<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------
INTERMUNE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 99-3296648
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------------
3294 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 493-8333
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
W. SCOTT HARKONEN, M.D.
CHIEF EXECUTIVE OFFICER AND PRESIDENT
3294 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 493-8333
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN C. MENDELSON, ESQ. JONATHAN L. KRAVETZ, ESQ.
STEPHEN N. ROSENFIELD, ESQ. MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
COOLEY GODWARD LLP ONE FINANCIAL CENTER
FIVE PALO ALTO SQUARE BOSTON, MA 02111
3000 EL CAMINO REAL (617) 542-6000
PALO ALTO, CA 94306
(650) 843-5000
</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, as amended (the "Securities Act"), 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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, par value $0.001.............................. $101,200,000 $26,717
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRELIMINARY PROSPECTUS Subject to completion, dated February 2, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
- --------------------------------------------------------------------------------
5,500,000 Shares
[LOGO]
Common Stock
- ------------------------------------------------------------
This is our initial public offering of shares of common stock. No public market
currently exists for our common stock. We expect the public offering price to be
between $14.00 and $16.00 per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "ITMN."
BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR COMMON STOCK UNDER "RISK FACTORS" BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
- --------------------------------------------------------------------------------
Public offering price $ $
- --------------------------------------------------------------------------------
Underwriting discounts and commissions $ $
- --------------------------------------------------------------------------------
Proceeds, before expenses, to InterMune $ $
- --------------------------------------------------------------------------------
</TABLE>
The underwriters may also purchase up to 825,000 shares of common stock from us
at the public offering price, less the underwriting discounts and commissions,
within 30 days from the date of this prospectus. This option may be exercised to
cover over-allotments, if any. If the option is exercised in full, the total
underwriting discounts and commissions will be $ , and the total proceeds,
before expenses, to InterMune Pharmaceuticals, Inc. will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about , 2000.
WARBURG DILLON READ LLC
CHASE H&Q
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
<PAGE>
DESCRIPTION OF GRAPHICS
[1. Title: ACTIMMUNE
2. Photograph of ACTIMMUNE packaging
3. Horizontal bar chart showing the FDA-approval status of our product and
prospective products.]
"InterMune" and the InterMune logo are trademarks of InterMune Pharmaceuticals,
Inc. Other trademarks and trade names appearing in this prospectus are the
property of their holders.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF
INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS."
OUR BUSINESS
InterMune Pharmaceuticals develops and commercializes innovative products
for the treatment of serious pulmonary and infectious diseases and congenital
disorders. We have the exclusive license rights in the United States to
ACTIMMUNE (interferon gamma-1b injection) for a range of indications, including
chronic granulomatous disease, osteopetrosis, idiopathic pulmonary fibrosis,
mycobacterial infections, systemic fungal infections and cystic fibrosis. We
currently market ACTIMMUNE for chronic granulomatous disease. We have active
development programs underway for the other indications, several of which are in
mid- or advanced-stage human testing, known as clinical trials. Idiopathic
pulmonary fibrosis, mycobacterial infections and systemic fungal infections are
serious and difficult to treat diseases that we believe represent a combined
potential market opportunity for ACTIMMUNE of approximately $3.5 billion
annually in the United States.
Interferon gamma-1b, the active ingredient in ACTIMMUNE, is a human protein
which plays a key role in preventing the formation of excessive scar, or
fibrotic, tissue and is a potent stimulator of the immune system. Interferon
gamma is biologically distinct from interferon alpha and interferon beta, two
related proteins that are currently marketed for the treatment of diseases such
as hepatitis B infection and multiple sclerosis. Interferon gamma has a superior
safety profile as compared to interferon alpha and interferon beta because it
results in fewer and less severe adverse side effects.
ACTIMMUNE--MARKETED INDICATION
CHRONIC GRANULOMATOUS DISEASE. The U.S. Food and Drug Administration has
approved ACTIMMUNE for the treatment of chronic granulomatous disease, and we
currently market and sell ACTIMMUNE in the United States for this disease.
Chronic granulomatous disease is a life-threatening congenital disorder of the
immune system that causes patients to be vulnerable to severe recurrent
infections. This disease affects children, and no other FDA-approved treatment
currently exists. ACTIMMUNE was approved by the FDA based on its ability to
reduce the frequency and severity of infections in these patients.
ACTIMMUNE--INDICATIONS IN DEVELOPMENT
OSTEOPETROSIS. In August 1999, upon the completion of a Phase III clinical
trial, we submitted a supplement to our biologics license application, or BLA,
to the FDA for this indication. The FDA has designated osteopetrosis as eligible
for both an accelerated review, known as fast track review, and orphan drug
status. Osteopetrosis is a life-threatening, congenital disorder in which an
overgrowth of bony structures leads to blindness, deafness and increased
susceptibility to infection. This disorder primarily affects children, and no
effective treatment is currently available.
IDIOPATHIC PULMONARY FIBROSIS. We believe the most significant near-term
use of ACTIMMUNE is for the treatment of idiopathic pulmonary fibrosis, a
life-threatening lung condition that afflicts approximately 50,000 persons in
the United States. Idiopathic pulmonary fibrosis is characterized by progressive
scarring of the lungs, which leads to their deterioration and destruction. The
prognosis of patients with idiopathic pulmonary fibrosis is poor and most
patients die from progressive loss of lung function, which leads to suffocation.
Therapeutic options for idiopathic pulmonary fibrosis are limited and only
minimally effective.
The results of a Phase II clinical trial published in October 1999 in THE
NEW ENGLAND JOURNAL OF MEDICINE showed statistically significant evidence that
interferon gamma-1b halts and reverses the
3
<PAGE>
progression of idiopathic pulmonary fibrosis. We are continuing the clinical
development of ACTIMMUNE for idiopathic pulmonary fibrosis by initiating a Phase
II/III pivotal clinical trial during the first half of 2000.
OTHER INDICATIONS. We are also developing ACTIMMUNE to treat a variety of
other diseases, including infectious diseases and cystic fibrosis. Preclinical
studies and clinical trials have demonstrated the therapeutic potential of
ACTIMMUNE against a broad range of infectious diseases, notably mycobacterial
and systemic fungal infections. A study published in May 1997 in THE LANCET
showed that ACTIMMUNE was effective in the treatment of multidrug-resistant
tuberculosis, a type of mycobacterial infection. As a result of these studies,
we are initiating a Phase III pivotal clinical trial for ACTIMMUNE in the
treatment of multidrug-resistant tuberculosis and have commenced a Phase II
clinical trial in cryptococcal meningitis, a type of systemic fungal infection.
We intend to initiate Phase II clinical trials in cystic fibrosis and in
atypical mycobacterial infections in the second half of 2000.
We believe that the risks and time required to obtain FDA approval for new
indications of ACTIMMUNE may be reduced because ACTIMMUNE has proven to be safe
for patients since its approval in 1990 for the treatment of chronic
granulomatous disease.
OTHER PRODUCTS IN DEVELOPMENT
We also have two preclinical development programs that address infections
caused by two types of bacteria, pseudomonas aeruginosa and staphylococcus
aureus. We believe that these indications present combined market opportunities
of approximately $2 billion annually in the United States.
STRATEGY
We plan to pursue a growth strategy through:
- growing product revenue;
- expanding the number of FDA-approved indications for ACTIMMUNE;
- enhancing physician awareness and education;
- developing a sales and marketing organization to serve pulmonologists and
infectious disease specialists; and
- continuing to in-license preclinical and development-stage programs.
BACKGROUND
InterMune was formed in 1998 and began operations as a wholly-owned
subsidiary of Connetics Corporation. In 1998, Connetics acquired from Genentech
Inc., and subsequently sublicensed to us, rights to develop and commercialize
ACTIMMUNE for a broad range of indications. We initially focused on marketing
ACTIMMUNE for chronic granulomatous disease and developing it for serious
infectious diseases and congenital disorders. In October 1999, a study published
in the THE NEW ENGLAND JOURNAL OF MEDICINE showed significant evidence that
interferon gamma-1b halts and reverses the progression of idiopathic pulmonary
fibrosis. As a result, we expanded our development and commercialization plans
to include idiopathic pulmonary fibrosis as well as other life-threatening
pulmonary diseases.
4
<PAGE>
THIS OFFERING
UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES (I) THE
AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF OUR PREFERRED STOCK INTO
SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING (II) OUR
REINCORPORATION IN DELAWARE PRIOR TO THE CLOSING OF THIS OFFERING, (III) THE
ISSUANCE OF 4,966,361 SHARES OF OUR SERIES B PREFERRED STOCK IN JANUARY 2000,
AND (IV) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
The following information assumes that the underwriters do not exercise the
over-allotment option granted by us to purchase additional shares in this
offering.
<TABLE>
<S> <C>
Common stock offered by us................ 5,500,000 shares
Common stock to be outstanding after this
offering................................ 20,192,194 shares(1)
Proposed Nasdaq National Market symbol.... ITMN
Use of proceeds........................... We intend to use the net proceeds from this offering for
clinical development and commercialization of our
existing products, in-licensing new products, working
capital and general corporate purposes. See "Use of
Proceeds."
</TABLE>
- ------------------------
(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999, and
excludes:
- 990,000 shares of common stock underlying options outstanding as of
December 31, 1999 at a weighted average exercise price of $0.125 per
share;
- 830,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan;
- 2,180,000 shares available for issuance or future grant under our 2000
Equity Incentive Plan and 2000 Non-Employee Directors' Stock Option Plan;
and
- 200,000 shares available for issuance under our 2000 Employee Stock
Purchase Plan.
Our principal executive offices are located at 3294 West Bayshore Road, Palo
Alto, CA 94303. Our telephone number is (650) 493-8333. Our website is
http://www.intermune.com. The information found on our website is not a part of
this prospectus.
5
<PAGE>
SUMMARY FINANCIAL DATA
We have prepared this information using our audited financial statements for
the period from February 25, 1998 (inception) to December 31, 1998 and the year
ended December 31, 1999. The following summary historical data should be read in
conjunction with our financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FEBRUARY 25, FEBRUARY 25,
1998 1998
(INCEPTION) TO YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
STATEMENT OF OPERATIONS DATA: 1998 1999 1999
- ----------------------------- -------------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Product sales, net...................................... $ -- $ 556 $ 556
Costs and expenses:
Cost of goods sold.................................... -- 240 240
Research and development.............................. 1,235 2,934 4,169
General and administrative............................ 892 2,552 3,444
Acquired pre-FDA approval rights...................... 4,000 1,094 5,094
------- ------- --------
Total costs and expenses................................ 6,127 6,820 12,947
Loss from operations.................................... (6,127) (6,264) (12,391)
Other income (expense):
Interest income....................................... 55 240 295
Interest expense...................................... -- (186) (186)
------- ------- --------
Net loss................................................ $(6,072) $(6,210) $(12,282)
------- ------- --------
Preferred stock accretion............................... -- (656) (656)
Net loss applicable to common stockholders.............. $(6,072) $(6,866) $(12,938)
======= ======= ========
Net loss per share, basic and diluted................... $ (8.94)
=======
Shares used in computing net loss per share,
basic and diluted..................................... 768
=======
</TABLE>
The pro forma balance sheet data reflects the receipt of the net proceeds
from the sale of 4,876,916 shares of our Series B preferred stock in a private
placement completed on January 7 and 27, 2000 and the issuance on January 7,
2000 of 89,445 shares of our Series B preferred stock to Connetics Corporation
in payment of the $500,000 short-term obligation payable to Connetics as of
December 31, 1999. The pro forma as adjusted balance sheet reflects the sale of
5,500,000 shares of our common stock in this offering at an assumed price to the
public of $15.00 per share, after deducting the underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
BALANCE SHEET DATA: ACTUAL PRO FORMA AS ADJUSTED
- ------------------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........... $ 4,214 $ 29,976 $ 102,762
Working capital............................................. 1,222 27,484 102,184
Total assets................................................ 5,855 31,617 104,403
Redeemable convertible preferred stock...................... 7,774 34,036 --
Accumulated deficit......................................... (12,282) (12,282) (12,282)
Total stockholders' equity (deficit)........................ (7,898) (7,898) 100,838
</TABLE>
6
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF
THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE HARMED. IN THAT CASE, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY-STAGE COMPANY AND MAY NOT SUCCEED IN OUR DEVELOPMENT EFFORTS.
We commenced operations in 1998 and are at an early stage of development. We
have incurred significant losses to date, and our revenues have been limited to
sales of ACTIMMUNE for only a single indication, chronic granulomatous disease.
Although we are developing ACTIMMUNE for the treatment of idiopathic pulmonary
fibrosis, multidrug-resistant tuberculosis, cryptococcal meningitis and cystic
fibrosis, ACTIMMUNE will not be commercially launched for any of these
indications earlier than the first half of 2003, if at all. As a result, our
business is subject to all of the risks inherent in the development of a new
business enterprise, such as the need:
- to obtain substantial capital in addition to the net proceeds of this
offering to support the expenses of developing our technology and
commercializing our products;
- to develop a market for our products;
- to generate a sufficient and reliable supply of ACTIMMUNE;
- to successfully transition from a company with limited sales for a single
indication to a company capable of supporting broad commercial activities;
and
- to attract and retain qualified management, sales, technical and
scientific staff.
IF WE CONTINUE TO INCUR OPERATING LOSSES FOR A PERIOD LONGER THAN ANTICIPATED,
WE MAY BE UNABLE TO CONTINUE OUR OPERATIONS.
We have lost money since we commenced operations in August 1998, and our
accumulated deficit was approximately $12.3 million at December 31, 1999. We
expect to incur substantial additional losses for at least the next several
years. The extent of our future losses and the timing of our profitability are
highly uncertain, and we may never achieve profitable operations. We are
planning to expand the number of indications for which ACTIMMUNE may be
marketed, and this expansion will require significant expenditures. To date, we
have generated revenues through the sale of ACTIMMUNE for chronic granulomatous
disease. After consideration of the direct costs of marketing ACTIMMUNE for
chronic granulomatous disease, and royalties we must pay to Genentech, Inc. on
sales of ACTIMMUNE, we do not currently generate profits on those sales. Even if
we succeed in developing ACTIMMUNE for additional indications, we expect to
incur losses for at least the next several years and expect that these losses
will increase as we expand our research and development activities. If the time
required to achieve profitability is longer than anticipated, we may not be able
to continue our operations.
IF ACTIMMUNE FAILS IN ITS CLINICAL TRIALS FOR IDIOPATHIC PULMONARY FIBROSIS,
MULTIDRUG-RESISTANT TUBERCULOSIS, ATYPICAL MYCOBACTERIAL INFECTIONS,
CRYPTOCOCCAL MENINGITIS OR CYSTIC FIBROSIS, WE WILL BE UNABLE TO OBTAIN FDA
APPROVAL FOR THESE INDICATIONS AND WILL NOT BE ABLE TO MARKET ACTIMMUNE FOR
THESE INDICATIONS.
In order to market ACTIMMUNE for the treatment of osteopetrosis, idiopathic
pulmonary fibrosis, multidrug-resistant tuberculosis, atypical mycobacterial
infections, cryptococcal meningitis and cystic fibrosis, the FDA must grant
regulatory approval for ACTIMMUNE in these indications. To obtain
7
<PAGE>
these regulatory approvals, we must conduct clinical trials demonstrating that
ACTIMMUNE is safe and effective for these indications. We must also conduct
similar clinical trials in Japan to obtain approval to market ACTIMMUNE in Japan
for the treatment of tuberculosis.
Clinical trials are inherently unpredictable. If we cannot obtain FDA
approval for ACTIMMUNE for the targeted indications, our revenues will suffer.
Although ACTIMMUNE appears promising in these indications based on clinical
trials, ACTIMMUNE may not be successful in later confirmatory clinical trials.
Our proposed clinical trials in these indications might be delayed or halted for
various reasons, including that:
- ACTIMMUNE is not effective, or physicians think that ACTIMMUNE is not
effective, for a particular indication;
- the FDA does not approve our clinical trial protocol;
- patients experience severe adverse side effects during or following
treatment;
- patients die during a clinical trial because their disease is too advanced
or because they experience medical problems that are not related to
ACTIMMUNE;
- a sufficient quantity of patients do not enroll in the clinical trials at
the rate we expect; and
- the supply of ACTIMMUNE is not sufficient to treat the patients in some or
all of the proposed clinical trials.
In addition, the FDA and foreign regulatory authorities have substantial
discretion in the approval process and may impose ongoing requirements for
post-marketing studies.
IF WE CANNOT MAINTAIN OUR EXISTING REGULATORY APPROVAL FOR ACTIMMUNE FOR CHRONIC
GRANULOMATOUS DISEASE, OR FOR NEW INDICATIONS IF OBTAINED, WE WILL BE UNABLE TO
SELL ACTIMMUNE FOR THESE INDICATIONS, AND OUR REVENUES WILL SUFFER.
The process of obtaining and maintaining regulatory approvals for biological
drug products such as ACTIMMUNE, and obtaining and maintaining regulatory
approvals to market these products for new indications is lengthy, expensive and
uncertain. The manufacturing and marketing of drugs are subject to continuing
FDA and foreign regulatory review, and later discovery of previously unknown
problems with a product, manufacturing process or facility may result in
restrictions, including withdrawal of the product from the market. The
manufacturing, distribution, advertising and marketing of pharmaceuticals are
subject to extensive regulation. Any new indication approval that we receive
could include significant restrictions on the use or marketing of ACTIMMUNE. Our
existing approval for chronic granulomatous disease and any new approval for
osteopetrosis, idiopathic pulmonary fibrosis, multidrug-resistant tuberculosis,
cryptococcal meningitis or other indications, if granted, could be withdrawn for
failure to comply with regulatory requirements. If the FDA withdrew its approval
for ACTIMMUNE for an indication, we could not market ACTIMMUNE for that
indication, and our revenues would suffer. In addition, governmental authorities
could seize our inventory of ACTIMMUNE or force us to recall ACTIMMUNE already
in the market if we fail to comply with strictly enforced FDA regulations.
IF WE BREACH OUR SUBLICENSE AGREEMENT WITH CONNETICS CORPORATION OR THAT
AGREEMENT OTHERWISE TERMINATES, OR IF CONNETICS BREACHES ITS LICENSE AGREEMENT
WITH GENENTECH OR THAT AGREEMENT OTHERWISE TERMINATES, WE WOULD LOSE OUR RIGHT
TO MARKET AND DEVELOP ACTIMMUNE.
We sublicense ACTIMMUNE from Connetics, which licenses ACTIMMUNE from
Genentech. If Connetics terminates its agreement with us or Genentech terminates
its agreement with Connetics, we
8
<PAGE>
will have no further rights to utilize the patents or trade secrets covered by
these agreements to develop and market ACTIMMUNE. This two-tier license of
ACTIMMUNE has the following risks:
- our sublicense agreement provides for termination by Connetics in the
event we breach that agreement, including our failure to pay royalties and
other fees on a timely basis;
- if Connetics breaches its agreement with Genentech, and we are unable to
cure that breach, Genentech could terminate its license to Connetics, and
we could lose our rights to develop and market ACTIMMUNE; and
- if Genentech fails to maintain the intellectual property licensed to
Connetics, we may lose our rights to develop and market ACTIMMUNE and may
be forced to incur substantial additional costs to maintain the
intellectual property or to force Genentech to do so.
