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Page 3
<PAGE>
Budget:
***
***
Principal Investigator: ***
Department of Veterinary Biomedical Sciences
E 102 Vet Med Bld
University of Missouri
Columbia, Missouri U.S.A. 65211
Phone: (573) 882-2635
FAX: (573) 884-6890
E-mail: *** showme.missouri.edu
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Personnel:
Costs
Research Associate *** ***
Technician *** ***
Animal Exer/Caretaker *** ***
Fringe Benefits *** ***
Sub-total ***
Supplies:
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
Sub-total ***
Services:
*** *** ***
- --------------------------------------------------------------------------------
*** ***
University of Missouri *** Cost: ***
- --------------------------------------------------------------------------------
Total Costs $76,083
</TABLE>
Contingency: If the experiment requires significant expansion to do more
animals beyond that described in the Experimental Design
(e.g., increased evaluation in Phase I to determine the
definitive experimental protocol for Phase II) the cost will
be determined, proportional to the above budget, and billed
per approval of *** .
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Page 4
<PAGE>
UNIVERSITY OF MISSOURI - COLUMBIA
FUNDING SOURCE FORM
RE: Agency: Collateral Therapeutics
Award Document:
Project Title: ***
Project Director: *** College of Beterinary Medicine,
Department of Veterinary Biomedical Sciences
University of Missouri-Columbia Proposal No. ***
Is the source of funds provided by this program services contract Federal
pass-through? |_| Yes |x| No If yes, please specifically identify the Federal
Agency by name and the CFDA#:
/s/Kathy Rooney 10-21-97
- ------------------------------------------
Signature Date
Please return to Paula J. Teel, Grants and Contracts Administrator, Office of
Sponsored Program Administration, University of Missouri - Columbia, 310 Jesse
Hall, Columbia, Missouri 65211, or by facsimile to (573) 884-4078.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
[LETTERHEAD]
May 30, 1998
Ms. Paula J. Teel
Grants and Contracts Administrator
Sponsored Program Administration
University of Missouri-Columbia
310 Jesse Hall
Columbia, Missouri 65211
Dear Ms. Teel:
Collateral Therapeutics would like to extend the period of performance
regarding the sponsored research contract for the project entitled, *** ***
under the direction of *** . Please extend the period of performance to Dec.
31, 1998. Except for this change, all terms and conditions of the sponsored
research contract remain in full force and effect. Would you please inform
me if this extension is acceptable to The Curators of the University of
Missouri?
Sincerely,
/s/ Kathy Rooney
Kathy Rooney
Vice President, Administration
Accepted by THE CURATORS OF THE UNIVERSITY OF MISSOURI
ON BEHALF OF THE UNIVERSITY OF MISSOURI - COLUMBIA
/s/ Joyce M. Pfaff 6/11/98
- -------------------------------- -------
Joyce M. Pfaff
Interim Associate Director
Office of Sponsored Program Administration
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT 10.21
Biological Materials Agreement
This Agreement dated Jan 26, 1998 ("Effective Date") by and between Targeted
Genetics Corporation, 1100 Olive Way, Suite 100, Seattle, WA 98101 ("Targeted
Genetics") and Collateral Therapeutics, 9360 Towne Centre Drive, San Diego, CA
92121 ("Collateral") relates to certain biological materials transferred to
Collateral. Targeted Genetics is willing to provide Collateral with samples of
such biological materials upon the following terms:
1. Definitions. "Biological Materials" means recombinant adeno-associated
vector (rAAV) beta-ga1 virus stock transferred by Targeted Genetics to
Collateral, including but not limited to plasmids, cells and viruses, and any
derivatives, variants or progeny thereof.
2. Title to Biological Materials. Targeted Genetics has and shall retain all
title and interest in and to the Biological Materials. Nothing in this Agreement
confers to Collateral any license, right, or property interest in the Biological
Materials, Targeted Genetics patents or patent rights.
3. Use of Biological Materials. Targeted Genetics grants Collateral the right to
use the Biological Materials only for proposed use, as set forth in the work
plan attached to this Agreement as Appendix A ("Work Plan"). Collateral shall
not transfer the Biological Materials to third parties. The Biological Materials
shall not be used in humans, and shall be used in compliance with applicable
federal, state and local laws and regulations. The Biological Materials shall
not be used in research that is subject to consulting or licensing obligations
to a corporation, unless prior written permission is obtained from Targeted
Genetics.
4. Proprietary Rights. Collateral shall not grant or attempt to grant any right
in or to the Biological Materials without the prior written consent of Targeted
Genetics. Any inventions made by Collateral in the course of Collateral's
research relating to the Biological Materials shall be jointly owned by the
parties. Matters of inventorship of such inventions shall be determined in good
faith by the parties. Any data generated from research using the Biological
Materials shall be made available to Targeted Genetics for support of its patent
application relating to Biological Materials.