DISCOVERIES OR DEVELOPMENTS OF NEW TECHNOLOGIES BY ESTABLISHED DRUG COMPANIES OR
OTHERS MAY MAKE ACTIMMUNE OBSOLETE.
Our commercial opportunities will be reduced or eliminated if our
competitors develop and market products that are more effective, have fewer or
less severe adverse side effects or are less expensive than ACTIMMUNE for
chronic granulomatous disease, osteopetrosis, idiopathic pulmonary fibrosis,
multidrug-resistant tuberculosis, atypical mycobacterial infections,
cryptococcal meningitis, cystic fibrosis, or any other indication that we
target. With respect to our drug discovery programs in pseudonomas aeruginosa
and staphlococcus aureus, other companies have product candidates or research
programs that are further advanced in development than any of our potential
products and may result in effective, commercially successful products. Even if
we are successful in developing effective drugs, our products may not compete
effectively with these products or other successful products. Researchers are
continually learning more about diseases, which may lead to new technologies for
treatment. Our competitors may succeed in developing and marketing products
either that are more effective than those that we may develop, alone or with our
collaborators, or that are marketed before any products we develop are marketed.
Our competitors include fully-integrated pharmaceutical companies and
biotechnology companies that currently have drug and target discovery efforts,
as well as universities and public and private research institutions. Many of
the organizations competing with us have substantially greater capital
resources, larger research and development staffs and facilities, greater
experience in drug development and in obtaining regulatory approvals and greater
marketing capabilities than we do.
PHYSICIANS AND/OR PATIENTS MAY NOT ACCEPT ACTIMMUNE FOR THE TREATMENT OF
OSTEOPETROSIS, IDIOPATHIC PULMONARY FIBROSIS, MULTIDRUG-RESISTANT TUBERCULOSIS,
ATYPICAL MYCOBACTERIAL INFECTIONS, CRYPTOCOCCAL MENINGITIS, CYSTIC FIBROSIS OR
OTHER INDICATIONS EVEN IF WE OBTAIN REGULATORY APPROVAL.
Even if regulatory authorities approve ACTIMMUNE for the treatment of the
indications we are targeting, ACTIMMUNE may not be commercially successful.
ACTIMMUNE is an expensive drug, and we anticipate that the annual cost for
treatment under each of the indications for which we are seeking approval will
be significant. Market acceptance of and demand for ACTIMMUNE will depend
largely on the following factors:
- acceptance by physicians and patients of ACTIMMUNE as a safe and effective
therapy for a particular indication;
- reimbursement by third-party payors for treatment with ACTIMMUNE;
- pricing of alternative products;
- relative convenience and ease of administration of ACTIMMUNE; and
9
<PAGE>
- prevalence and severity of adverse side effects associated with ACTIMMUNE.
IF THIRD-PARTY PAYORS WILL NOT PROVIDE COVERAGE OR REIMBURSE PATIENTS FOR
ACTIMMUNE, OUR REVENUES AND PROFITABILITY WILL SUFFER.
Our ability to commercialize ACTIMMUNE in additional indications may depend
in part on the extent to which coverage and reimbursement for ACTIMMUNE will be
available from:
- governmental payors, such as Medicare and Medicaid;
- private health insurers, including managed care organizations; and
- other third-party payors.
Significant uncertainty exists as to the coverage and reimbursement status
of pharmaceutical products. If governmental and other third-party payors do not
provide adequate coverage and reimbursement levels for ACTIMMUNE, the market
acceptance of ACTIMMUNE will be reduced, and our sales will suffer.
The continuing efforts of governmental and other third-party payors to
contain or reduce the cost of health care through various means may adversely
affect our ability to successfully commercialize products. For example, in some
foreign markets, pricing and profitability of prescription pharmaceuticals are
subject to governmental control. In the United States, we expect that there will
continue to be federal and state proposals to implement similar governmental
control. In addition, increasing emphasis on managed care in the United States
will continue to put pressure on the pricing of pharmaceutical products. Cost
control initiatives could decrease the price that we would receive for ACTIMMUNE
or any products in the future, which would reduce our revenues and
profitability.
IF PRODUCT LIABILITY LAWSUITS ARE BROUGHT AGAINST US, WE MAY INCUR SUBSTANTIAL
LIABILITIES.
The testing, marketing, and sale of medical products entail an inherent risk
of product liability. If losses exceed our liability insurance coverage, we may
incur substantial liabilities. Whether or not we were ultimately successful in
product liability litigation, such litigation would consume substantial amounts
or our financial and managerial resources, and might result in adverse
publicity, all of which would impair our business. We may not be able to
maintain our clinical trial insurance or product liability insurance at an
acceptable cost, if at all, and this insurance may not provide adequate coverage
against potential claims or losses.
IF WE ARE UNABLE TO CONTRACT WITH THIRD PARTIES TO MANUFACTURE ACTIMMUNE IN
SUFFICIENT QUANTITIES, ON A TIMELY BASIS OR AT AN ACCEPTABLE COST, WE MAY BE
UNABLE TO MEET DEMAND FOR ACTIMMUNE AND MAY LOSE POTENTIAL REVENUES.
We do not have the resources, facilities or experience to manufacture
ACTIMMUNE ourselves. Completion of our clinical trials and commercialization of
ACTIMMUNE for new indications requires access to, or development of, facilities
to manufacture a sufficient supply of ACTIMMUNE. The FDA must approve
manufacturing facilities for ACTIMMUNE. We depend on third parties with
FDA-approved manufacturing facilities for the manufacture of ACTIMMUNE for
pre-clinical, clinical, and commercial purposes. We presently rely on
Genentech, Inc. for the manufacture of commercially marketed ACTIMMUNE and on
Boehringer Ingelheim Austria GmbH for the supply of ACTIMMUNE for clinical
trials. Our manufacturing strategy presents the following risks:
- Before we can obtain approval for a new indication for ACTIMMUNE, we must
demonstrate to the FDA's satisfaction that the drug used in the clinical
trials is substantially equivalent to the commercial drug manufactured by
Genentech.
10
<PAGE>
- Delays in scale-up to quantities needed for multiple clinical trials could
delay clinical trials, regulatory submissions and commercialization of
ACTIMMUNE.
- Our current manufacturers of ACTIMMUNE are subject to ongoing periodic
inspection by the FDA and corresponding state agencies for compliance with
strictly enforced good manufacturing practices regulations and similar
foreign standards, and we do not have control over our third-party
manufacturers' compliance with these regulations and standards.
- If we need to change to other manufacturers, the FDA and comparable
foreign regulators must approve these manufacturers prior to our use. This
would require new testing and compliance inspections. The new
manufacturers would have to be educated in, or themselves develop,
substantially equivalent processes necessary for the production of
ACTIMMUNE. In addition, the FDA or comparable foreign regulators would
need to approve the new manufacturers.
- If market demand for ACTIMMUNE increases suddenly, our current
manufacturers might not be able to fulfill our commercial needs, which
would require us to seek new manufacturing arrangements and may result in
substantial delays in meeting market demand.
- If market demand for ACTIMMUNE is less than our purchase obligations to
our manufacturers, we may incur substantial penalties.
- Our supply arrangements with our manufacturers may be seriously
interrupted.
- We may not have intellectual property rights, or may have to share
intellectual property rights, to any improvements in the manufacturing
processes or new manufacturing processes for ACTIMMUNE.
Any of these factors could delay clinical trials or commercialization of
ACTIMMUNE for new indications, interfere with current sales, entail higher costs
and result in our being unable to effectively sell ACTIMMUNE.
BECAUSE IT IS DIFFICULT AND COSTLY TO PROTECT OUR PROPRIETARY RIGHTS, WE MAY NOT
BE ABLE TO PROTECT THEM.
Our commercial success will depend in part on obtaining and maintaining
patent protection on our products and successfully defending these patents
against third party challenges. The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve complex legal and
factual questions. No consistent policy regarding the breadth of claims allowed
in biotechnology patents has emerged to date. Accordingly, we cannot predict the
breadth of claims that may be allowed in other companies' patents.
The degree of future protection for our proprietary rights is uncertain, and
we cannot ensure that:
- we were the first to make the inventions covered by each of our pending
patent applications;
- we were the first to file patent applications for these inventions;
- others will not independently develop similar or alternative technologies
or duplicate any of our technologies;
- any of our pending patent applications will result in issued patents;
- any patents issued to us or our collaborators will provide a basis for
commercially viable products or will provide us with any competitive
advantages or will not be challenged by third parties;
- we will develop additional proprietary technologies that are patentable;
or
- the patents of others will not have an adverse effect on our business.
11
<PAGE>
In addition, we could incur substantial costs in litigation if we are
required to defend against patent suits brought by third parties or if we
initiate these suits.
Others may have filed and in the future may file patent applications
covering interferon gamma-1b and its uses and other products in our development
program. For example, we are aware that the principal investigator of
Phase I/II and Phase II clinical trials of interferon gamma-lb for the treatment
of idiopathic pulmonary fibrosis has filed a patent application in several
European countries claiming the use of interferon gamma-lb for this indication.
We do not believe that a corresponding patent application has been filed in the
United States or that the investigator could successfully obtain patent
protection in the United States for the use of interferon gamma-lb to treat
idiopathic pulmonary fibrosis. However, we cannot be certain that the
investigator or any other third party has not filed and will not obtain a U.S.
patent claiming the use of interferon gamma-lb for the treatment of idiopathic
pulmonary fibrosis or any of the other indications for which we are developing
ACTIMMUNE. If a third party were issued a patent that blocked our ability to
commercialize ACTIMMUNE for any of the indications we are targeting, a legal
action could result.
Any legal action against our collaborators or us claiming damages and
seeking to enjoin commercial activities relating to the affected products and
processes could, in addition to subjecting us to potential liability for
damages, require our collaborators or us to obtain a license to continue to
manufacture or market the affected products and processes. We cannot predict
whether we or our collaborators would prevail in any of these actions or that
any license required under any of these patents would be made available on
commercially acceptable terms, if at all. We believe that there may be
significant litigation in our industry regarding patent and other intellectual
property rights. If we become involved in litigation, it could consume a
substantial portion of our managerial and financial resources.
In addition, we generally do not control the patent prosecution of
technology that we license from others. Accordingly, we are unable to exercise
the same degree of control over this intellectual property as we would exercise
over technology that we own.
We rely on trade secrets to protect technology where we believe patent
protection is not appropriate or obtainable. However, trade secrets are
difficult to protect. While we require employees, academic collaborators and
consultants to enter into confidentiality agreements, which generally provide
that proprietary information developed or inventions conceived during the
relationship shall be our exclusive property, we may not be able to adequately
protect our trade secrets or other proprietary information.
Our research collaborators and scientific advisors have rights to publish
data and information in which we have rights. If we cannot maintain the
confidentiality of our technology and other confidential information in
connection with our collaborations, then our ability to receive patent
protection or protect our proprietary information will be impaired.
FAILURE TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND CULTIVATE KEY
ACADEMIC COLLABORATIONS WILL DELAY OUR PRODUCT DEVELOPMENT PROGRAMS AND OUR
BUSINESS DEVELOPMENT EFFORTS.
We have only 21 employees, and our success depends on our continued ability
to attract, retain and motivate highly qualified management and scientific
personnel and on our ability to develop relationships with leading academic
scientists. Competition for personnel and academic collaborations is intense. We
are highly dependent on our current management and key scientific and technical
personnel, including W. Scott Harkonen, Chief Executive Officer, President, and
Chairman of our board of directors, as well as the other principal members of
our management. Our success will depend in part on retaining the services of our
existing management and key personnel and attracting and retaining new highly
qualified personnel. In addition, we may need to hire additional personnel and
develop additional collaborations as we continue to expand our research and
development activities. We
12
<PAGE>
do not know if we will be able to attract, retain or motivate personnel or
cultivate academic collaborations. Our inability to hire, retain or motivate
qualified personnel or cultivate academic collaborations would harm our business
and hinder the planned expansion of our business.
WE RELY ON THIRD PARTIES TO CONDUCT CLINICAL TRIALS FOR ACTIMMUNE, AND THOSE
THIRD PARTIES MAY NOT PERFORM SATISFACTORILY.
If third parties do not successfully carry out their contractual duties or
meet expected deadlines, we will not be able to obtain regulatory approvals for
ACTIMMUNE and will not be able to successfully commercialize ACTIMMUNE for new
indications. We do not have the ability to independently conduct clinical
studies for ACTIMMUNE, and we rely on third parties to perform this function. If
these third parties do not perform satisfactorily, we may not be able to locate
acceptable replacements or enter into favorable agreements with them, if at all.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO SUCCESSFULLY EXECUTE OUR BUSINESS PLAN.
We believe that the net proceeds from this offering, existing cash,
investment securities and cash flow from sales of ACTIMMUNE will be sufficient
to meet our capital requirements through at least the end of 2001. However, we
also expect capital outlays and operating expenditures to increase over the next
several years as we expand our infrastructure and research and development
activities. We may need to spend more money than currently expected because we
may need to change our product development plans or product offerings to address
difficulties with clinical studies or preparing for commercial sales in new
indications. We have no committed sources of capital and do not know whether
additional financing will be available when needed, or, if available, that the
terms will be favorable to our stockholders or us. If additional funds are not
available, we may be forced to delay or terminate clinical trials, curtail
operations or obtain funds through collaborative and licensing arrangements that
may require us to relinquish commercial rights or potential markets or grant
licenses on terms that are not favorable to us. If adequate funds are not
available, we will not be able to execute our business plan.
RISKS RELATED TO THIS OFFERING
IF OUR OFFICERS, DIRECTORS AND LARGEST STOCKHOLDERS CHOOSE TO ACT TOGETHER, THEY
MAY BE ABLE TO CONTROL OUR MANAGEMENT AND OPERATIONS, ACTING IN THEIR BEST
INTERESTS AND NOT NECESSARILY THOSE OF OTHER STOCKHOLDERS.
Following completion of this offering, our directors, executive officers and
principal stockholders and their affiliates will beneficially own approximately
66% of our common stock. Accordingly, they collectively will have the ability to
determine the election of all of our directors and to determine the outcome of
most corporate actions requiring stockholder approval. They may exercise this
ability in a manner that advances their best interests and not necessarily those
of other stockholders.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY
MAKE AN ACQUISITION OF US, WHICH MAY BE BENEFICIAL TO OUR STOCKHOLDERS, MORE
DIFFICULT.
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would benefit our stockholders.
These provisions:
- establish a classified board of directors so that not all members of our
board may be elected at one time;
- authorize the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and hinder a takeover attempt;
13
<PAGE>
- limit who may call a special meeting of stockholders;
- prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
- establish advance notice requirements for nominations for election to our
board of directors or for proposing matters that can be acted upon at
stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law, which
prohibits business combinations between us and one or more significant
stockholders unless specified conditions are met, may discourage, delay or
prevent a third party from acquiring us.
OUR STOCK PRICE MAY BE VOLATILE, AND YOUR INVESTMENT IN OUR STOCK COULD DECLINE
IN VALUE.
Prior to this offering, there has been no public market for our common
stock, and an active public market for our common stock may not develop or be
sustained after this offering. The initial public offering price of our common
stock will be determined by negotiations between the representatives of the
underwriters and us and may not be indicative of future market prices. The
following factors will be among those considered in determining the initial
public offering price of our common stock:
- clinical trial data;
- prevailing market conditions;
- estimates of our business potential and earnings prospects; and
- an assessment of our management.
If the market price of our common stock after this offering does not exceed
the initial public offering price, you may not realize any return on your
investment in us and may lose some or all of your investment.
The market prices for securities of pharmaceutical and biotechnology
companies in general have been highly volatile and may continue to be highly
volatile in the future. The following factors, in addition to other risk factors
described in this section, may have a significant impact on the market price of
our common stock:
- results of, or the perceived results of, our clinical trials and of our
competitors' clinical trials;
- regulatory developments in the United States and foreign countries;
- period-to-period fluctuations in financial results;
- developments concerning proprietary rights, including patents;
- announcements of technological innovations or new commercial products by
our competitors or us;
- publicity regarding actual or potential medical results relating to
products under development by our competitors or us; or
- actual or threatened litigation.
SUBSTANTIAL SALES OF SHARES MAY IMPACT THE MARKET PRICE OF OUR COMMON STOCK.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, the market price of our
common stock may decline. These sales also might make it more difficult for us
to sell equity or equity-related securities in the future at a time and price
that we deem appropriate. We are unable to predict the effect that sales may
have on the then prevailing market price of our common stock. After completion
of this offering, we will have
14
<PAGE>
outstanding 20,192,194 shares of common stock, assuming no exercise of
outstanding options after December 31, 1999 and no exercise of the underwriters'
over-allotment option. Of these shares, the 5,500,000 shares sold in this
offering will be freely tradeable without restriction or further regulation,
other than shares purchased by our officers, directors or other "affiliates"
within the meaning of Rule 144 under the Securities Act of 1933.
The remaining 14,692,194 shares of common stock held by existing
stockholders may not be sold publicly unless they are registered under the
Securities Act or are sold pursuant to Rule 144 or another exemption from
registration. These shares will become eligible for public resale at various
times over a period of less than one year following the completion of this
offering, subject to volume limitations.
We, our officers and directors and all of our current stockholders, have
agreed not to sell or offer to sell or otherwise dispose of any shares of common
stock held by us or them for a period of 180 days after the date of this
prospectus without the prior written consent of Warburg Dillon Read LLC. Warburg
Dillon Read LLC may release any or all of the shares subject to lock-up
agreements at any time without notice.
We further expect to file a registration statement covering shares of common
stock issuable upon exercise of options and other grants pursuant to our stock
plans. In addition, the holders of 13,656,361 shares of common stock are
entitled to registration rights.
THIS OFFERING WILL CAUSE DILUTION IN NET TANGIBLE BOOK VALUE.
Purchasers in this offering will experience immediate and substantial
dilution in the net tangible book value of the common stock from the initial
public offering price. Additional dilution is likely to occur upon the exercise
of options or warrants granted by us. To the extent we raise additional capital
by issuing equity securities, our stockholders may experience additional
substantial dilution.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements are found
in the material set forth under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as in this prospectus generally. When used
in this prospectus, the words "anticipate," "believe," "expect," "estimate" and
similar expressions are generally intended to identify forward-looking
statements. Our actual results could differ materially from those anticipated in
the forward-looking statements as a result of certain factors, including the
risks described in "Risk Factors" and elsewhere in this prospectus.
USE OF PROCEEDS
- --------------------------------------------------------------------------------
We estimate that the net proceeds from the sale of the 5,500,000 shares of
common stock that we are offering will be $75.7 million after deducting
estimated underwriters' discounts and commissions and estimated offering
expenses and assuming an initial public offering price of $15.00 per share. If
the underwriters' over-allotment option is exercised in full, we estimate that
the net proceeds will be $87.2 million.
We anticipate using the net proceeds from this offering for clinical
development and commercialization of our existing products, in-licensing new
products, working capital and general corporate purposes. We will retain broad
discretion over the use of the net proceeds of this offering. The amounts and
timing of the expenditures may vary significantly depending on numerous factors,
such as the progress of our research and development efforts, technological
advances and the competitive environment for our products. We also might use a
portion of the net proceeds to acquire or invest in complementary businesses,
products and technologies. We are not currently planning any acquisition, and no
portion of the net proceeds has been allocated for any specific acquisition.
We believe that the net proceeds of this offering, existing cash, investment
securities and cash flow from sales of ACTIMMUNE will be sufficient to meet our
capital requirements through at least the end of 2001. Pending the use of the
net proceeds, we intend to invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
- --------------------------------------------------------------------------------
We have never declared or paid any cash dividends on our capital shares. We
currently intend to retain earnings, if any, to support the research and
development of our business and do not anticipate paying cash dividends for the
foreseeable future.
16
<PAGE>
DILUTION
- --------------------------------------------------------------------------------
The pro forma net tangible book value of the common stock as of
December 31, 1999, was $26,137,888 million or $1.78 per share, assuming the
issuance of 4,876,916 shares of our Series B preferred stock for cash on
January 7 and 27, 2000, the issuance of 89,445 shares of our Series B preferred
stock to Connetics on January 7, 2000, in payment of our $500,000 short-term
obligation to them as of December 31, 1999, and after giving effect to the
automatic conversion of all outstanding shares of preferred stock into an
aggregate of 12,801,361 shares of common stock. After giving effect to the sale
of the common stock pursuant to this offering at an assumed initial public
offering price of $15.00 per share, assuming that the underwriters'
over-allotment option is not exercised, and after deducting the estimated
underwriting discount and offering expenses and the payment of our royalty
payable to Genentech of $1,913,785 and of our contingent liability to Connetics
in the amount of $1,000,000, which will occur upon the closing of this offering,
the adjusted pro forma net tangible book value at December 31, 1999, would have
been $100.8 million, or $4.99 per share.
Pro forma net tangible book value per share before this offering has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding at December 31, 1999. This offering will result in an increase in
pro forma net tangible book value per share of $3.21 to existing stockholders
and dilution in pro forma net tangible book value per share of $10.01 to new
investors who purchase shares in this offering. Dilution is determined by
subtracting pro forma net tangible book value per share after this offering from
the assumed initial public offering price of $15.00 per share. The following
table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $15.00
Pro forma net tangible book value per share at
December 31, 1999....................................... $ 1.78
Increase attributable to new investors.................... $ 3.21
Pro forma net tangible book value per share after this
offering.................................................. $ 4.99
------
Dilution in net tangible book value to new investors........ $10.01
</TABLE>
If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after this offering would be $5.35 per
share, the increase in net tangible book value per share to existing
stockholders would be $3.57 per share and the dilution in net tangible book
value to new investors would be $9.65 per share.
The following table summarizes, on a pro forma basis as of December 31, 1999
as adjusted for the January 2000 issuances of Series B preferred stock described
above, the differences between the total consideration paid and the average
price per share paid by the existing stockholders and the new investors with
respect to the number of shares of common stock purchased from us based on an
assumed public offering price of $15.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 14,692,194 72.8% $ 39,808,364 32.5% $ 2.71
New investors........................... 5,500,000 27.2 $ 82,500,000 67.5 $15.00
---------- ------ ------------ ------
Total................................... 20,192,194 100.0% $122,308,364 100.0%
========== ====== ============ ======
</TABLE>
The tables and calculations above assume no exercise of outstanding options.
At December 31, 1999, there were:
- 990,000 shares issuable upon the exercise of options outstanding at a
weighted average exercise price of $0.125 per share; and
- and 663,000 shares subject to repurchase by us at a weighted average price
of $0.041 per share.
17
<PAGE>
CAPITALIZATION
- --------------------------------------------------------------------------------
The following table shows our actual capitalization as of December 31, 1999.
Our capitalization is presented in the column labeled pro forma to give effect
to:
- the issuance of 4,876,916 shares of our Series B preferred stock in
conjunction with the private placement on January 7 and 27, 2000; and
- the issuance of 89,445 shares of our Series B preferred stock on January
7, 2000 to Connetics Corporation (in payment of the $500,000 short-term
payable as of December 31, 1999).
Our capitalization is also presented in the column labeled pro forma as
adjusted to give effect to:
- The receipt of the estimated net proceeds from this sale of 5,500,000
shares of stock offered by this prospectus at an assumed initial public
offering price of $15.00 per share; and
- The automatic conversion of all preferred shares into shares of our common
stock on a one-for-one basis upon the closing of this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Long-term obligations payable to Connetics.......... $ 1,624,343 $ 1,624,343 $ 1,624,343
============ ============ ============
Redeemable convertible preferred stock, no par value
Authorized shares--11,200,000 actual, pro forma
and pro forma as adjusted
Issued and outstanding shares 6,000,000 actual,
10,966,361 pro forma and none pro forma as
adjusted...................................... 7,773,877 34,035,831 --
Stockholders' equity (deficit):
Convertible preferred stock, no par value
Authorized shares--14,870,000 actual pro forma
and pro forma as adjusted
Issued and outstanding shares 1,835,000 actual
and pro forma and none pro forma as
adjusted...................................... 4,506,804 4,506,804 --
Common stock, no par value
Authorized shares--30,000,000 actual
Issued and outstanding shares 1,890,833 actual,
and pro forma and 20,192,194 pro forma as
adjusted...................................... 3,049,664 3,049,664 116,075,228
Deferred compensation related to stock options.... (3,172,926) (3,172,926) (3,172,926)
Accumulated other comprehensive income............ 41 41 41
Deficit accumulated during the development
stage........................................... (12,281,524) (12,281,524) (12,281,524)
------------ ------------ ------------
Total stockholders' equity (deficit)................ $ (7,897,941) $ (7,897,941) $100,837,890
============ ============ ============
</TABLE>
The outstanding share information in the table above excludes
990,000 shares of common stock issuable upon the exercise of options outstanding
as of December 31, 1999 at a weighted average exercise price of $0.125 per
share, and 443,500 shares of common stock issuable upon the exercise of options
granted in January 2000 at a weighted average exercise price of $2.82 per share.
18
<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following selected historical financial data should be read in
conjunction with our financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the period from February 25, 1998 (inception) to December 31, 1998 and
for the year ended December 31, 1999, and the balance sheet data at
December 31, 1998 and 1999, are derived from our financial statements which have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this prospectus. The selected data in this section is not intended
to replace our financial statements. Historical results are not necessarily
indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FEBRUARY 25, FEBRUARY 25,
1998 1998
(INCEPTION) TO YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
STATEMENT OF OPERATIONS DATA 1998 1999 1999
- ---------------------------- -------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Product sales, net...................................... $ -- $ 556 $ 556
Costs and expenses:
Cost of goods sold.................................... -- 240 240
Research and development.............................. 1,235 2,934 4,169
General and administrative............................ 892 2,552 3,444
Acquired pre-FDA approval rights...................... 4,000 1,094 5,094
------- ------- --------
Total costs and expenses................................ 6,127 6,820 12,947
Loss from operations.................................... (6,127) (6,264) (12,391)
Other income (expense):
Interest income....................................... 55 240 295
Interest expense...................................... -- (186) (186)
------- ------- --------
Net loss................................................ $(6,072) $(6,210) $(12,282)
------- ------- --------
Preferred stock accretion............................... -- (656) (656)
Net loss applicable to common stockholders.............. $(6,072) $(6,866) $(12,938)
======= ======= ========
Net loss per share, basic and diluted................... $ (8.94)
=======
Shares used in computing net loss per share, basic and
diluted............................................... 768
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
BALANCE SHEET DATA 1998 1999
- ------------------ ---------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 4,720 $ 4,214
Working capital............................................. 4,181 1,222
Total assets................................................ 4,720 5,855
Redeemable convertible preferred stock...................... -- 7,774
Accumulated deficit......................................... (6,072) (12,282)
Total stockholders' equity (deficit)........................ 4,181 (7,898)
</TABLE>
Please see note 2 of our financial statements for an explanation of the
method used to calculate the net loss per share and the number of shares used in
the computation of per share amounts.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR "SELECTED FINANCIAL DATA," OUR FINANCIAL STATEMENTS AND THE RELATED NOTES
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We have been primarily involved in the research and development of ACTIMMUNE
for the treatment of serious infectious and pulmonary diseases and congenital
disorders. We licensed from Genentech, Inc. and Connetics Corporation the
exclusive U.S. rights to ACTIMMUNE (interferon gamma-1b injection), a
FDA-approved product. We currently market ACTIMMUNE in the United States for the
treatment of chronic granulomatous disease. We have the rights and plan to
develop ACTIMMUNE for a range of indications including osteopetrosis, idiopathic
pulmonary fibrosis, infectious diseases and cystic fibrosis. In August 1999, we
filed a BLA supplement with the FDA for the expanded use of ACTIMMUNE for the
treatment of osteopetrosis.
Since our inception, we have incurred significant losses and, as of
December 31, 1999, we had an accumulated deficit of $12,281,524.
Our expenses have consisted primarily of costs incurred in research and
development, sales and marketing and from general and administrative costs
associated with our operations. We expect our research and development expenses
to increase in the future as we expand our clinical trial activities in our
target indications. Our sales and marketing expenses will increase as we
continue to commercialize ACTIMMUNE. Expansion of our operations and the
additional obligations of a public reporting entity will also add to our
expenses. As a result, we expect to incur losses for the foreseeable future.
We have a limited history of operations and anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including market acceptance of current or new products, patent
conflicts, the introduction of new products by our competitors, the timing and
extent of our research and development efforts, and the timing of significant
orders. Our limited operating history makes accurate prediction of future
operating results difficult or impossible.
STOCK COMPENSATION
During the year ended December 31, 1999, in connection with the grant of
stock options to employees, we recorded deferred stock compensation totaling
$3,378,821, representing the difference between the deemed fair value of our
common stock for financial reporting purposes on the date such options were
granted and the applicable exercise prices. Such amount is included as a
reduction of stockholders' equity and is being amortized on an accelerated basis
over the vesting period of the individual options, which is generally five
years. This accelerated method provides for vesting of portions of the overall
award at interim dates and results in higher vesting in earlier years than
straight-line vesting. We recorded amortization of deferred stock compensation
of $205,895 for the year ended December 31, 1999. At December 31, 1999, we had a
total of $3,172,926 remaining to be amortized over the vesting periods of the
stock options. Please see notes 2 and 6 of our financial statements.
SUBSEQUENT EVENTS
On January 7 and January 27, 2000, we issued 4,876,916 aggregate shares of
Series B preferred stock at $5.59 per share for aggregate proceeds of
$26,600,000. We will reflect a deemed dividend of $9,300,000 in our first
quarter 2000 financial statements in relation to the series B financing. See
note 12 of our financial statements. We incurred approximately $1.5 million of
associated issuance costs, including 120,000 additional shares of Series B
preferred stock valued at $5.59 per share. On
20
<PAGE>
January 7, 2000, pursuant to the terms of the collaboration agreement with
Connetics, we also issued to Connetics 89,445 shares of our Series B preferred
stock.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUE. We recognized no product sales of ACTIMMUNE for the period from
February 25, 1998 (inception) to December 31, 1998 and $556,401 for the year
ended December 31, 1999. The sales in 1999 represent our portion of ACTIMMUNE
sales that exceed the annual contractual baseline established with Connetics.
Please see note 2 of our financial statements.
Connetics is entitled to net sales of ACTIMMUNE up to a predetermined
baseline for the period from January 15, 1999 through December 31, 2001 less
associated cost of goods sold and marketing expenses. The predetermined baseline
is preset for each calendar year under our agreement.
COST OF GOODS SOLD. We recognized no cost of goods sold for the period from
February 25, 1998 (inception) to December 31, 1998 because we had no product
sales. For the year ended December 31, 1999, cost of goods sold totaled $239,778
which included all product cost of goods sold, royalties and distribution costs
associated with our revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased from $1,234,957 for the period from February 25, 1998 (inception) to
December 31, 1998, to $2,934,695 in 1999. The increase resulted primarily from
increased costs for additional personnel and clinical trial study expenses for
ACTIMMUNE in additional indications.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $892,295 for the period from February 25, 1998 (inception) to
December 31, 1998, to a total of $2,551,793 in 1999. The increase in expenses
for 1999 was primarily attributed to increased costs for additional personnel,
marketing and distribution expenses, and a full 12-month period of operations.
ACQUIRED PRE-FDA APPROVAL RIGHTS. Acquired pre-FDA approval rights totaled
$4,000,000 for the period from February 25, 1998 (inception) to December 31,
1998 in connection with the sublicensed rights of ACTIMMUNE and a total of
$1,093,750 for the year ended December 31, 1999 in connection with the
acquisition of additional development rights for ACTIMMUNE. Amounts in both
periods were expensed as acquired pre-FDA approval rights. Please see note 3 of
our financial statements.
INTEREST INCOME. Interest income increased from $55,531 for the period from
February 25, 1998 (inception) to $239,778 in 1999. The increase was due to
higher average balances of cash and cash equivalents and short-term investments
in 1999, resulting from the investment of the net proceeds from the sale of
Series A-2 convertible preferred stock in April 1999.
INTEREST EXPENSE. We recognized a total of $110,674 for imputed interest
expense on our long-term obligation to Connetics and $75,268 interest expense on
the royalty payable obligation to Genentech for the year ended December 31,
1999. The obligation to Connetics was incurred in April 1999, as part of our
collaboration agreement with them. The long-term obligation is described in
greater detail in note 3 of our financial statements. We had no interest expense
for the period from February 25, 1998 (inception) to December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES. We have funded our operations with
$7,444,720 of private equity financings and $1,173,723 (net) of contributions
from Connetics. At December 31, 1998, cash, cash equivalents and short-term
investments totaled $4,719,831 compared to $4,214,294 at December 31, 1999. Our
cash reserves are held in a variety of interest-bearing instruments including
high-grade corporate bonds, commercial paper and money market accounts.
21
<PAGE>
Cash used in operations for the period from February 25, 1998 (inception) to
December 31, 1998, was $1,280,185 compared with cash used in operations of
$3,093,540 for the year ended December 31, 1999. A net loss of $6,209,803 for
the year ended December 31, 1999, was partially offset by non-cash charges of
$205,895 for the amortization of deferred compensation, $2,564 for depreciation,
$110,674 for the accretion of obligations payable to Genentech and preferred
stock issued for $1,093,750 for additional product rights from Genentech for
ACTIMMUNE.
Financing activities included the receipt of net proceeds of $6,000,000 as
capital contributed from Connetics and $395,600 of expenses they incurred on our
behalf in 1998. In 1999, we received net proceeds of $7,117,112 from the sale of
Series A preferred stock to investors and $297,750 from the sale of common
stock. Also in 1999, we returned capital to Connetics in the amount of
$5,221,877.
Working capital of $4,181,295 at December 31, 1998 decreased to $1,222,378
at December 31, 1999. The decrease in working capital was due to our use of cash
in operations, higher accounts payable and royalty payables as a result of
product sales and increased corporate expenses offset in part by higher
inventory and accounts receivable balances.
We believe our existing cash, cash equivalents and short-term investments,
together with cash flows and the net proceeds of this offering will be
sufficient to fund our operating expenses, debt obligations and capital
requirements through at least the end of 2001. Our future capital uses and
requirements depend on numerous factors, including:
- our progress with research and development;
- our ability to introduce and sell new products;
- our sales and marketing expenses;
- expenses associated with litigation;
- costs and timing of obtaining new patent rights; and
- regulatory changes and competition and technological developments in the
market.
Therefore, our capital requirements may increase in future periods. As a
result, we may require additional funds and may attempt to raise additional
funds through equity or debt financings, collaborative arrangements with
corporate partners or from other sources.
We have no commitments for any additional financings, additional funding may
not be available to finance our operations when needed or, if available, the
terms for obtaining such funds may not be favorable or may result in dilution to
our stockholders.
IMPACT OF THE YEAR 2000
The computer systems and software programs of many companies and
governmental agencies are currently coded to accept or recognize only two digit
entries in the date code field. These systems may recognize a date using "00" as
the year 1900 rather than the year 2000. As a result, these computer systems
and/or software programs may need to be upgraded to comply with such year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
STATE OF READINESS. We have made an assessment of the year 2000 readiness
of our information technology systems. We believe that substantially all of our
applications, databases and infrastructure are year 2000 compliant. We are
currently assessing our non-information technology systems and will seek
assurances of year 2000 compliance from providers of these systems. Until such
testing is complete and these vendors and providers have replied to our
requests, we will not be able to completely evaluate whether our information
technology systems or non-information technology systems will need to be revised
or replaced.
22
<PAGE>
We have not identified any internally used capital equipment or software
that will require an additional material expenditure for year 2000 compliance
upgrades.
RISKS. We are not currently aware of any year 2000 compliance problems
relating to our information technology or non-information technology systems
that would have a material adverse effect on our business. Third-party software,
hardware or services incorporated into our information technology and
non-information technology systems may need to be revised or replaced, all of
which could be time consuming and expensive. Our failure to fix or replace
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions, any of which could have a material adverse effect on our
business. In addition, governmental agencies, utility companies, third-party
service providers and others outside our control may not be year 2000 compliant.
The failure by these entities to be year 2000 compliant could result in a
systemic failure beyond our control, such as a prolonged telecommunications or
electrical failure, which could have a material adverse effect on our business.
CONTINGENCY PLAN. In the event that year 2000-related problems materialize,
we maintain relationships with several suppliers of services and products to
mitigate the risks associated with using suppliers which are not year 2000
compliant.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative, which focused on
freestanding contracts such as options and forwards, including futures and
swaps, expanding it to include embedded derivatives and many commodity
contracts. Under the statement, every derivative is recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. We do not anticipate
that the adoption of SFAS No. 133 will have a material impact on our financial
position or results of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve our
capital until it is required to fund operations while at the same time
maximizing the income we receive from our investments without significantly
increasing risk. To minimize this risk, we maintain a portfolio of cash
equivalents and short-term investments in a variety of securities, including
commercial paper, money market funds and corporate debt securities. The average
duration of all our investments in 1999 was less than six months. Due to the
short term nature of these investments, a 10% movement in market interest rates
would not have a significant impact on the total value of our portfolio as of
December 31, 1999.
23
<PAGE>
BUSINESS
- --------------------------------------------------------------------------------
OVERVIEW OF OUR BUSINESS
InterMune Pharmaceuticals develops and commercializes innovative products
for the treatment of serious pulmonary and infectious diseases and congenital
disorders. We have the exclusive license rights in the United States to
ACTIMMUNE (interferon gamma-1b injection) for a range of indications, including
chronic granulomatous disease, osteopetrosis, idiopathic pulmonary fibrosis,
mycobacterial infections, systemic fungal infections and cystic fibrosis. We
have active development programs underway for these indications, several of
which are in mid- or advanced-stage human testing, or clinical trials. The FDA
has approved ACTIMMUNE for the treatment of chronic granulomatous disease, and
we currently market and sell ACTIMMUNE in the United States for this disease. In
August 1999, we filed a biologics license application, or BLA, with the FDA to
seek approval for the use of ACTIMMUNE for the treatment of osteopetrosis.