5. Warrant Disclaimers; Indemnification Disclaimer. The Biological Materials are
provided to Collateral without any warranty of merchantability or fitness for a
particular purpose or any other warranty, express or implied. In no event shall
Targeted Genetics be liable for any use of the Biological Materials by
Collateral nor for any loss, claim, damage, or liability, of whatsoever kind or
nature, which may arise from or in connection with this Agreement or the use,
handling or storage of the Biological Materials. No indemnification for any
loss, claim, damage, or liability is intended or provided by any party under
this Agreement. Each party shall be liable for any loss, claim, damage, or
liability it incurs as a result of its activity under this Agreement.
<PAGE>
6. Assignability. Collateral may not assign its rights or obligations under this
Agreement without the prior written consent of Targeted Genetics.
7. Publicity. Except as otherwise provided herein, Collateral, including its
employees and agents, shall not use the name of Targeted Genetics or any of its
employees or agents, and Targeted Genetics, including its employees and agents,
shall not use the name of Collateral or any of its employees or agents, in any
advertising, publicity, news release, promotional materials or any public
disclosure, whatsoever, either written or oral, related to the existence of this
Agreement or any actions or work undertaken pursuant to terms of this Agreement
without the prior written consent of the other party. Neither party will publish
or otherwise disclose the results of its research hereunder without the prior
written consent of the other party. Notwithstanding the foregoing each parts
hereby consents to references to it in any reports or documents which are filed
by the other party pursuant to any requirements of applicable law or
governmental regulations.
9. Term and Termination. This Agreement and the obligations of the parties
hereunder shall terminate one (1) year from the Effective Date of this
Agreement, unless terminated earlier upon thirty (30) days prior written
notice by one party to the other. At Targeted Genetics' sole option, upon
termination of this Agreement, all Biological Materials in the possession of
Collateral shall be returned to Targeted Genetics within *** of the
termination of this Agreement.
10. Future Collaboration. Upon completion of the research described in the Work
Plan, the parties may agree to enter into a collaboration to develop and
evaluate an AAV-ACvi vector for the treatment of congestive heart failure (the
"Collaboration") whereby Targeted Genetics would be responsible for constructing
and manufacturing an AAV-ACvi vector and Collateral would be responsible for,
among other things, funding Targeted's costs for the Collaboration, which are
estimated to be approximately *** . In the event that the parties do not enter
into a Collaboration, Collateral shall return all unused Biological Materials
pursuant to Paragraph 9, and the parties shall have no further obligations to
each other.
Targeted Genetics Corporation
By /s/ H. Stewart Parker
-----------------------------
Name: H. Stewart Parker
-----------------------------
Title: Pres. & CEO
-----------------------------
Collateral Therapeutics, Inc.
By: /s/ Christopher J. Reinhard
-----------------------------
Name: Christopher J. Reinhard
-----------------------------
Title: COO & CFO
-----------------------------
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
APPENDIX A
WORK PLAN
We would like to explore the possibility of *** .
<TABLE>
<CAPTION>
<S> <C>
1. Cell culture studies: ***
***
***
***
***
***
***
2. In vivo gene transfer: ***
***
***
***
***
***
***
***
***
***
***
3. Ex Vivo gene transfer. ***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
</TABLE>
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<PAGE>
EXHIBIT 10.22
RESEARCH AGREEMENT
This Agreement is made by and between Collateral Therapeutics ("Sponsor") with
offices at 9360 Towne Center Drive, San Diego, CA 92121, and The Regents of the
University of California, a California Corporation having its La Jolla office at
9500 Gilman Drive, La Jolla CA 92093-0934, on behalf of the University of
California, San Diego campus ("University").
WHEREAS, it is in the mutual interest of Sponsor and University that research
be conducted on a project entitled "Angiogenesis in the Failing Heart"
(Project);
WHEREAS, Sponsor desires to financially support said research at University;
NOW, THEREFORE, the parties agree as follows:
1. SCHEDULE - The Project shall be conducted in accordance with the statement
of work attached hereto as Exhibit "A" and incorporated into this Agreement
by this reference solely for the purpose of describing the scope of work to
be performed under this Agreement. The term of this Agreement shall be
February 1, 1998 through June 30, 1998 unless sooner terminated as herein
provided.
<PAGE>
2. BUDGET - Sponsor shall support the Project by a grant of Seventy-One
Thousand Nine Hundred Sixty-nine 00/100 Dollars ($71,969.00). The grant
amount shall cover all direct and indirect costs of the Project, as set forth in
the Budget attached hereto as Exhibit "B" and incorporated into this Agreement.