We believe the most significant near-term use of ACTIMMUNE is for the
treatment of idiopathic pulmonary fibrosis, a life-threatening lung condition
that afflicts approximately 50,000 persons in the United States. During the
first half of 2000, we plan to initiate a Phase II/III pivotal clinical trial to
test dosing and efficacy of ACTIMMUNE for the treatment of this condition. We
are also commencing a Phase III pivotal clinical trial of ACTIMMUNE for the
treatment of multidrug-resistant tuberculosis. We are currently conducting a
Phase II clinical trial of ACTIMMUNE for the treatment of cryptococcal
meningitis, a type of systemic fungal infection. We plan to initiate Phase II
clinical trials of ACTIMMUNE for the treatment of cystic fibrosis and atypical
mycobacterial infections in the second half of 2000. We believe that the risks
and time required to obtain FDA approval for new indications of ACTIMMUNE may be
reduced because ACTIMMUNE has proven to be safe for patients since its approval
in 1990 for the treatment of chronic granulomatous disease.
Interferon gamma-1b, the active ingredient in ACTIMMUNE, is a human protein
which plays a key role in preventing the formation of excessive scar, or
fibrotic, tissue and is a potent stimulator of the immune system. The results of
a clinical trial published in October 1999 in THE NEW ENGLAND JOURNAL OF
MEDICINE showed statistically significant evidence that interferon gamma-1b can
halt and reverse the progression of idiopathic pulmonary fibrosis. In addition,
both animal studies, known as preclinical studies, and clinical trials have
demonstrated the therapeutic potential of interferon gamma-1b against a broad
range of infectious diseases, notably mycobacterial and systemic fungal
infections. A study published in May 1997 in THE LANCET showed that ACTIMMUNE
was effective in the treatment of multidrug-resistant tuberculosis, a type of
mycobacterial infection.
Idiopathic pulmonary fibrosis, mycobacterial infections and systemic fungal
diseases are serious and difficult to treat diseases that we believe represent a
combined potential market opportunity for ACTIMMUNE of approximately
$3.5 billion annually in the United States.
In addition to our late stage product development efforts with ACTIMMUNE, we
have two additional products in preclinical development to treat infections
caused by pseudomonas aeruginosa and staphylococcus aureus. We believe that
these indications represent a combined potential market opportunity of
approximately $2 billion annually in the United States.
ACTIMMUNE
The active ingredient in ACTIMMUNE is interferon gamma-1b. Interferons are
comprised of two families of related proteins that are secreted by a variety of
cells in the body. Interferon alpha and interferon beta, which are included in
one family, have been approved and are currently marketed for the treatment of
diseases such as hepatitis B infection and multiple sclerosis. However,
interferon alpha and interferon beta are associated with serious adverse side
effects that often result in discontinuation of therapy. Interferon gamma, which
is included in a separate family of interferons, is biologically
24
<PAGE>
distinct from interferon alpha and interferon beta. Interferon gamma has a
superior safety profile as compared to interferon alpha and interferon beta
because it results in fewer and less severe adverse side effects.
ACTIMMUNE performs two important activities in the human body. First,
ACTIMMUNE activates the immune system by stimulating a class of immune cells
known as macrophages. This action results in increased killing and removal of
infectious organisms, such as bacteria and fungi. Interferon gamma-1b has the
broadest range of therapeutic activity in bacterial and fungal diseases of any
protein yet identified. This activity enhances the body's ability to fight
infection and is the reason we are developing ACTIMMUNE for use in the treatment
of infectious diseases.
ACTIMMUNE's second important activity in the body is to regulate the
activity of the body's scar-forming cells, called fibroblasts. ACTIMMUNE
directly blocks the multiplication of fibroblasts and also inhibits the
production and action of TGF-beta, a potent scar-inducing molecule. The result
of these actions is the prevention of excessive scarring, which is known as
anti-fibrotic activity. The anti-fibrotic activity of ACTIMMUNE has been
demonstrated in both preclinical studies and in clinical trials. We are pursuing
a Phase II/III pivotal clinical trial using ACTIMMUNE for the treatment of
idiopathic pulmonary fibrosis because prior clinical trials have demonstrated
its anti-fibrotic activity.
BACKGROUND
InterMune was formed in 1998 and began operations as a wholly-owned
subsidiary of Connetics Corporation. In 1998, Connetics acquired from Genentech
and subsequently sublicensed to us, the rights to develop and commercialize
ACTIMMUNE for a broad range of indications, including infectious diseases,
congenital disorders and idiopathic pulmonary fibrosis. We initially focused on
expanding the sales of ACTIMMUNE for chronic granulomatous disease and on
developing ACTIMUNNE to treat serious infectious diseases and congenital
disorders. In April 1999, we became an independent company through venture
capital funding. In October 1999, a study published in THE NEW ENGLAND JOURNAL
OF MEDICINE showed significant evidence that interferon gamma-1b may halt or
reverse the progression of idiopathic pulmonary fibrosis. As a result, we
expanded our development and commercialization plans to include idiopathic
pulmonary fibrosis as well as other life-threatening pulmonary diseases. Both
Connetics and Genentech maintain significant ownership positions in InterMune.
STRATEGY
We plan to pursue a growth strategy through the following:
GROW PRODUCT REVENUE. We assumed commercial operations for ACTIMMUNE in
January 1999. In 1999, we were able to increase the sales of ACTIMMUNE by
approximately 41% in the United States, compared to 1998. We accomplished this
increase in sales through a product price increase and by increasing awareness
of ACTIMMUNE through direct mailings and trade shows targeted at the
academic-centered physician community. We believe increased physician awareness
resulted in increased usage of the product for chronic granulomatous disease and
other indications.
EXPAND THE NUMBER OF FDA-APPROVED INDICATIONS FOR ACTIMMUNE. We plan to
develop ACTIMMUNE for a number of indications where preclinical studies and
clinical trials have shown promise for ACTIMMUNE as a potential treatment. Some
of the diseases for which ACTIMMUNE has demonstrated therapeutic activity
include idiopathic pulmonary fibrosis, mycobacterial infections, systemic fungal
infections and cystic fibrosis. In addition, in August 1999 we filed a BLA
supplement with the FDA to seek approval for ACTIMMUNE for the treatment of
osteopetrosis. We believe that the risks and time required to obtain FDA
approval for new indications of ACTIMMUNE may be reduced because of its
established safety profile. We also believe that the life-threatening nature of
25
<PAGE>
some of the indications that we intend to treat will enable us to obtain
accelerated, or fast track, approval for ACTIMMUNE for these indications.
ENHANCE PHYSICIAN AWARENESS AND EDUCATION. We have initiated a program to
further heighten physician awareness of ACTIMMUNE through a group of at least 12
medical science liaisons as well as through peer-reviewed journal advertisements
for ACTIMMUNE and our recently launched ACTIMMUNE.com website. Although
ACTIMMUNE is currently only approved for chronic granulomatous disease, we
believe that some physicians may prescribe ACTIMMUNE to treat patients with
idiopathic pulmonary fibrosis, as well as other diseases, based on available
clinical data and publications of such data in THE NEW ENGLAND JOURNAL OF
MEDICINE, THE LANCET and other peer-reviewed publications. To the extent allowed
by law, we intend to disseminate these peer-reviewed articles to our physician
customers for the purpose of off-label education.
DEVELOP A SALES AND MARKETING ORGANIZATION TO SERVE PULMONOLOGISTS AND
INFECTIOUS DISEASE SPECIALISTS. Pulmonologists are the physicians who generally
treat idiopathic pulmonary fibrosis, and infectious disease specialists are the
physicians who generally treat multidrug-resistant tuberculosis, atypical
mycobacterial and systemic fungal infections. Accordingly, we intend to develop
a sales and marketing force to target the approximately 6,000 pulmonologists and
4,000 infectious disease specialists practicing in the United States. In
addition, because these pulmonologists and infectious disease specialists are
primarily hospital-based and concentrated in major metropolitan areas, we
believe that a focused marketing organization and specialized sales force can
effectively serve them.
CONTINUE TO IN-LICENSE PRECLINICAL AND DEVELOPMENT-STAGE PROGRAMS. We plan
to continue to in-license and acquire rights to preclinical and
development-stage programs, especially those for the treatment of
life-threatening pulmonary and infectious diseases. To date, we have in-licensed
ACTIMMUNE, our pseudomonas aeruginosa program and our staphylococcus aureus
program. We believe that increasing consolidation in the pharmaceutical and
biotechnology industries and continuing changes in the health care system will
provide us with significant opportunities to in-license or acquire additional
products and programs from pharmaceutical companies and research and academic
institutions.
26
<PAGE>
MARKETED PRODUCT AND PRODUCT DEVELOPMENT
The following table summarizes key information concerning our targeted
indications and the status of our product development:
<TABLE>
PRODUCT/PROGRAM INDICATION STATUS MARKETING RIGHTS
<S> <C> <C> <C>
ACTIMMUNE Chronic granulomatous Marketed United States
disease
ACTIMMUNE Osteopetrosis BLA submitted United States
ACTIMMUNE Idiopathic pulmonary Phase II/III clinical United States
fibrosis trial planned for first
half 2000
ACTIMMUNE MYCOBACTERIAL INFECTIONS
- Multidrug-resistant Phase III clinical trial United States
tuberculosis planned for first half and Japan
2000
- Atypical mycobacterial Phase II clinical trial United States
infections planned for second half
2000
ACTIMMUNE SYSTEMIC FUNGAL
INFECTIONS
- Cryptococcal Phase II clinical trial United States
meningitis ongoing
ACTIMMUNE Cystic fibrosis Phase II clinical trial United States
planned for second half
2000
Pseudomonas aeruginosa Pseudomonas aeruginosa Preclinical studies Worldwide
program infection
Staphylococcus aureus Staphylococcus aureus Preclinical studies Worldwide
program infection
</TABLE>
ACTIMMUNE--Marketed Indication
CHRONIC GRANULOMATOUS DISEASE
ACTIMMUNE is currently approved for the treatment of chronic granulomatous
disease, a life-threatening congenital disorder of the immune system that
affects children. This disorder causes patients to be vulnerable to severe
recurrent bacterial and fungal infections that result in frequent and prolonged
hospitalizations and are commonly a cause of death.
In 1990, ACTIMMUNE was approved by the FDA for the treatment of chronic
granulomatous disease based on its ability to reduce the frequency and severity
of infections in these patients. A randomized, double blind, placebo-controlled
study of ACTIMMUNE in patients with chronic granulomatous disease demonstrated
that ACTIMMUNE effectively reduced the frequency and severity of serious
infections associated with chronic granulomatous disease. Overall, patients
treated with ACTIMMUNE had 67% fewer disease-related infections compared to the
placebo group. Additionally, ACTIMMUNE reduced hospitalizations associated with
chronic granulomatous disease by 67% compared to the placebo group.
There are an estimated 400 patients with chronic granulomatous disease in
the United States, and there is no FDA-approved treatment for these patients
other than ACTIMMUNE. Based on the indicated dosage levels, the annual cost per
patient is approximately $25,000. Accordingly, we believe
27
<PAGE>
that chronic granulomatous disease represents an annual market opportunity of
approximately $10 million in the United States for ACTIMMUNE.
ACTIMMUNE--INDICATIONS UNDER DEVELOPMENT
OSTEOPETROSIS
Osteopetrosis is a life-threatening, congenital disorder in which an
overgrowth of bony structures leads to blindness, deafness and increased
susceptibility to infection. This disorder primarily affects children, and no
effective treatment is currently available.
The results of a Phase II clinical trial, which were published in June 1995
in THE NEW ENGLAND JOURNAL OF MEDICINE, demonstrated that osteopetrosis patients
treated with ACTIMMUNE had a statistically significant improvement in the course
of the disease. In addition, patients treated with ACTIMMUNE in a Phase III
clinical trial experienced a statistically significant reduction in the rate of
disease progression, defined as death, serious infection or cranial nerve
damage, compared to the placebo group. The average number of days before disease
progression, at the time we analyzed the clinical trial, was 325 days for
patients treated with ACTIMMUNE as compared to 130 days for patients in the
placebo group. In August 1999, upon the completion of the Phase III clinical
trial, we submitted a BLA supplement to the FDA for this indication.
There are approximately 400 patients with osteopetrosis in the United
States. The FDA has designated osteopetrosis as eligible for both an accelerated
review, known as fast track review, and orphan drug status. Based on expected
dosing levels for osteopetrosis patients, we expect the annual cost per patient
would be approximately $25,000. Accordingly, we believe that osteopetrosis
represents an annual market opportunity of approximately $10 million in the
United States for ACTIMMUNE.
IDIOPATHIC PULMONARY FIBROSIS
Idiopathic pulmonary fibrosis is a life-threatening disease characterized by
progressive scarring, or fibrosis, of the lungs, which leads to their
deterioration and destruction. The cause of idiopathic pulmonary fibrosis is
unknown. The prognosis is poor for patients with idiopathic pulmonary fibrosis,
which occurs primarily in persons 40 to 70 years old. Most patients die from
progressive loss of lung function, which leads to suffocation. The median life
span for patients suffering from idiopathic pulmonary fibrosis is approximately
three to five years from the time of diagnosis. There are approximately 50,000
patients in the United States with idiopathic pulmonary fibrosis. We plan to
commence a Phase II/III pivotal clinical trial for this indication in the first
half of 2000.
CURRENT THERAPY. Therapeutic options for idiopathic pulmonary fibrosis are
limited and only minimally effective. Approximately 70% to 80% of patients with
idiopathic pulmonary fibrosis do not respond to any currently available drug
therapy. Attempted drug therapies include high dose corticosteroids and
anti-cancer drugs, both of which are minimally effective and result in
significant adverse side effects. For these reasons, treatment with
corticosteroids and anti-cancer drugs are not recommended for all patients with
idiopathic pulmonary fibrosis. As a last resort, a small percentage of patients
undergo lung transplantation, but donors are limited, and many patients die
while awaiting a transplant.
PRIOR CLINICAL TRIALS OF INTERFERON GAMMA-1B AS A TREATMENT FOR IDIOPATHIC
PULMONARY FIBROSIS. Independent investigators conducted two clinical trials of
interferon gamma-1b for the treatment of idiopathic pulmonary fibrosis. The
results of these clinical trials demonstrated that interferon gamma-1b can be
safely administered with minimal adverse side effects and can halt and reverse
the deterioration in lung function in patients.
The results of one of these clinical trials, a Phase II clinical trial
published in October 1999 in THE NEW ENGLAND JOURNAL OF MEDICINE, demonstrated
that interferon gamma-1b may be effective in the
28
<PAGE>
treatment of idiopathic pulmonary fibrosis. Investigators at the University of
Vienna conducted the clinical trial with 18 patients who had not responded to
treatment with corticosteroids or anti-cancer agents. Nine patients were treated
for 12 months with oral prednisolone, a corticosteroid, and nine patients were
treated with a combination of interferon gamma-1b and prednisolone.
Lung function, as measured by total lung capacity and blood oxygen levels,
deteriorated in all nine patients in the group given prednisolone alone. Total
lung capacity decreased from a mean of 66% at the start of the trial to 62%
after 12 months. In contrast, in the group receiving interferon gamma-1b plus
prednisolone, total lung capacity increased from a mean of 70% at the start of
the trial to 79% after 12 months. Similarly, in the nine patients in the group
given prednisolone alone, blood oxygen levels of patients at rest decreased from
a mean of 65% at the start of the trial to 62% after 12 months; in the group
receiving interferon gamma-1b plus prednisolone, blood oxygen levels of patients
at rest increased from a mean of 65% at the start of the trial to 76% after
12 months. Both of these results are statistically significant, each with a
p value < 0.001. This means that, applying widely-used statistical methods, the
chance that these results occurred by accident is less than 1 in 1000. All
patients treated with interferon gamma-1b exhibited improved pulmonary function
for the trial period of 12 months. In contrast, patients receiving treatment
with prednisolone alone showed gradual impairment of their pulmonary function,
and two of them died following the 12-month clinical trial.
These results confirmed the observations of a prior Phase I/II clinical
trial by the same investigators. In the prior clinical trial, the investigators
tested safety and dosing of interferon gamma-1b in combination with prednisolone
for the treatment of idiopathic pulmonary fibrosis in 30 patients. The clinical
data showed that the ten patients who received 200 micrograms of ACTIMMUNE
demonstrated overall improvement in lung function. In the ten patients that
received 100 micrograms of interferon gamma-1b, four showed improvement. None of
the ten patients in the control group, who were not treated with interferon
gamma-1b, improved. Overall, the investigators concluded that patients who
received interferon gamma-1b in combination with prednisolone showed significant
improvement in lung function compared to the control group that received
prednisolone alone.
OUR PHASE II/III PIVOTAL CLINICAL TRIAL. We are continuing the clinical
development of ACTIMMUNE in idiopathic pulmonary fibrosis by initiating a Phase
II/III pivotal clinical trial during the first half of 2000. Our clinical trial
will enroll patients with documented idiopathic pulmonary fibrosis who have not
responded to previous treatment with corticosteroids and who have evidence of
deteriorating lung function. We anticipate that our trial will compare two
different doses, 100 micrograms and 200 micrograms, of ACTIMMUNE in combination
with corticosteriods to a control group that receives corticosteriods alone.
Outcomes will include several measures of lung function, including lung
capacity, blood oxygen levels and several measures of quality of life.
IDIOPATHIC PULMONARY FIBROSIS MARKET. There are approximately 50,000
patients with idiopathic pulmonary fibrosis in the United States. Based on the
expected dosing level of 200 micrograms of ACTIMMUNE three times per week for
idiopathic pulmonary fibrosis patients, the annual cost per patient would be
approximately $50,000 per year. Assuming this treatment regimen, we believe that
idiopathic pulmonary fibrosis represents an annual market opportunity of
approximately $2.5 billion in the United States for ACTIMMUNE. In addition, if
ACTIMMUNE is approved to treat idiopathic pulmonary fibrosis, we anticipate that
it may also be used to treat some other forms of pulmonary fibrosis, including
fibrosis caused by sarcoidosis, radiation, some environmental exposures and
connective tissue diseases such as scleroderma.
MYCOBACTERIAL INFECTIONS
Mycobacteria are the cause of several infectious diseases, including
tuberculosis, multidrug-resistant tuberculosis and atypical mycobacterial
infections. Tuberculosis is a major worldwide health threat. Tuberculosis is a
difficult disease to treat and requires multidrug regimens of 6 to 12 months for
29
<PAGE>
eradication. It is estimated that 1% to 10% of tuberculosis cases, classified as
multidrug-resistant tuberculosis, are caused by mycobacteria that are resistant
to standard drug therapy. During the past ten years, multidrug-resistant
tuberculosis has emerged as a global health issue.
In the United States, each year there are approximately 20,000 new cases of
tuberculosis, of which approximately 250 are multidrug-resistant tuberculosis,
and 4,000 cases of atypical mycobacterial infection. In Japan, where we have
commercial rights for the use of ACTIMMUNE in the treatment of tuberculosis,
there are approximately 43,000 new cases of tuberculosis each year, of which
approximately 2,000 are multidrug-resistant tuberculosis. Based upon expected
dosing levels, we believe that mycobacterial infections represent an annual
market opportunity of approximately $500 million for ACTIMMUNE in United States
and Japan.
MULTIDRUG-RESISTANT TUBERCULOSIS. A recent clinical trial conducted at
Bellevue Hospital in New York and published in THE LANCET in May 1997 found that
patients with multidrug-resistant tuberculosis were able to respond to
conventional tuberculosis drugs when ACTIMMUNE was added to their treatment
regimen. In contrast, none of these patients had responded to conventional
tuberculosis drugs alone after an average of 13 months of therapy. We plan to
initiate a Phase III clinical trial of ACTIMMUNE for the treatment of
multidrug-resistant tuberculosis in the first half of 2000.