If at any time University has reason to believe that the cost of the Project
will be greater than the amount budgeted, University shall notify Sponsor in
writing to that effect, giving a revised budget of the cost of completion of the
Project. Sponsor shall not be obligated to reimburse University for the costs
incurred in excess of the Budget unless and until Sponsor has notified
University in writing that the revised budget is accepted. Upon expenditure of
the accepted budget amount, University's obligation to continue performance of
the Project shall cease. University will use best efforts to meet objectives of
the Project. If the Project period is more than one year, the balance of any
funds remaining at the end of any Project year may be carried over to subsequent
years during the period of the Agreement to support the Project.
3. PAYMENT - Upon execution of this agreement, Sponsor will provide payment in
the amount of $32,386.00.
Payment shall be made to "The Regents of the University of California" and
sent to the following:
The Regents of the University of California
c/o Emma Reyes
Manager, Extramural Funds Accounting
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0954
2
<PAGE>
On April 1, 1998, Sponsor shall provide payment in the amount of $32,386.00.
On June 30, 1998 Sponsor shall provide a *** . Upon request by Sponsor, the
University will provide to Sponsor a report of expenditures shown by major
cost categories for the prior annual accounting period.
4. PRINCIPAL INVESTIGATOR - The research is to be conducted by University under
the direction of *** ("Principal Investigator") who will be responsible for the
direction of the Project, including all budgeting and revisions to the Budget,
in accordance with applicable University policies. If during the term of this
Agreement, the Principal Investigator shall cease to direct the Project, then
University shall promptly so notify Sponsor and shall endeavor to find among the
scientists of University a Principal Investigator acceptable to Sponsor to
continue responsibility for direction of the Project. If University is unable to
find such a Principal Investigator within two (2) months after such notice to
Sponsor, Sponsor shall have the option to terminate its funding of the Project
in accordance with Section 14 of this Agreement. Sponsor shall promptly advise
University in writing if Sponsor so elects. Nothing herein contained shall be
deemed to impose an obligation on University to find a replacement for Principal
Investigator.
5. CONFIDENTIALITY - Subject to Paragraph 9 of this Agreement, it is the intent
of the parties that neither party shall furnish any
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
3
<PAGE>
information considered confidential and/or proprietary by it and/or one or more
third parties to the other party in connection with this Agreement.
Should Sponsor deem it necessary to disclose information considered
confidential and/or proprietary by it to University, it will be clearly marked
by Sponsor, in writing, as "Confidential Information". University will use its
best efforts not to disclose Confidential Information for a period of seven (7)
years from the end of this Agreement. This obligation does not apply to
information that was known to University prior to its receipt from Sponsor, that
is independently developed by the University, that becomes known at any time to
third parties through no fault of University or that is required to be disclosed
under applicable law or regulation.
6. RIGHTS IN DATA - Subject to Paragraph 5 of this Agreement, University shall
have the right to copyright, publish, disclose, disseminate and use, in whole
and in part, any data and information received or developed under the Project.
Subject to Paragraphs 8 and 9 of this Agreement, Sponsor shall have the right to
disclose, publish and use the technical reports, data and information delivered
under the Project to Sponsor by University.
7. USE OF NAME/PUBLICITY - It is agreed by each party that it will not under any
circumstance use the name of the other party or its employees in any
advertisement, press release or publicity with reference to this Agreement,
without prior written approval of the other party.
4
<PAGE>
8. PUBLICATION - University shall have the right to publish the results of the
work contemplated by this Agreement and shall, upon request, provide Sponsor the
opportunity to review any proposed manuscripts describing said work forty-five
(45) days prior to their submission for publication. However, if such submission
would cause the loss of significant foreign patent rights, University will, at
its option, either delete the enabling portion of the proposed publication, or
withhold publication for sixty (60) days until U.S. patent filings are
completed, but only to the extent that Sponsor agrees to reimburse University
for costs associated with such patent applications and subsequent prosecutions.
9. DISCLOSURE AND INVENTION RIGHTS - University shall promptly disclose to
Sponsor any inventions or discoveries arising under the Project. Sponsor shall
hold such disclosure on a confidential basis and will not disclose the
information to any third party without consent of the University. Sponsor may
disclose such confidential information to Sponsor's sub-licensees or
collaborators to the extent Sponsor obtains an agreement containing
confidentiality provisions from such sub-licensees or collaborators reasonably
satisfactory to University in form and substance. All rights to inventions or
discoveries, including software, arising from research conducted under the
Project shall be owned by the University. To the extent the University has the
legal right to do so and to the extent that the Sponsor pays all direct and
indirect costs of the Project, Sponsor, shall be given the first right to
5
<PAGE>
negotiate an exclusive, royalty-bearing license to make, use, and sell any
patentable inventions arising under the Project ("Inventions").