ATYPICAL MYCOBACTERIAL INFECTION. In May 1994, THE NEW ENGLAND JOURNAL OF
MEDICINE published the results of a clinical trial showing ACTIMMUNE to be
successful in reducing fever and other signs of infection in patients with
atypical mycobacterial infection. We plan to initiate a Phase II clinical trial
for this indication in the second half of 2000.
SYSTEMIC FUNGAL INFECTIONS--CRYPTOCOCCAL MENINGITIS
Systemic fungal infections, such as cryptococcal meningitis, an infection of
the lining of the brain, and pneumonia, are life-threatening diseases caused by
various fungi that attack patients with weakened immune systems. Currently
available therapies for these infections are often ineffective and result in
serious adverse side effects. Mortality from systemic fungal infections remains
high. There is a clear need for new, effective and less toxic drugs to treat
them. Recent research results support the potential benefit of combining
ACTIMMUNE with conventional antifungal therapy in the treatment of several of
the most prevalent types of systemic fungal infections. Because ACTIMMUNE works
by acting directly on the immune system, we believe that new antifungal agents
will also have greater efficacy when combined with ACTIMMUNE.
Our strategy for the development of ACTIMMUNE for the treatment of systemic
fungal diseases is twofold. We plan to conduct clinical trials and seek
regulatory approval in cryptococcal meningitis and one other systemic fungal
indication. To this end, we are currently conducting a Phase II clinical trial
designed to determine dose and efficacy of ACTIMMUNE in combination therapy for
the treatment of cryptococcal meningitis. Upon regulatory approval in two
specific systemic fungal indications, we plan to seek broad labeling from the
FDA for systemic fungal diseases in general. There are approximately 100,000
patients with systemic fungal infections in the United States. Based on expected
dosing regimens for these patients, we believe that systemic fungal infections
represent an annual market opportunity of approximately $500 million for
ACTIMMUNE in the United States.
CYSTIC FIBROSIS
Cystic fibrosis is a congenital disorder that leads to chronic pulmonary
infections in children, usually by four years of age. These infections result in
an exaggerated inflammatory response, leading to clogging and obstruction of the
airways. Chronic pulmonary infection is the major cause of mortality in these
patients. Due to its ability to regulate the immune system, we believe that
ACTIMMUNE may have the potential to modify many of the processes that lead to
the exaggerated inflammation and to reduce the chronic inflammation in the
lungs. By preventing excessive inflammation in the airways,
30
<PAGE>
ACTIMMUNE may be able to slow the progression of pulmonary deterioration. We are
currently evaluating ACTIMMUNE in animal models of cystic fibrosis and plan to
initiate a Phase I/II clinical trial of ACTIMMUNE in patients with cystic
fibrosis in the second half of 2000. Cystic fibrosis affects an estimated 23,000
persons in the United States. We believe that cystic fibrosis represents an
annual market opportunity of approximately $500 million for ACTIMMUNE in the
United States.
OTHER PROGRAMS
PSEUDOMONAS AERUGINOSA INFECTION
Pseudomonas aeruginosa is a bacterial infection that often affects patients
using respirators and catheters as well as patients with a number of conditions,
including burns, low white blood cell counts and cystic fibrosis. Because the
types of patients at risk generally have pre-existing illnesses, pseudomonas
aeruginosa infection most often occurs in a hospital setting.
Scientists at the Medical College of Wisconsin have identified a protein,
designated PcrV, on the surface of pseudomonas aeruginosa bacteria that enables
the bacteria to invade human tissue. By directing antibodies against the PcrV
protein, they have been able to demonstrate highly effective treatment, as well
as prevention, of infections caused by pseudomonas in animal models. We are
currently working with a third party to generate a human monoclonal antibody
directed against the PcrV protein as a therapeutic, in combination with
antibiotics. This antibody would treat pseudomonas aeruginosa infection and
prevent infection in high-risk patients.
Pseudomonas aeruginosa infections account for 71,000 annual cases in the
United States of pneumonia in hospitalized patients, 30% to 40% of which die
from their pneumonia. Furthermore, chronic pseudomonas aeruginosa is the leading
cause of pulmonary infection and resulting mortality in patients with cystic
fibrosis, which annually affects an estimated 23,000 persons in the United
States. We believe pseudomonas represents an annual market opportunity of
approximately $1 billion in the United States for our prospective product.
STAPHYLOCOCCUS AUREUS INFECTION
Staphylococcus aureus is a bacteria that causes diseases ranging from minor
skin infections to life-threatening deep tissue infections such as pneumonia,
meningitis, heart valve infections, post-operative wound infections, bloodstream
infections and toxic shock syndrome. The emergence of antibiotic resistance has
made many anti-infective agents ineffective. We are working with collaborators
to discover protein fragments, known as peptides, that block infections caused
by staphylococcus aureus. The efficacy of one of these peptides, known as VIF,
has been demonstrated in animal models, and we intend to develop one or more
peptides as therapy to be used in conjunction with antibiotics in the treatment
of infections caused by staphylococcus aureus. We are also developing a vaccine
for the prevention of infections caused by staphylococcus aureus in high-risk
populations.
In the United States, over 40 million surgeries are performed each year. Of
these, approximately 10%, or four million, of the patients are at high risk of a
post-operative infection caused by staphylococcus aureus. In addition, there are
also approximately 200,000 dialysis patients who are at high risk of serious
infections caused by staphylococcus aureus. These infections extend
hospitalization and increase required medical and nursing care, and it would be
highly cost-effective to immunize these high-risk patient groups with a
staphylococcal vaccine. We believe infections caused by staphylococcus aureus
represent an annual market opportunity of approximately $1 billion in the United
States for our prospective product.
31
<PAGE>
LICENSE AND OTHER AGREEMENTS
CONNETICS CORPORATION (ACTIMMUNE)
In August 1998, we entered into an Exclusive Sublicense Agreement with
Connetics under which we obtained an exclusive sublicense under the rights
granted to Connetics by Genentech through a license agreement relating to
interferon gamma-1b. We also agreed to assume many of Connetics' obligations to
Genentech under that license agreement. We entered into an Amended and Restated
Exclusive Sublicense Agreement with Connetics in April 1999 in order to broaden
the scope of rights granted to us.
Our sublicensed rights include exclusive and non-exclusive rights. The
exclusive rights are to commercialize ACTIMMUNE in the United States for the
treatment and prevention of all human diseases and conditions, including
infectious diseases and pulmonary fibrosis, excluding arthritis and cardiac and
cardiovascular diseases and conditions. The non-exclusive rights include the
right to commercialize ACTIMMUNE for gene therapy in the United States, except
for cardiac and cardiovascular diseases and conditions. In Japan, we have the
exclusive license rights to commercialize interferon gamma-1b for tuberculosis.
We also have the opportunity, under specified conditions, to obtain further
rights to interferon gamma-1b in Japan. We pay both Connetics and Genentech
royalties on the sales of ACTIMMUNE, and make one-time payments to Genentech
upon the occurrence of specified milestone events. Connetics must satisfy
specified obligations under the agreement with Genentech to maintain its license
from Genentech. We are obligated under the agreement to develop and
commercialize ACTIMMUNE for a number of indications.
Connetics has an option under our agreement to obtain the exclusive,
royalty-free right to commercialize ACTIMMUNE for dermatological indications in
the United States. If Connetics exercises its option, then it will make one-time
payments to us upon the occurrence of milestones. Connetics also has a first
right of negotiation to become our marketing partner for the sale of ACTIMMUNE
to dermatologists for indications that are not primarily dermatological in
origin.
In connection with the execution of the Amended and Restated Exclusive
Sublicense Agreement, we also entered into a Transition Agreement with
Connetics. Under the Transition Agreement, Connetics books the net sales of
ACTIMMUNE, up to a baseline amount through December 2001, less associated cost
of goods sold and marketing expenses. We book all net sales in excess of that
baseline. This agreement also provides for economic incentives to transition the
manufacturing of ACTIMMUNE from Genentech to a third party.
MEDICAL COLLEGE OF WISCONSIN (PCRV PROTEIN)
In March 1999, we entered into a License Agreement with the Medical College
of Wisconsin under which we received exclusive, worldwide rights to technology
owned by the College relating to PcrV protein. We are obligated to pay the
College one-time payments on the occurrence of milestone events, as well as a
royalty on the sales of products covered by this technology. We have also
entered into a research agreement with the College to sponsor basic research
relating to pseudomonas aeruginosa.
PANORAMA RESEARCH, INC. (STAPHYLOCOCCUS AUREUS)
In January 2000, we entered into a Sponsored Research and License Agreement
with Panorama Research, Inc. under which we received exclusive, worldwide rights
to technology owned by Panorama relating to staphylococcus aureus, as well as to
technology to be developed by Panorama pursuant to the staphylococcus aureus
research program that we support. We will pay to Panorama one-time payments on
the occurrence of milestone events, as well as a royalty on the sales of
products covered by this technology.
32
<PAGE>
MANUFACTURING
We contract with qualified third-party manufacturers to produce our
products. This manufacturing strategy enables us to direct financial resources
to the development and commercialization of products rather than diverting
resources to establishing a manufacturing infrastructure that complies with the
FDA's regulations. Genentech currently manufactures and formulates bulk active
ingredient and fills and finishes ACTIMMUNE destined for commercial supply. We
have contracted with CORD Logistics for the commercial distribution of ACTIMMUNE
in the United States. We are negotiating with a third party to perform the
packaging and distribution of ACTIMMUNE for our clinical trials.
Boehringer Ingelheim manufactures and formulates bulk active ingredient and
fills and finishes ACTIMMUNE destined for clinical supply. We recently entered
into a supply agreement with Boehringer Ingelheim to manufacture both clinical
and commercial supply of ACTIMMUNE. Boehringer Ingelheim is currently pursuing
qualification by the FDA to manufacture ACTIMMUNE for our commercial supply. We
believe that the FDA will approve Boehringer Ingelheim as a manufacturer of
commercial supply of ACTIMMUNE by mid-2001.
PATENTS AND PROPRIETARY RIGHTS
The proprietary nature of, and protection for, our products, product
candidates, processes and know-how are important to our business. We plan to
prosecute and defend aggressively our patents and proprietary technology. Our
policy is to patent or in-license the technology, inventions, and improvements
that we consider important to the development of our business. We also rely on
trade secrets, know-how, and continuing innovation to develop and maintain our
competitive position.
We have acquired proprietary rights in the United States and Japan to make,
use and sell interferon gamma-1b, ACTIMMUNE, in particular fields in connection
with our Amended and Restated Exclusive Sublicense Agreement with Connetics.
This sublicense agreement covers 15 U.S. patents and 9 corresponding Japanese
patents. We have also licensed a patent application in the area of pseudomonas
vaccine methods and have filed patent applications in the area of interferon
gamma treatment methods and compositions and treatment methods for
staphylococcus infections. We expect to continue to protect our proprietary
technology with additional filings as appropriate.
We attempt to ensure that our technology does not infringe the rights of
others. We are not aware of any asserted or unasserted claims that our
technology violates the proprietary rights of others. We are aware that the
principal investigator of Phase I/II and Phase II clinical trials of interferon
gamma-1b for the treatment of idiopathic pulmonary fibrosis has filed a patent
application in several European countries claiming the use of interferon
gamma-1b for this indication. We do not believe that a corresponding patent
application has been filed in the United States. Further, we believe it is
unlikely that the investigator could successfully obtain patent protection in
the United States for the use of interferon gamma-1b to treat idiopathic
pulmonary fibrosis. However, we cannot be certain that the investigator or a
third party has not filed and will not obtain a U.S. patent claiming the use of
interferon gamma-1b for the treatment of idiopathic pulmonary fibrosis or any of
the other indications for which we are developing ACTIMMUNE. If a third party
were issued a patent that blocked our ability to commercialize ACTIMMUNE for any
of the indications we are targeting, we and our collaborators would be subject
to legal action, unless we obtained a license under that patent in order to
continue our commercialization efforts for those indications.
COMPETITION
ACTIMMUNE is the only FDA-approved therapy for chronic granulomatous
disease. There is no currently available effective therapy for the treatment of
osteopetrosis or idiopathic pulmonary fibrosis. The main potential competition
for ACTIMMUNE in idiopathic pulmonary fibrosis is the development of Avonex
interferon beta by Biogen, Inc. Biogen, which currently markets Avonex for
multiple
33
<PAGE>
sclerosis, is conducting a Phase II clinical trial of Avonex for idiopathic
pulmonary fibrosis. We believe that successful development of Avonex for
idiopathic pulmonary fibrosis will have a limited impact on ACTIMMUNE for
idiopathic pulmonary fibrosis due to the more favorable side effect profile of
ACTIMMUNE relative to interferon beta.
We believe that the primary competition for ACTIMMUNE in serious infectious
diseases such as mycobacterial and systemic fungal infections consists of:
- the potential development of new generations of advanced antibiotics and
anti-fungal agents that successfully treat these diseases; and
- the current treatment regimens, which may be less effective in many cases,
but cost substantially less than the current price for ACTIMMUNE.
The primary competition for ACTIMMUNE in cystic fibrosis are the
FDA-approved drugs marketed by Genentech and Pathogenesis Corporation.
SALES AND MARKETING
We are currently marketing ACTIMMUNE in the United States for the treatment
of chronic granulomatous disease. Our marketing efforts currently consist of the
following:
- direct mailings to physicians;
- advertisements for ACTIMMUNE;
- our ACTIMMUNE.com website, which contains product and disease information
for physicians and patients; and
- attendance at physician trade shows.
We have contracted the services of 12 medical science liaisons who will
educate physicians and increase their awareness of ACTIMMUNE. We also plan to
sponsor speaker programs, medical symposia and continuing medical education
programs regarding ACTIMMUNE.
FDA REGULATION AND PRODUCT APPROVAL
The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements upon the clinical
development, manufacture and marketing of pharmaceutical products. These
agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our products. We believe that our products will be regulated as
biologics by the FDA.
The process required by the FDA before our products, or new indications for
approved products, may be marketed in the United States generally involves the
following:
- preclinical laboratory and animal tests;
- submission of an investigational new drug, or IND, application, which must
become effective before clinical trials may begin;
- adequate and well-controlled human clinical trials to establish the safety
and efficacy of the proposed drug for its intended use; and
- FDA approval of a new BLA supplement.
The testing and approval process requires substantial time, effort, and
financial resources, and we cannot be certain that any new approvals for
ACTIMMUNE will be granted on a timely basis, if at all.
34
<PAGE>
Prior to commencing a clinical trial, we must submit an IND application to
the FDA. The IND automatically becomes effective 30 days after receipt by the
FDA, unless the FDA, within the 30-day time period, raises concerns or questions
about the conduct of the trial. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before the clinical trial can begin. Our
submission of an IND may not result in FDA authorization to commence a clinical
trial. Further, an independent institutional review board at the medical center
proposing to conduct the clinical trial must review and approve the plan for any
clinical trial before it commences.
Human clinical trials are typically conducted in three sequential phases
that may overlap:
- PHASE I: The drug is initially introduced into healthy human subjects or
patients and tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion.
- PHASE II: Involves studies in a limited patient population to identify
possible adverse effects and safety risks, to determine the efficacy of
the product for specific targeted diseases and to determine dosage
tolerance and optimal dosage.
- PHASE III: When Phase II evaluations demonstrate that a dosage range of
the product is effective and has an acceptable safety profile, Phase III
trials are undertaken to further evaluate dosage, clinical efficacy and to
further test for safety in an expanded patient population at
geographically dispersed clinical study sites.
- In the case of products for severe or life-threatening diseases such as
idiopathic pulmonary fibrosis, the initial human testing is often
conducted in patients rather than in healthy volunteers. Because these
patients already have the target disease, these studies may provide
initial evidence of efficacy traditionally obtained in Phase II trials,
and thus these trials are frequently referred to as Phase I/II trials.
We may not successfully complete Phase I, Phase II or Phase III testing of
ACTIMMUNE within any specific time period, if at all. Furthermore, the FDA or an
institutional review board or the sponsor may suspend a clinical trial at any
time on various grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk.
The results of product development, preclinical studies and clinical studies
are submitted to the FDA as part of a BLA, or a BLA supplement, for approval of
a new indication if the product is already approved for an indication. The FDA
may deny a BLA or BLA supplement if the applicable regulatory criteria are not
satisfied or may require additional clinical data. Even if such data is
submitted, the FDA may ultimately decide that the BLA or BLA supplement does not
satisfy the criteria for approval. Once issued, the FDA may withdraw product
approval if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. In addition, the FDA may
require testing and surveillance programs to monitor the effect of approved
products which have been commercialized, and the FDA has the power to prevent or
limit further marketing of a product based on the results of these
post-marketing programs.
The FDA's fast track program is intended to facilitate the development and
expedite the review of drugs intended for the treatment of serious or
life-threatening diseases and that demonstrate the potential to address unmet
medical needs for such conditions. Under this program, the FDA can, for example,
review portions of a BLA for a fast track product before the entire application
is complete, thus potentially beginning the review process at an earlier time.
We cannot guarantee that the FDA will grant any of our requests for fast track
designation, that any fast track designation would affect the time of review, or
that the FDA will approve the BLA submitted for any of our drug candidates,
whether or not fast track designation is granted. Additionally, the FDA's
approval of a fast track product can include restrictions on the product's use
or distribution, such as permitting use only for specified medical procedures or
limiting distribution to physicians or facilities with special training or
35
<PAGE>
experience. Approval of fast track products can be conditional with a
requirement for additional clinical studies after approval.
Satisfaction of FDA requirements or similar requirements of state, local and
foreign regulatory agencies typically takes several years and the actual time
required may vary substantially, based upon the type, complexity and novelty of
the product or indication. Government regulation may delay or prevent marketing
of potential products or new indications for a considerable period of time and
to impose costly procedures upon our activities. We cannot be certain that the
FDA or any other regulatory agency will grant additional approvals for ACTIMMUNE
on a timely basis, if at all. Success in early stage clinical trials does not
assure success in later stage clinical trials. Data obtained from clinical
activities is not always conclusive and may be susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. Even if
a product receives regulatory approval, the approval may be significantly
limited to specific indications and dosages. Further, even after regulatory
approval is obtained, later discovery of previously unknown problems with a
product may result in restrictions on the product or even complete withdrawal of
the product from the market. Delays in obtaining, or failures to obtain
additional regulatory approvals for ACTIMMUNE would have a material adverse
effect on our business. In addition, we cannot predict what adverse governmental
regulations may arise from future U.S. or foreign governmental action.
Any products manufactured or distributed by us pursuant to FDA approvals are
subject to continuing regulation by the FDA, including record-keeping
requirements and reporting of adverse experiences with the drug. Drug
manufacturers and their subcontractors are required to register their
establishments with the FDA and certain state agencies, and are subject to
periodic unannounced inspections by the FDA and certain state agencies for
compliance with good manufacturing practices, which impose certain procedural
and documentation requirements upon us and our third party manufacturers. We
cannot be certain that we or our present or future suppliers will be able to
comply with the GMP regulations and other FDA regulatory requirements.