Sponsor shall advise University in writing within sixty (60) days of
disclosure of any Invention to Sponsor whether or not it wishes to secure a
commercial license. If Sponsor elects to secure a license, Sponsor shall
reimburse University all costs associated with filing, prosecuting and
maintaining patent protection for such Inventions, whether or not Letters Patent
ultimately issue. Sponsor shall have ninety (90) days from the date of election
to conclude a license or option agreement with University. Such license shall
contain reasonable terms and shall require diligent performance by Sponsor for
the timely commercial development and early marketing of such Invention. If
Sponsor elects not to secure such license(s), or such license has not been
concluded within the ninety (90) day period described above, rights to the
Invention(s) disclosed hereunder shall be disposed of in accordance with
University policies, with no further obligation to Sponsor.
10. INDEMNIFICATION - Sponsor agrees to defend, indemnify and hold University
harmless from and against any and all liability, loss, expense, reasonable
attorneys' fees, or claims for injury or damages arising out of the performance
of this Agreement, but only in proportion to and to the extent such liability,
loss, expense, attorneys' fees, or claims for injury or damages are caused by or
result from the negligent or intentional acts or omissions of Sponsor, its
officers, agents or employees.
6
<PAGE>
University agrees to defend, indemnify and hold Sponsor harmless from any
claim, liability, loss, expense, reasonable attorneys' fees, or claims for
injury or damages arising out of the performance of this Agreement, but only in
proportion to and to the extent such liability, loss, expense, attorneys' fees,
or claims for injury or damages are caused by or result from the negligent or
intentional acts or omissions of University, its officers, agents, or employees.
11. SUPPLIES AND EQUIPMENT - In the event that University purchases equipment
hereunder, title to such equipment shall vest in University.
12. EXCUSABLE DELAYS - In the event of a delay caused by inclement weather,
fire, flood, strike or other labor dispute, act of God, act of governmental
officials or agencies, or any other cause beyond the control of University,
University shall be excused from performance hereunder for the period of time
attributable to such delay, which may extend beyond the time lost due to one or
more of the causes mentioned above. In the event of any such delay, this
Agreement may be revised by changing the Budget, performance period and other
provisions, as appropriate, by mutual agreement of the parties.
13. NOTICE - Whenever any notice is to be given hereunder, it shall be in
writing and sent to the following address:
University: L.E. Dale
Contract and Grant Director
Office of Contract and Grant Administration
University of California, San Diego
La Jolla, CA 92093-0934
7
<PAGE>
(for express mail:
UCSD Contracts and Grants
10300 N. Torrey Pines Road, 2nd Floor
La Jolla, CA 92037)
Sponsor: Kathy Rooney
Vice-President of Administration
Collateral Therapeutics
San Diego, CA 92121
14. TERMINATION - This Agreement may be terminated by Sponsor for any reason, or
by University for non-payment at any time upon the giving of thirty(30) days
prior written notice to the other party. Written notice shall be directed to the
appropriate individual named in Article 13 ("NOTICE") of this Agreement. Upon
the giving of notice of termination by either party, the University shall exert
its best efforts to limit or terminate any outstanding commitments. Sponsor
shall reimburse University for all costs incurred by it for all work performed
through the effective termination date, and for all outstanding obligations
which cannot be canceled. Such obligations may include salary and fringe
benefits (including vacation accrual) of personnel engaged on the project during
their severance period; purchase orders and other agreements with outside
vendors which cannot be canceled; inventory storage and disposition costs for
items produced under this Agreement; and indirect costs associated with these
obligations. In addition, in the event of termination by Sponsor, University
shall also be reimbursed for additional costs which may be incurred as a result
of termination, including reasonable clerical and accounting costs. University
shall furnish, within ninety (90)
8
<PAGE>
days of the effective date of termination, a final invoice for settlement of all
costs to be reimbursed.
THE REGENTS OF THE COLLATERAL Therapeutics
UNIVERSITY OF CALIFORNIA
By: /s/ Linda E. Dale By: /s/ Kathy Rooney
- --------------------------- -------------------------
(signature) (signature)
Name: Linda E. Dale Name: Kathy Rooney
Title: Contract & Grant Director Title: Vice President, Admin.
Date: 2/18/98 Date: 2-23-98
- --------------------------- -------------------------
9
<PAGE>
STATEMENT OF WORK
***
EXHIBIT "A"
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Angiogenesis in
the Failing Heart
Proposed budget (02/01/98-06/30/98)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Budget:
Supplies:
*** ***
*** ***
*** ***
*** ***
----
TOTAL ***
Salaries:
*** Salary ***
*** Benefits ***
*** Salary ***
*** Benefits ***
*** Salary ***
*** Benefits ***
----
TOTAL ***
Total Direct Costs ***
Total Indirect Costs *** ***
----
Total Contract Costs ***
====
</TABLE>
EXHIBIT "B"
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<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. 4 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 23, 1998