Physicians may prescribe drugs for uses that are not described in the
product's labeling for uses that differ from those tested by us and approved by
the FDA. Such off-label uses are common across medical specialties. Physicians
may believe that such off-label uses are the best treatment for many patients in
varied circumstances. The FDA does not regulate the behavior of physicians in
their choice of treatments. The FDA does, however, restrict manufacturer's
communications on the subject of off-label use. Companies cannot actively
promote FDA-approved drugs for off-label uses, but a recent court decision now
allows them to disseminate to physicians articles published in peer-reviewed
journals, like THE NEW ENGLAND JOURNAL OF MEDICINE, that discuss off-label uses
of approved products. To the extent allowed by law, we intend to disseminate
peer-reviewed articles on ACTIMMUNE to our physician customers.
The FDA's policies may change and additional government regulations may be
enacted which could prevent or delay regulatory approval of our potential
products or new indications for ACTIMMUNE. We cannot predict the likelihood,
nature or extent of adverse governmental regulation which might arise from
future legislative or administrative action, either in the United States or
abroad.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a rare disease or condition, which is generally a
disease or condition that affects fewer than 200,000 individuals in the United
States. Orphan drug designation must be requested before submitting a BLA. After
the FDA grants orphan drug designation, the generic identity of the therapeutic
agent and its potential orphan use are disclosed publicly by the FDA. Orphan
drug designation does not convey any advantage in or shorten the duration of the
regulatory review and approval process. If a product that has orphan drug
designation subsequently receives FDA approval for the indication for which it
has such designation, the product is entitled to orphan exclusivity, i.e., the
FDA may not approve any other applications to market the same drug for the same
indication, except in very limited
36
<PAGE>
circumstances, for seven years. We intend to file for orphan drug designation
for those ACTIMMUNE indications which meet the criteria for orphan exclusivity.
Although obtaining FDA approval to market a product with orphan drug exclusivity
can be advantageous, there can be no assurance that it would provide us with a
material commercial advantage.
RESEARCH AND DEVELOPMENT
We direct financial resources efficiently to goal-oriented projects by
reducing the time and infrastructure spent on research and development. We do
not conduct in-house preclinical research and development. Instead, we contract
these activities to qualified third-party research and development institutions
such as academia or private contract labs. We have two contracted research and
development programs. The first is with the Medical College of Wisconsin and is
focused on the development of monoclonal antibodies against pseudomonas
aeruginosa. The other program is in collaboration with Panorama Research and is
focused on the development of peptides that block staphylococcus aureus
infections.
EMPLOYEES
As of January 31, 2000, we had 21 full-time employees. Of the full-time
employees, 10 were engaged in research and development and 11 were engaged in
sales, general and administrative positions. In addition, we have contracted
with consultants, including the 12 full-time medical science liaisons, that we
estimate are the equivalent of 25 additional full-time employees. We believe our
relations with our employees are good.
FACILITIES
We currently utilize approximately 5,000 square feet for our interim
corporate headquarters and administrative offices in Palo Alto, California
through a services agreement with Connetics, which will expire when we move to a
new facility. We have entered into a lease agreement for 7,000 square feet for
our new corporate headquarters in Burlingame, California. We intend to move into
these offices in the first quarter of 2000. We have no laboratory or research
facilities.
37
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
The following table provides information regarding our directors, executive
officers, and key employees:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- -------- ------------------------------------------
<S> <C> <C>
W. Scott Harkonen, M.D.................... 48 Chief Executive Officer, President and
Chairman of the Board of Directors
Timothy P. Lynch.......................... 29 Chief Financial Officer, Vice President of
Business Development
Peter Van Vlasselaer, Ph.D................ 41 Senior Vice President of Technical
Operations
Nzeera Virani-Ketter, M.D................. 50 Vice President of Clinical Research
Christine Czarniecki, Ph.D................ 49 Vice President of Regulatory Affairs
J. Woodruff Emlen, M.D.................... 53 Vice President of Scientific Affairs
Mary Fermi................................ 47 Senior Director of Commercial Operations
Edgar Engleman, M.D....................... 54 Director
James I. Healy, M.D., Ph.D................ 35 Director
John L. Higgins........................... 29 Director
Jonathan S. Leff.......................... 31 Director
Nicholas J. Simon......................... 45 Director
Michael F. Powell......................... 45 Director
</TABLE>
- ------------------------
W. SCOTT HARKONEN, M.D. Dr. Harkonen founded InterMune in February 1998 and
has served as a member of our board of directors since inception and is
currently the Chairman of the Board. Dr. Harkonen has been our Chief Executive
Officer and President since inception. From September 1995 to April 1999,
Dr. Harkonen served as Senior Vice President of Product Development and
Operations at Connetics Corporation. From March 1991 to September 1995,
Dr. Harkonen served as Vice President of Medical and Regulatory Affairs at
Univax Biologics. Dr. Harkonen holds an M.D. from the University of Minnesota
and an M.B.A. from the Haas School of Business at the University of California
at Berkeley.
TIMOTHY P. LYNCH. Mr. Lynch has served as our Chief Financial Officer and
Vice President of Business Development since November 1999. From July 1999 to
October 1999, Mr. Lynch served as the Director of Business Development at
ePhysician, Inc. From August 1997 to July 1999, Mr. Lynch served as Director of
Strategic Planning at Elan Corporation, plc. From August 1993 to June 1995,
Mr. Lynch was employed by Goldman, Sachs & Co. in the investment banking
division. From June 1992 to August 1993. Mr. Lynch was employed by Chase
Securities, Inc. in the investment banking division. Mr. Lynch holds an M.B.A.
from the Harvard Graduate School of Business.
PETER VAN VLASSELAER, PH.D. Dr. Van Vlasselaer has served as our Senior Vice
President of Technical Operations since November 1999. From July 1993 to
November 1999, Dr. Van Vlasselaer served as Vice President of Development at
Dendreon Corporation. Dr. Van Vlasselaer holds a Ph.D from the University of
Leuven in Belgium and was an immunology fellow at Stanford University.
NZEERA VIRANI-KETTER, M.D. Dr. Virani-Ketter has served as our Vice
President of Clinical Research since November 1999. From April 1998 to
March 1999, Dr. Virani-Ketter served as Senior Director of Clinical Research at
VaxGen. From June 1996 to March 1998, Dr. Virani-Ketter served as associate
38
<PAGE>
director of clinical research at Gilead Sciences. Dr. Virani-Ketter holds an
M.D. from the University of Toronto.
CHRISTINE CZARNIECKI, PH.D. Dr. Czarniecki has served as our Vice President
of Regulatory Affairs since January 2000. From March 1997 to January 2000,
Dr. Czarniecki served as Director of Regulatory Affairs and Quality at Axys
Pharmaceuticals Inc. From July 1993 to March 1997, Dr. Czarniecki served as
Director of Regulatory Affairs at ICOS Corporation. Dr. Czarniecki holds a Ph.D
from Georgetown University.
J. WOODRUFF EMLEN, M.D. Dr. Emlen has served as our Vice President of
Scientific Affairs since October 1998. From August 1997 to October 1998,
Dr. Emlen served as Vice President of Exploratory Medicine at Connetics
Corporation. From September 1987 to August 1997, Dr. Emlen served as a professor
of medicine and immunology at the University of Colorado Health Services Center.
Dr. Emlen holds an M.D. from the University of California at San Diego.
MARY FERMI. Ms. Fermi has served as our Senior Director of Commercial
Operations since June 1998. From March 1996 to June 1998, Ms. Fermi directed the
Managed Care Contracting Department at Spectra Laboratories. From March 1995 to
March 1996, Ms. Fermi had management responsibilities, marketing, sales, managed
care, and corporate accounts at MAST Immunosystems, Inc. Ms. Fermi holds an
M.B.A. from San Jose State University.
EDGAR ENGLEMAN, M.D. Dr. Engleman has served as a member of our board of
directors since April 1999. Dr. Engleman joined BioAsia Investments, LLC in 1997
and is currently a General Partner of BioAsia Investments, LLC. Dr. Engleman has
served on the faculty of Stanford University Medical School since 1978 and is
currently Professor of Pathology and Medicine. Dr. Engleman serves on the board
of directors of several private companies. Dr. Engleman holds an M.D. from
Columbia University School of Medicine.
JAMES I. HEALY, M.D., PH.D. Dr. Healy has served as a member of our board of
directors since April 1999 and as the interim chairman of the board of directors
from October 1999 through January 2000. Dr. Healy joined Sanderling Ventures in
January 1998 and is currently a partner at Sanderling Ventures. From August 1997
to December 1997, Dr. Healy was a Novartis Foundation Fellow at Brigham &
Women's Hospital. From August 1990 to July 1997 he was employed by the Howard
Hughes Medical Institute and Stanford University. Dr. Healy serves on the board
of directors of several private companies. Dr. Healy holds an M.D. and a Ph.D
from Stanford University.
JOHN L. HIGGINS. Mr. Higgins has served as a member of our board of
directors since April 1999. Mr. Higgins joined Connetics Corporation in
September 1997 and currently serves as Chief Financial Officer and Executive
Vice President of Finance and Administration. From August 1994 to
September 1997, Mr. Higgins worked at BioCryst Pharmaceuticals, Inc. serving in
various management positions, including Executive Vice President of Corporate
Development.
JONATHAN S. LEFF. Mr. Leff has served as a member of our board of directors
since January 2000. Mr. Leff joined E.M. Warburg, Pincus & Co., LLC in 1996 and
is currently a Managing Director. Mr. Leff serves on the board of directors of
Visible Genetics, Inc. and VitalCom, Inc., both of which are publicly held, and
is on the board of directors of several private companies. Mr. Leff holds an
M.B.A. from Stanford University.
NICHOLAS J. SIMON. Mr. Simon has served as a member of our board of
directors since August 1999. Mr. Simon joined Genentech, Inc. in December 1989
and is currently serving as Vice President, Business and Corporate Development.
Mr. Simon serves on the board of directors of several private companies.
Mr. Simon holds an M.B.A. from Loyola College.
MICHAEL F. POWELL, PH.D. Dr. Powell has served as a member of our board of
directors since January 2000. Dr. Powell joined Sofinnova Ventures in 1997 and
is currently a Managing Director at Sofinnova Ventures. From 1990 to 1997,
Dr. Powell served as Group Leader at Genentech, Inc.
39
<PAGE>
Dr. Powell serves on the board of directors of several private companies.
Dr. Powell holds a Ph.D from the University of Toronto and is currently an
adjunct professor at the University of Kansas, department of Pharmaceutical
Chemistry.
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed. There are no family
relationships among any of our directors or executive officers. Although no
director has a contractual right to serve as a member of our board of directors,
pursuant to the Amended and Restated Investor Rights Agreement, dated
January 7, 2000, among the holders of our preferred stock and us, we have agreed
to use reasonable efforts to elect:
- a representative designated by Sanderling Ventures until the earlier of
January 7, 2004 or such time as the entities affiliated with Sanderling
Ventures beneficially own less than 95% of the aggregate capital stock
beneficially owned by them at the closing of our Series B preferred stock
financing in January 2000 and
- a representative designated by Warburg, Pincus Equity Partners, L.P. until
the earlier of January 7, 2004 or such time as the entities affiliated
with Warburg, Pincus Equity Partners, L.P. beneficially own less than 95%
of the aggregate capital stock beneficially owned by them at the closing
of our Series B preferred stock financing in January 2000.
BOARD COMPOSITION
Dr. Harkonen is currently the chairman of our board of directors. We are
searching for an independent chairman.
Our board of directors consists of seven directors. Upon the closing of the
offering, our board of directors will be divided into three classes:
- Class I directors, whose term will expire at the annual meeting of
stockholders to be held in 2001;
- Class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2002; and
- Class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2003.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. Any additional directorships resulting from an increase in
the number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the directors. This
classification of our board of directors may have the effect of delaying or
preventing changes in control or management of us.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE. Our audit committee, consisting currently of
and , was recently formed in connection with this offering. The
audit committee will review our internal accounting procedures and consult with
and review the services provided by our independent auditors.
COMPENSATION COMMITTEE. Our compensation committee, consisting currently of
and , was recently formed in connection with this
offering. The compensation committee will review and recommend to our board of
directors the compensation and benefits of all our officers and establish and
review general policies relating to compensation and benefits of our employees.
COMPENSATION OF DIRECTORS
We do not provide cash compensation to members of our board of directors for
serving on our board of directors or for attendance at committee meetings.
Members of our board of directors are
40
<PAGE>
reimbursed for some out-of-pocket expenses in connection with attendance at
board and committee meetings. In July 1999, each of Messrs. Engleman, Healy and
Higgins, three of our non-employee directors, received option grants to purchase
30,000 shares of common stock at exercise price of $0.125 per share. In October
1999, Mr. Simon, one of our non-employee directors, received an option grant to
purchase 30,000 shares of common stock at an exercise price of $0.125 per share.
In January 2000, each of Messrs. Leff and Powell, two of our non-employee
directors, received option grants to purchase 30,000 shares of common stock at
exercise prices of $4.50 per share. Under each of these grants, the option
shares vest over a two-year period in equal quarterly installments. In
July 1999, Messrs. Engleman and Healy each received an option grant for the
purchase of 70,000 shares of fully vested common stock at an exercise price of
$0.125 per share. Our 2000 Non-Employee Directors' Stock Option Plan, which will
become effective upon the closing of this offering, will provide for ongoing
option grants to our non-employee directors. See "Management--Stock Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither member of our compensation committee has at any time been an officer
or employee of ours. No interlocking relationship exists between our board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has any interlocking relationship existed in
the past.
EMPLOYMENT AGREEMENTS
In April 1999, we entered into an executive employment agreement with Dr.
Harkonen, our Chairman, Chief Executive Officer and President. The employment
agreement provides for an annual salary of $225,000, the payment of bonuses upon
the achievement of milestones to be agreed to on an annual basis. In connection
with his employment with us, we sold Dr. Harkonen 690,000 shares of common stock
subject to a five year vesting schedule. If Dr. Harkonen's employment is
terminated by us in an involuntary termination, other than for cause, as these
terms are defined in the employment agreement, including circumstances involving
a change in control, he will be entitled to receive his salary for an additional
six months and will vest for an additional 28% of his common stock.
In October 1999, we entered into an employment offer letter with Mr. Lynch,
our Chief Financial Officer and Vice President of Business Development. The
offer letter provides that if we terminate Mr. Lynch's employment other than for
cause or if there is a significant change in his responsibilities following a
change of control, he will be entitled to receive salary and benefits for an
additional six months and will continue to vest for an additional six-month
period.
In October 1999, we entered into an employment offer letter with Dr. Van
Vlasselaer, our Senior Vice President of Technical Operations. The offer letter
provides that if we terminate Dr. Van Vlasselaer's employment other than for
cause, he will be entitled to receive salary and benefits for an additional
three months and will continue to vest for an additional three-month period.
In December 1999, we entered into an employment offer letter with Dr.
Czarniecki, our Vice President of Regulatory Affairs. The offer letter provides
that if we terminate Dr. Czarniecki's employment other than for cause, she will
be entitled to receive salary and benefits for an additional four months and
will continue to vest for an additional four-month period.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation that
we paid during 1999 to our Chief Executive Officer and our other most highly
compensated executive officers whose salary
41
<PAGE>
and bonus for such year was in excess of $100,000 on an annualized basis. All
option grants were made under our 1999 equity incentive plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION ------------
------------ SECURITIES ALL OTHER
SALARY UNDERLYING COMPENSATION($)
NAME AND PRINCIPAL POSITION ($) OPTIONS (1)
- --------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
W. Scott Harkonen, M.D............................... $169,998 -- $10,749
Chief Executive Officer, President and Chairman of
the Board of Directors
Timothy P. Lynch..................................... $ 26,667 180,000 $10,000
Chief Financial Officer, Vice President of Business
Development
Peter Van Vlasselaer, Ph.D........................... $ 21,240 160,000 $10,000
Senior Vice President of Technical Operations
J. Woodruff Emlen, M.D............................... $114,928 90,000 $ 4,768
Vice President of Clinical Research
Nzeera Virani-Ketter, M.D............................ $ 60,000 120,000 --
Vice President of Scientific Affairs
</TABLE>
- ------------------------
(1) Includes term-life insurance premiums paid by us on behalf of these named
executive officers signing and annual bonuses, and excess long-term
disability.
OPTION GRANTS
The following table sets forth summary information regarding the option
grants made to our Chief Executive Officer and each of our other executive
officers whose salary and bonus was in excess of $100,000 on an annualized basis
during 1999. Options granted to purchase shares of our common stock under our
1999 equity incentive plan are generally immediately exercisable by the optionee
but are subject to a right of repurchase pursuant to the vesting schedule of
each specific grant. In the event that a purchaser ceases to provide service to
us, we have the right to repurchase any of that person's unvested shares of
common stock at the original option exercise price. The exercise price per share
is equal to the fair market value of our common stock on the date of grant as
determined by our board of directors. The percentage of total options was
calculated based on options to purchase an aggregate of 1,170,000 shares of
common stock granted under our 1999 equity incentive plan in 1999. The potential
realizable value was calculated based on the ten-year term of the options and
assumed rates of stock appreciation of 5% and 10%, compounded annually from the
date the options were granted to their expiration date based on the fair market
value of the common stock on the date of grant. Twenty percent of the option
grant generally vests on the one-year anniversary of employment, and the
remainder vest in a series of equal monthly installments beginning on the one
year anniversary of employment and continuing over the next four years of
service. However, Mr. Lynch's option grant of 15,000 shares will vest upon the
closing of this offering. See "Stock Plans" for a description of the material
terms of these options.
42
<PAGE>
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED TO STOCK PRICE
SECURITIES EMPLOYEES APPRECIATION FOR
UNDERLYING IN EXERCISE OPTION TERM
OPTIONS FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED YEAR (PER SHARE) DATE 5% 10%
- ---- ---------- ---------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
W. Scott Harkonen M.D.................... -- -- -- $ $
Timothy P. Lynch......................... 165,000 14.10% $0.125 11/16/09 $12,971 $32,871
15,000 1.28% $0.125 11/16/09 $ 1,179 $ 2,988
Peter Van Vlasselaer, Ph.D............... 160,000 13.68% $0.125 11/16/09 $12,578 $31,875
J. Woodruff Emlen, M.D................... 70,000 5.98% $0.125 7/29/09 $ 5,503 $13,945
20,000 1.71% $0.125 11/16/09 $ 1,572 $ 3,984
Nzeera Virani-Ketter, M.D................ 120,000 10.26% $0.125 11/16/09 $ 9,433 $23,906
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by our Chief
Executive Officer and our other most highly compensated executive officers with
annualized base salaries in excess of $100,000 as of December 31, 1999. Options
granted to purchase shares of our common stock under our 1999 equity incentive
plan are generally immediately exercisable by optionees but are subject to a
right of repurchase pursuant to the vesting schedule of each specific grant. The
repurchase option generally lapses over a five-year period with 20% lapsing
after the first year and 1.667% lapsing monthly thereafter. In the event that a
purchaser ceases to provide service to us or our affiliates, we have the right
to repurchase any of that person's unvested shares of common stock at the
original option exercise price. Amounts shown in the value realized column were
calculated based on the difference between the option exercise price and the
fair market value of the common stock on the date of exercise, without taking
into account any taxes that may be payable in connection with the transaction,
multiplied by the number of shares of common stock underlying the option. The
exercise price for all options granted in 1999 was $0.125.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999
SHARES ACQUIRED ---------------------- ---------------------------
NAME ON EXERCISE VALUE REALIZED VESTED UNVESTED EXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Scott Harkonen, M.D..... -- -- -- -- -- --
Timothy P. Lynch........... 180,000 0 -- -- -- --
Peter Van Vlasselaer,
Ph.D..................... 160,000 0 -- -- -- --
J. Woodruff Emlen, M.D..... 90,000 0 -- -- -- --
Nzeera Virani-Ketter,
M.D...................... 120,000 0 -- -- -- --
</TABLE>
43
<PAGE>
STOCK PLANS
2000 EQUITY INCENTIVE PLAN
Our board of directors adopted the 2000 plan in January 2000 and will ask
our stockholders to approve the 2000 plan in February 2000. The 2000 plan will
become effective on the effective date of this offering.
SHARE RESERVE. A total of 2,000,000 shares of our common stock have been
reserved for issuance under the 2000 plan. On January 1 of each year, commencing
with January 1, 2001, the share reserve will increase by the least of the
following:
- 3% of our total outstanding common stock (on a fully diluted, as converted
basis) at the time of an increase;
- an amount less than that above as determined by our board of directors.
No more than 10,000,000 of the shares reserved can be issued through the
exercise of incentive stock options. When a stock award expires or is terminated
before it is exercised, the shares not acquired pursuant to the stock award
again become available for issuance under the 2000 plan.
ADMINISTRATION. Our board of directors administers the 2000 plan. Our board
of directors, however, may delegate this authority to a committee of one or more
board members. The board or a committee of the board has the authority to
construe, interpret and amend the 2000 plan as well as to determine:
- the recipient of any stock award;
- the grant date of a stock award;
- the number of shares subject to a stock award;
- the exercisability and vesting of a stock award;
- the exercise price of a stock award;
- the type of consideration to receive stock under a stock award; and
- the other terms of a stock award.
Our board of directors may amend or modify the 2000 plan at any time.
However, no amendment or modification shall adversely affect the rights and
obligations with respect to stock awards unless the holder consents to that
amendment or modification. In addition, our board of directors may, if required
or desirable, seek the approval of our stockholders to:
- increase the maximum number of shares issuable under incentive stock
options under the 2000 plan or the rate at which shares are added to the
reserve of the 2000 plan (except for permissible adjustments in the event
of certain changes in our capitalization);
- materially modify the eligibility requirements for participation; or
- materially increase the benefits accruing to participants.
ELIGIBILITY. The 2000 plan permits granting stock awards to employees,
directors and consultants of us or certain of our affiliates. A stock award may
be an "incentive stock option" (ISO), within the meaning of Section 422 of the
Internal Revenue Code, a nonstatutory stock option (NSO), a right to purchase
restricted stock or a restricted stock bonus.
Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations for compensation paid to the chief
executive officer or any of the four highest compensated officers (excluding the
chief executive officer) in a taxable year to the extent that the compensation
of that officer exceeds $1,000,000. To prevent options granted under the 2000
plan from
44
<PAGE>
being included in this compensation, in any calendar year the board may not
grant options under the 2000 plan to an employee covering an aggregate of more
than 1,000,000 shares.
STOCK OPTION PROVISIONS GENERALLY. In general, the duration of a stock
option granted under the 2000 plan cannot exceed ten years. The exercise price
of an ISO cannot be less than 100% of the fair market value of the common stock
on the date of grant. The exercise price of an NSO cannot be less than 85% of
the fair market value of the common stock on the date of grant. An ISO may be
transferred only on death, but an NSO may be transferred as permitted in the
stock option agreement.
Unless the terms of an optionholder's stock option agreement provide for
earlier or later termination, if all of an optionholder's service relationships
with us and our affiliates terminate, then that optionholder (or that
optionholder's beneficiary if that optionholder has died) may exercise vested
options within:
- 18 months after that date if termination is due to death;
- 12 months after that date if termination is due to disability; or
- 3 months after that date if termination is for any reason other than
disability or death.
ISOs may be granted only to our employees (including those of certain
affiliates). The aggregate fair market value, determined at the time of grant,
of shares of our common stock with respect to which ISOs are exercisable for the
first time by an optionholder during any calendar year under all of our stock
plans may not exceed $100,000. An ISO granted to a person who at, the time of
grant, owns or is deemed to own more than 10% of the total combined voting power
of us or any of our affiliates must have a term of no more than five years and
an exercise price that is at least 110% of fair market value at the time of
grant.
PROVISIONS OF OTHER STOCK AWARDS GENERALLY. The board or a committee of the
board determines the purchase price of other stock awards, which for
nonstatutory stock options and stock purchase awards cannot be less than 85% of
the stock's fair market value at the time of grant. Stock bonuses, however, may
be awarded in consideration of past services without additional payment. Shares
that we sell or award under the 2000 plan may, but need not be, restricted and
subject to a repurchase option in our favor in accordance with a vesting
schedule. The board or committee, however, may accelerate the vesting of
restricted stock.
EFFECT ON STOCK AWARDS OF A CHANGE IN CONTROL. The 2000 plan provides that
in the event of a change in control in the beneficial ownership of us, the
surviving entity may assume all outstanding stock awards or substitute similar
stock awards for them. If the surviving entity determines not to assume or
substitute for these stock awards, the vesting in full of stock awards held by
persons whose service with us or our affiliates has not already terminated will
accelerate prior to this change in control.
OTHER PROVISIONS. If there is a transaction or event not involving our
receipt of consideration, including a merger, consolidation, reorganization,
stock dividend, or stock split, the board will appropriately adjust the class
and the maximum number of shares subject to the 2000 plan, the maximum number of
shares available for ISOs, and the Section 162(m) limit.
PLAN TERMINATION. The 2000 plan terminates on January 30, 2010.
OPTIONS ISSUED. As the 2000 plan is not effective until the effective date
of this offering, we have not granted any stock awards under the 2000 plan.
1999 EQUITY INCENTIVE PLAN
Our board of directors adopted and our stockholders approved our 1999 equity
incentive plan in June 1999. The 1999 plan was amended in December 1999, and our
stockholders approved such
45
<PAGE>
amendment. An aggregate of 2,000,000 shares of common stock currently are
authorized for issuance under the 1999 plan. On the effective date of this
offering stock awards will no longer be granted under the 1999 plan. Stock
awards granted under the 1999 plan have substantially the same terms as will
apply to grants under the 2000 plan. With respect to change in control
provisions, all outstanding options under the 1999 plan either will be assumed
or substituted by any surviving entity. If the surviving entity determines not
to assume or substitute such awards, the vesting schedule of all outstanding
awards shall accelerate and all outstanding awards will be immediately
exercisable. Awards not exercised prior to the effective date of the change in
control shall terminate and cease to be outstanding on the effective date of a
change in control. As of January 31, 2000, we had issued 885,000 shares upon the
exercise of options under the 1999 plan and options to purchase 728,500 shares
at a weighted average exercise price of $1.76 per share were outstanding. As of
January 31, 2000, our board had not granted any stock bonuses or restricted
stock under the 1999 plan.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted our 2000 employee stock purchase plan in
January 2000, and will ask our stockholders to approve the purchase plan in
February 2000.
SHARE RESERVE. A total of 200,000 shares of common stock have currently
been authorized for issuance under the purchase plan. On each January 1,
beginning with January 1, 2001, and including and ending on January 1, 2009, the
share reserve will increase by the least of the following:
- 1% of our total outstanding common stock, on a fully-diluted, as converted
basis; or
- a lesser amount as determined by our board at or prior to the date of an
increase.
The total number of shares that may be issued under the purchase plan is
6,000,000 shares.
The purchase plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. Under the purchase plan, eligible employees will be able to purchase
common stock at a discount price in periodic offerings. The purchase plan and
the first offering under the purchase plan will commence on the effective date
of this offering.
ELIGIBILITY. All employees are eligible to participate in the purchase plan
so long as they are employed by us, or a U.S. incorporated subsidiary designated
by the board of directors, for at least 20 hours per week and are customarily
employed by us, or a subsidiary designated by the board of directors, for at
least five months per calendar year. Any employee who is a 5% stockholder is not
eligible to participate in the purchase plan.
OFFERINGS. Under the purchase plan, the board may specify offerings of up
to 27 months. Unless our board determines otherwise, common stock will be
purchased for accounts of participating employees at a price per share equal to
the lower of:
- 85% of the fair market value of a share our common stock on the first day
of the offering; or
- 85% of the fair market value of a share of our common stock on the
purchase date.
The first offering will begin on the effective date of this offering, and we
will offer shares registered on a Form S-8 registration statement. The fair
market value of the shares on the first date of this offering will be the price
per share at which our shares are first sold to the public as specified in the
final prospectus with respect to this offering. Otherwise, fair market value
generally means the closing sales price (rounded up where necessary to the
nearest whole cent) for these shares (or the closing bid, if no sales were
reported) as quoted on the Nasdaq National Market on the last trading day prior
to the relevant determination date, as reported in THE WALL STREET JOURNAL.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
46
<PAGE>
- 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
- 85% of the fair market value of a share on the purchase date.
Participating employees may authorize payroll deductions of up to 15% of
their compensation for the purchase of stock under the purchase plan. Employees
may end their participation in an offering before a purchase period ends.
Participation ends automatically on termination of employment.
OTHER PROVISIONS. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase plans established by
us or by our affiliates, if any, do not permit the employee's rights to purchase
our stock to accrue at a rate which exceeds $25,000 of fair market value of our
stock for each calendar year in which the purchase rights are outstanding.
Upon a change in control, the board may provide that the successor
corporation either will assume or replace outstanding purchase rights.
Alternatively, the board may shorten the ongoing offering period and provide
that our stock will be purchased for the participants immediately before the
change in control.
SHARES ISSUED. The purchase plan will not be effective until the effective
date of this offering. Therefore, as of the date hereof, no shares of common
stock have been purchased under the purchase plan.
PLAN TERMINATION. The purchase plan has no set termination date.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Our board adopted the 2000 non-employee directors' stock option plan in
January 2000 and will ask our stockholders to approve the plan in Februray 2000.
The directors' plan provides for the automatic grant to our non-employee
directors of options to purchase shares of our common stock.
SHARE RESERVE. We have reserved a total of 180,000 shares of our common
stock for issuance under the directors' plan. On January 1 of each year,
commencing with January 1, 2001, the share reserve will automatically be
increased by 180,000 shares. However, the automatic increase is subject to
reduction by the board. If an optionholder does not purchase the shares subject
to his or her option before the option expires or otherwise terminates, the
shares that are not purchased again become available for issuance under the
directors' plan.
ADMINISTRATION. The board administers the directors' plan. The board has
the authority to construe, interpret and amend the directors' plan but the
directors' plan specifies the essential terms of the options, including:
- the option recipients;
- the grant dates;
- the number of shares subject to the option;
- the exercisability and vesting of the option;
- the exercise price; and
- the type of consideration.
ELIGIBILITY. We automatically will issue options to our non-employee
directors under the directors' plan as follows:
- Each person who is first elected or appointed as a non-employee director
after the effective date of this offering, and who does not already hold a
stock option granted by us, will automatically
47
<PAGE>
receive an initial grant for shares. This grant will vest in monthly
installments, commencing one month after the date of grant, at the rate of
1/36th of the total number of shares subject to this stock option.
- In addition, on the date a non-employee director becomes fully vested
under all stock awards granted him or her by us, that non-employee
director will automatically receive a follow-on option grant for
shares. This grant will vest in monthly installments, commencing one month
after the date of grant, at the rate of 1/36th of the total number of
shares subject to this stock option.
As long as the optionholder continues to serve with us or with an affiliate of
ours, whether in the capacity of a director, an employee or a consultant, the
option will continue to vest and be exercisable during its term.
OPTION TERMS. Options have an exercise price equal to 100% of the fair
market value of our common stock on the grant date. The option term is 10 years
but it generally will terminate three months after the optionholder's service
terminates. If termination is due to the optionholder's disability, however, the
post-termination exercise period is extended to 12 months. If this termination
is due to the optionholder's death or if the optionholder dies within three
months after his or her service terminates, the post-termination exercise period
is extended to 18 months following death.
The optionholder may transfer the option by gift to immediate family or for
estate-planning purposes. The optionholder also may designate a beneficiary to
exercise the option following the optionholder's death. Otherwise, the option
exercise rights will pass by the optionholder's will or by the laws of descent
and distribution.
Certain options are immediately exercisable, at the discretion of the board
of directors. Shares issued pursuant to the exercise of an unvested option are
subject to the Company's right of repurchase which lapses over periods specified
by the board of directors, generally five years.
OTHER PROVISIONS. Transactions not involving our receipt of consideration,
including a merger, consolidation, reorganization, stock dividend, and stock
split, may change the class and number of shares subject to the directors' plan
and to outstanding options. In that event, the board will appropriately adjust
the directors' plan as to the class and the maximum number of shares subject to
the directors' plan and to the automatic option grants. The board will also
adjust outstanding options as to the class, number of shares and price per share
subject to the options.
In the event of a change in control, the surviving entity may either assume
or replace outstanding options under the directors' plan. If this does not
occur, then generally for options held by persons then performing services as an
employee or director of, or consultant to, us or our affiliates, the vesting of
their options will accelerate, and unexercised options will terminate
immediately prior to the event. Even if assumption or substitution does occur,
the vesting of options held by non-employee directors will accelerate and vest
in full. A change in control includes the following:
- a dissolution, liquidation or sale of all or substantially all of our
assets;
- a merger or consolidation in which we are not the surviving corporation;
or
- a reverse merger in which we are the surviving corporation but the shares
of our common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property.
OPTIONS ISSUED. The directors' plan will not be effective until the
effective date of this offering. Therefore, we have not issued any options under
the directors' plan.
PLAN TERMINATION. The directors' plan has no stated termination date.
48
<PAGE>
401(k) PLAN
We sponsor a 401(k) plan, a defined contribution plan intended to qualify
under Section 401(a) of the Internal Revenue Code of 1986. All employees are
eligible to participate. Participants may make pre-tax contributions to the
401(k) plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit ($10,500 in calendar year 2000). Under the 401(k) plan,
each employee is fully vested in his or her deferred salary contributions.
Employee contributions are held and invested by the 401(k) plan's trustee.
Each participant's contributions, and the corresponding investment earnings,
are generally not taxable to the participants until withdrawn. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which a director derives an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and officers, and may indemnify our employees and other agents, to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity and certain other capacities, such as
serving as a director of another corporation at the request of our board of
directors.
We intend to enter into agreements to indemnify our directors and officers
in addition to indemnification provided for in our certificate of incorporation
and our bylaws. These agreements, among other things, will provide for
indemnification of our directors and officers for expenses specified in the
agreements, including attorneys' fees, judgments, fines and settlement amounts
incurred by any of these persons in any action or proceeding arising out of
these persons' services as a director or officer for us, any of our subsidiaries
or any other entity to which the person provides services at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and officers.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted.
49
<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts as of the
date shown below.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
-----------------------------------
COMMON STOCK SERIES A-1 SERIES A-2 SERIES B
--------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
W. Scott Harkonen............................. 690,000 -- -- 4,472
Timothy P. Lynch.............................. 180,000 -- -- 4,472
Peter Van Vlassalaer.......................... 160,000 -- -- --
J. Woodruff Emlen............................. 90,000 -- -- 4,472
Nzeera Virani-Ketter.......................... 120,000 -- -- 894
Nicholas J. Simon............................. -- -- -- 4,472
John L. Higgins............................... -- -- -- 4,472
James I. Healy................................ -- -- -- 4,472
Edgar Engleman................................ -- -- -- 2,236
5% STOCKHOLDERS
Genentech, Inc.(1)............................ -- 860,000 -- 178,891
Connetics Corporation(2)...................... -- 975,000 -- 89,445
Entities affiliated with Sanderling
Ventures(3)................................. 600,000 -- 2,400,000 313,060
Entities affiliated with BioAsia Investments,
LLC(4)...................................... 312,500 -- 1,200,000 201,254
Veron International, Ltd...................... -- -- 800,000 67,084
Entities affiliated with E.M. Warburg, Pincus
& Co. LLC(5)................................ -- -- -- 3,130,590
Entities affiliated with Sofinnova
Ventures(6)................................. -- -- 1,200,000 183,363
Price Per Share............................... $0.001 to $.125 $1.25 $1.25 $5.59
Date(s) of Purchase........................... 4/99 to 1/00 4/99 4/99 1/00
</TABLE>
- ------------------------
(1) Nicholas J. Simon, one of our directors, is a vice president of
Genentech, Inc.
(2) John L. Higgins, one of our directors, is the chief financial officer of
Connetics Corporation.
(3) James I. Healy, one of our directors, is a partner of Sanderling Ventures.
(4) Edgar Engleman, one of our directors, is a managing member of BioAsia
Investments, LLC.
(5) Jonathan S. Leff, one of our directors, is a general partner of
E.M. Warburg, Pincus & Co. LLC.
(6) Michael F. Powell, one of our directors, is a general partner of Sofinnova
Ventures.
We have entered into the following agreements with our executive officers,
directors and holders of more than five percent of our voting securities.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT. We and the preferred
stockholders described above have entered into an agreement, under which these
and other preferred stockholders will have registration rights with respect to
their shares of common stock following this offering. Upon the closing of this
offering, all shares of our outstanding Series A-1, Series A-2, and Series B
preferred stock will be automatically converted into common stock on a one for
one basis. See "Description of Capital Stock--Registration Rights" for a further
description of the terms of this agreement.
AGREEMENTS WITH CONNETICS CORPORATION. We entered into the following
agreements with Connetics in April 1999: an Amended and Restated Service
Agreement, dated April 7, 1999, Amended and Restated Exclusive Sublicense
Agreement, dated April 27, 1999, Collaboration Agreement, dated
50
<PAGE>
April 27, 1999, and Transition Agreement, dated April 27, 1999. Under the
Amended and Restated Exclusive Sublicense Agreement, we obtained a sublicense to
the exclusive rights granted to Connetics by Genentech relating to interferon
gamma-1b. See "Business--License Agreements." Pursuant to the Collaboration
Agreement, we made cash payments to Connetics of approximately $500,000,
committed to pay Connetics an additional $500,000 in 2001, committed to issue
shares of Series B preferred stock to Connetics, which shares have been issued,
and committed to issue to Connetics shares of Series C preferred stock, or in
the event of our initial public offering or sale of us prior to the issuance of
Series C preferred stock to either pay Connetics $1,000,000 cash or issue
additional shares of Series B preferred stock. Under the Transition Agreement,
Connetics books the net sales for ACTIMMUNE, up to a baseline amount through
December 2001 less associated cost of goods sold and marketing expenses. After
December 31, 2001, the net sales for ACTIMMUNE will fully revert to us. We
further pay to Connetics gross margins on sales of ACTIMMUNE for chronic
granulomatous disease below the baseline units until December 31, 2001. Under
the Amended and Restated Service Agreement, Connetics has provided to us for a
fee information services, payroll, facilities, human resources, accounting,
employee benefits, and administration services. As of the date of this
prospectus, we have discontinued most services under the Amended and Restated
Service Agreement.
SUPPLY AGREEMENT WITH GENENTECH, INC. Connetics and Genentech entered into
a Supply Agreement, dated May 5, 1998, for the supply of ACTIMMUNE for clinical
use and commercial sale. Connetics assigned all rights and obligations under the
Supply Agreement to us in April 1999. The agreement terminates upon the earlier
of May 5, 2001 or the date on which a mutually agreed upon third party
manufacturer, with whom we will have entered into a supply agreement to
manufacture ACTIMMUNE, receives an FDA license to manufacture ACTIMMUNE. Under
some circumstances in which we are unable to conclude an agreement with a third
party, Genentech may be required to supply ACTIMMUNE until May 5, 2003 or
longer. However, we recently entered into a supply agreement with Boehringer
Ingelheim for the supply of ACTIMMUNE, and upon their receipt of a license from
the FDA for the manufacture of ACTIMMUNE, the Genentech Supply Agreement would
terminate. See "Business--Strategy."
INDEBTEDNESS OF MANAGEMENT. In connection with Dr. Harkonen's employment
transition from Connetics to us, we assumed an outstanding loan of $100,000 made
by Connetics to Dr. Harkonen pursuant to a secured loan agreement and promissory
note dated September 19, 1997. The interest rate on the promissory note is 7.5%
per annum. The principal and accrued interest are due on October 30, 2000.
STOCK OPTIONS. Stock option grants to our executive officers and directors
are described in this prospectus under the captions "Management--Director
Compensation" and "--Executive Compensation."
EXECUTIVE EMPLOYMENT AGREEMENTS. In April 1999, we entered into an
executive employment agreement with Dr. Harkonen, our Chief Executive Officer
and President, and in October, November and December 1999, we entered into
employment offer letters with Dr. Van Vlassalaer, our Senior Vice President of
Technical Operations; Mr. Lynch, our Chief Financial Officer and Vice President
of Business Development; and Dr. Czarniecki, our Vice President of Regulatory
Affairs. See "Management--Employment Agreements."
INDEMNIFICATION AGREEMENTS. We intend to enter into indemnification
agreements with our directors and officers for the indemnification of these
persons to the full extent permitted by law. We also intend to execute these
agreements with our future directors and officers.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------
The following table sets forth certain information with respect to the
beneficial ownership of our outstanding common stock as of January 31, 2000, and
as adjusted to reflect the sale of our common stock by this prospectus, by:
- our Chief Executive Officer and each of our four other most highly
compensated executive officers;
- each director;
- all directors and executive officers as a group; and
- each stockholder who is known by us to own beneficially 5% or more of our
common stock.
Percentage of ownership in the following table is calculated based on
15,397,194 shares of common stock outstanding as of January 31, 2000 and
20,897,194 shares of common stock outstanding after completion of this offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of January 31, 2000 are deemed
outstanding. Those shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. Except as indicated
in the footnotes to the table, the persons 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. Unless otherwise indicated, the address of each of the individuals
named below is: 3294 West Bayshore Road, Palo Alto, CA 94303.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED AS OF JANUARY 31, 2000
-------------------------------------------------------------------------------
PERCENT OF TOTAL
SHARES ISSUABLE OUTSTANDING SHARES
OUTSTANDING SHARES SUBJECT TO UNDER OPTIONS BENEFICIALLY OWNED
SHARES OF A RIGHT OF EXERCISABLE ------------------------
COMMON REPURCHASE AS OF WITHIN 60 DAYS OF BEFORE THIS AFTER THIS
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK(1) MARCH 31, 2000(2) JANUARY 31, 2000 OFFERING OFFERING
- ------------------------------------ ----------- ----------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
W. Scott Harkonen, M.D............... 245,972 448,500 -- 4.5% 3.32%
Timothy P. Lynch..................... 15,000 165,000 -- 1.16 *
Peter Van Vlassalaer, Ph.D........... -- 160,000 -- 1.03 *
J. Woodruff Emlen, M.D............... 24,805 69,667 -- * *
Nzeera Virani-Ketter, M.D............ -- 120,000 -- * *
Christine Czarniecki, Ph.D........... -- 105,000 -- * *
James I. Healy, M.D., Ph.D(3)........ 3,317,532 -- 100,000 22.05 16.27
Edgar Engleman M.D.(4)............... 1,715,989 -- 100,000 11.71 8.64
Jonathan S. Leff(5).................. 3,130,590 -- 30,000 20.48 15.10
John L. Higgins(6)................... 1,053,917 -- 30,000 7.02 5.17
Nicholas J. Simon(7)................. 4,472 -- 30,000 * *
Michael F. Powell, Ph.D(8)........... 1,383,363 -- 30,000 9.16 6.75
Entities affiliated with Warburg,
Pincus Equity Partners, L.P.(9).... 3,130,590 -- -- 21.51 14.98
Entities affiliated with Sanderling
Ventures(10)....................... 3,313,060 -- -- 21.51 15.85
Entities affiliated with BioAsia
Investments, LLC(11)............... 1,713,753 -- -- 11.13 8.20
Entities affiliated with Sofinnova
Ventures(12)....................... 1,383,363 -- -- 8.98 6.61
Genentech, Inc.(13).................. 1,053,891 -- -- 6.84 5.04
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED AS OF JANUARY 31, 2000
-------------------------------------------------------------------------------
PERCENT OF TOTAL
SHARES ISSUABLE OUTSTANDING SHARES
OUTSTANDING SHARES SUBJECT TO UNDER OPTIONS BENEFICIALLY OWNED
SHARES OF A RIGHT OF EXERCISABLE ------------------------
COMMON REPURCHASE AS OF WITHIN 60 DAYS OF BEFORE THIS AFTER THIS
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK(1) MARCH 31, 2000(2) JANUARY 31, 2000 OFFERING OFFERING
- ------------------------------------ ----------- ----------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Connetics Corporation(14)............ 1,049,445 -- -- 6.81 5.02
Veron International Ltd.(15)......... 867,084 -- -- 5.63 4.14
All directors and executive officers
as a group (12 persons)(16)........ 10,891,640 1,068,167 320,000 78.12 57.87
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Excludes shares of common stock subject to a right of repurchase within
60 days of January 31, 2000.
(2) The unvested portion of the shares of common stock is subject to a right of
repurchase, at the original option price, in the event the holder ceases to
provide services to us and its affiliates or upon a change of control of
us. The option exercise prices range from $0.125 to $4.50.
(3) Includes 1,510,462 shares held by Sanderling Venture Partners IV, L.P.,
588,016 shares held by Sanderling IV Biomedical, L.P., 589,270 shares held
by Sanderling IV Limited Partnership, L.P., 189,394 shares held by
Sanderling Venture Management, 178,891 shares held by Sanderling IV
Biomedical Co-Investment Fund, L.P., 167,581 shares held by Sanderling
[Feri Trust] Venture Partners IV, L.P., and 89,446 shares held by
Sanderling Venture Partners Co-Investment Fund, L.P. Dr. Healy is a partner
of Sanderling Ventures. Sanderling Ventures is a general partner of
Sanderling Venture Partners IV, L.P., Sanderling IV Biomedical, L.P.,
Sanderling IV Limited Partnership, L.P., Sanderling Venture Management,
Sanderling IV Biomedical Co-Investment Fund, L.P., Sanderling [Feri Trust]
Venture Partners IV, L.P., and Sanderling Venture Partners IV Co-Investment
Fund. Dr. Healy disclaims beneficial ownership of these shares except to
the extent of his proportionate partnership interest in these shares.
(4) Includes 1,205,201 shares held by Biotechnology Development Fund, L.P.,
58,140 shares held by Biotechnology Development Fund II, L.P., and 450,412
shares held by Biotechnology Development Fund III, L.P. Dr. Engleman is a
managing member of BioAsia Investments, LLC. BioAsia Investments, LLC is a
general partner of Biotechnology Development Fund, L.P., Biotechnology
Development Fund II, L.P., and Biotechnology Development Fund III, L.P.
Dr. Engleman disclaims beneficial ownership of these shares except to the
extent of his proportionate partnership interest in these shares.
(5) Includes 93,818 shares held by Warburg, Pincus Netherlands Equity Partners
I, C.V., 62,612 shares held by Warburg, Pincus Netherlands Equity Partners
II, C.V., and 15,653 shares held by Warburg, Pincus Netherlands Equity
Partners III, C.V. Warburg, Pincus Equity Partners, L.P. and its three
Dutch affiliates are referred to as the "WPEP Group." Warburg, Pincus & Co.
("WP") is the sole general partner of each of the four partnerships in the
WPEP Group. WP is managed by E.M. Warburg, Pincus & Co., LLC "EMWP." Lionel
I. Pincus is the managing partner of WP and the managing member of EMWP,
and may be deemed to control both entities. Mr. Leff is a managing director
and member of EMWP and a general partner of WP. Mr. Leff may be deemed to
have an indirect pecuniary interest in an indeterminate portion of the
shares beneficially owned by the WPEP Group. All shares indicated as owned
by Mr. Leff are included because of his affiliation with the Warburg Pincus
entities. Mr. Leff disclaims beneficial ownership of all shares owned by
the Warburg Pincus entities.
(6) Includes 1,049,445 shares held by Connetics Corporation. Mr. Higgins is the
Chief Financial Officer of Connetics Corporation and disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest in
these shares.
53
<PAGE>
(7) Although Mr. Simon is a Vice President of Genentech, Inc., he does not have
voting or investment power with respect to the shares owned by Genentech,
Inc.
(8) Includes 1,340,971 shares held by Sofinnova Venture Partners IV, L.P., and
37,920 shares held by Sofinnova Venture Affiliates IV, L.P. Dr. Powell is a
general partner of Sofinnova Ventures and a managing director of Sofinnova
Management IV, LLC. Sofinnova Management IV, LLC is the general partner of
Sofinnova Venture Partners IV, LP and Sofinnova Venture Affiliates IV, L.P.
Sofinnova Ventures is an administrative entity of Sofinnova Management IV
LLC. Dr. Powell disclaims beneficial ownership of these shares except to
the extent of his proportionate partnership interest in these shares.
(9) Includes 2,958,407 shares held by Warburg, Pincus Equity Partners, L.P.,
93,818 shares held by Warburg, Pincus Netherlands Equity Partners I, C.V.,
62,612 shares held by Warburg, Pincus Netherlands Equity Partners II, C.V.,
and 15,653 shares held by Warburg, Pincus Netherlands Equity Partners III,
C.V. Warburg, Pincus Equity Partners, L.P. and such three Dutch affiliates
are referred to as the "WPEP Group." Warburg, Pincus & Co. ("WP") is the
sole general partner of each of the four partnerships in the WPEP Group. WP
is managed by E.M. Warburg, Pincus & Co., LLC "EMWP." Lionel I. Pincus is
the managing partner of WP and the managing member of EMWP, and may be
deemed to control both entities. Each of the Warburg Pincus entities is
located at 466 Lexington Avenue, New York, NY 10017.
(10) Includes 1,510,462 shares held by Sanderling Venture Partners IV, L.P.,
588,016 shares held by Sanderling IV Biomedical, L.P., 589,270 shares held
by Sanderling IV Limited Partnership, L.P., 189,394 shares held by
Sanderling Venture Management, 178,891 shares held by Sanderling IV
Biomedical Co-Investment Fund, L.P., 167,581 shares held by Sanderling
[Feri Trust] Venture Partners IV, L.P., and 89,446 shares held by
Sanderling Venture Partners IV Co-Investment Fund. Sanderling Ventures is
located at 2730 Sand Hill Road, Suite 200, Menlo Park, CA 94025.
(11) Includes 1,205,201 shares held by Biotechnology Development Fund, L.P.,
58,140 shares held by Biotechnology Development Fund II, L.P., and 450,412
shares held by Biotechnology Development Fund III, L.P. Dr. Engleman is a
managing member of BioAsia Investments, LLC. BioAsia Investments, LLC is a
general partner of Biotechnology Development Fund, L.P., Biotechnology
Development Fund II, L.P., and Biotechnology Development Fund III, L.P.
BioAsia Investments, LLC is located at 575 High St., Palo Alto, CA 94301.
(12) Includes 1,340,971 shares held by Sofinnova Venture Partners IV, L.P., and
37,920 shares held by Sofinnova Venture Affiliates IV, L.P. Dr. Powell is
a general partner of Sofinnova Ventures and is a managing director of
Sofinnova Management IV, LLC. Sofinnova Management IV, LLC is a general
partner of Sofinnova Management IV, LLC. Sofinnova Ventures is an
administrative entity Sofinnova Management IV LLC. Sofinnova Ventures is
located at 140 Geary Street, 10(th) Floor, San Francisco, CA 94108.
(13) Genentech, Inc. is located at 1 DNA Way, South San Francisco, CA 94080.
(14) Connetics Corporation is located at 3400 West Bayshore Road, Palo Alto, CA
94303..
(15) Veron International, Ltd. is located at ChinaChem Golden Plaza, Top Floor,
77 Mody Road, Tsimshatsui East, Kowloon, Hong Kong.
(16) Total number of shares includes 10,590,211 shares of common stock held by
entities affiliated with directors and executive officers. See
footnotes 3 through 8 above.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
Upon completion of this offering, our authorized capital stock will consist
of 45,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value. The following description of our
capital stock does not purport to be complete and is subject to, and qualified
in its entirety by, our certificate of incorporation and bylaws, which we have
included as exhibits to the registration statement of which this prospectus
forms a part.
COMMON STOCK
As of December 31, 1999, there were 14,692,194 shares of common stock and
preferred stock outstanding, held of record by 61 stockholders. These amounts
assume the conversion of all outstanding shares of preferred stock into common
stock, which is to occur upon the closing of this offering. In addition, as of
December 31, 1999, there were 990,000 shares of common stock subject to
outstanding options. Upon completion of this offering, there will be
20,192,194 shares of common stock outstanding, assuming no exercise of
outstanding stock options after December 31, 1999.
Each share of common stock entitles its holder to one vote on all matters to
be voted upon by stockholders. Subject to preferences that may apply to any
outstanding preferred stock, holders of common stock may receive ratably any
dividends that the board of directors may declare out of funds legally available
for that purpose. In the event of our liquidation, dissolution or winding up,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and any liquidation preference of
preferred stock that may be outstanding. The common stock has no preemptive
rights, conversion rights or other subscription rights or redemption or sinking
fund provisions. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock that we will issue upon
completion of this offering will be fully paid and non-assessable.
PREFERRED STOCK
According to our amended and restated certificate of incorporation, our
board of directors 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. Our board shall designate the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preference, sinking fund
terms and number of shares constituting any series or the designation of any
series. The issuance of preferred stock could have the effect of restricting
dividends on the common stock, diluting the voting power of the common stock,
impairing the liquidation rights of the common stock or delaying or preventing a
change in control without further action by the stockholders. We have no present
plans to issue any shares of preferred stock after the completion of this
offering.
REGISTRATION RIGHTS
The holders of 13,656,361 shares of the common stock that will be
outstanding after this offering are entitled to require us for a period of five
years following this offering to register the sales of their shares under the
Securities Act of 1933, under the terms of an agreement between us and the
holders of these securities. Subject to limitations specified in the agreement,
these registration rights include the following:
- two demand registration rights that holders may exercise no sooner than
180 days after our initial public offering, which require us to register
sales of a holder's shares, subject to the discretion of our board of
directors to delay the registration not more than twice in any twelve
month period;
55
<PAGE>
- an unlimited number of piggyback registration rights that require us to
register sales of a holder's shares when we undertake a public offering,
subject to the discretion of the managing underwriter of the offering to
decrease the amount that holders may register to not less than thirty
percent (30%) of the total offering; and
- an unlimited number of rights to require us to register sales of shares on
Form S-3, a short form of registration statement permitted to be used by
some companies, which holders may exercise if they request registration of
the sale of more than $1,000,000 of common stock provided that Form S-3 is
available for such offering and subject to the discretion of our board of
directors to delay the registration not more than twice in any
twelve-month period.
We will bear all registration expenses if these registration rights are
exercised, other than underwriting discounts and commissions. These registration
rights terminate as to a holder's shares when that holder may sell those shares
under Rule 144(k) of the Securities Act, which for most parties means two years
after the acquisition of the shares from us or when a holder owning less than
one percent of our outstanding common stock may sell such holder's shares under
Rule 144 during any ninety day period.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates acquisitions of Delaware corporations. In general, Section 203
prohibits a publicly-held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years following
the date the person becomes an interested stockholder, unless:
- our board of directors approved the business combination or the
transaction in which the person became an interested stockholder prior to
the date the person attained this status;
- upon consummation of the transaction that resulted in the person becoming
an interested stockholder, the person owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
- on or subsequent to the date the person became an interested stockholder,
our board of directors approved the business combination and the
stockholders other than the interested stockholder authorized the
transaction at an annual or special meeting of stockholders.
Section 203 defines a "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- in general, any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the interested
stockholder; or
- 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.
In general, Section 203 defines an "interested stockholder" as any person
who, together with the person's affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status did own, 15%
or more of a corporation's voting stock.
56
<PAGE>
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws, to be effective upon the
closing of this offering, divide our board into three classes as nearly equal in
size as possible, with each class serving a three-year term. The terms are
staggered, so that one-third of the board is to be elected each year. The
classification of our board could have the effect of making it more difficult
than otherwise for a third party to acquire control of us, because it would
typically take more than a year for a majority of the stockholders to elect a
majority of our board. In addition, our certificate of incorporation and bylaws
will provide that any action required or permitted to be taken by our
stockholders at an annual or special meeting may be taken only if it is properly
brought before the meeting, and may not be taken by written action in lieu of a
meeting. The bylaws will also limit who may call a special meeting of the
stockholders. Under our bylaws, stockholders wishing to propose business to be
brought before a meeting of stockholders will be required to comply with various
advance notice requirements. Finally, our certificate of incorporation and
bylaws will not permit stockholders to take any action without a meeting.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is . The
transfer agent's address is .
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could reduce prevailing market prices. Furthermore, since no shares will
be available for sale shortly after this offering because of contractual and
legal restrictions on resale as described below. Sales of substantial amounts of
our common stock in the public market after any restrictions on sale lapse could
adversely affect the prevailing market price of the common stock and impair our
ability to raise equity capital in the future.
Upon completion of the offering, we will have 20,192,194 outstanding shares
of common stock, assuming no exercise of the overallotment option and no
exercises of outstanding options after December 31, 1999. Of these shares, all
of the shares sold in the public offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining 14,692,194 shares of common
stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.
As a result of contractual restrictions described below and the provisions
of Rules 144, 144(k) and 701, the restricted shares will be available for sale
in the public market as follows:
- unless held by affiliates, the 5,500,000 shares sold in the public
offering will be freely tradable upon completion of the offering;
- 8,436,113 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, beginning 180 days after the date of
this prospectus; and
- 273,250 shares will be eligible for sale upon the exercise of vested
options 180 days after the date of this prospectus.
LOCK-UP AGREEMENTS
All of our directors, officers, employees and other stockholders, who
together hold all of our securities, have entered into lock-up agreements in
connection with this offering. These lock-up agreements generally provide that
these holders will not offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of our common stock or any securities exercisable
for or convertible into our common stock owned by them for a period of 180 days
after the date of this prospectus without the prior written consent of Warburg
Dillon Read LLC. Notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements
may not be sold until these agreements expire or are waived by the
representatives of the underwriters of this offering.
RULE 144
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately 201,922 shares immediately after this
offering; and
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public information about us.
58
<PAGE>
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, may sell these
shares without complying with the manner of sale, public information, volume
limitation or notice requirements of Rule 144.
RULE 701
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144, but without compliance
with certain restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 90 days after effectiveness without complying
with the holding period requirement and that non-affiliates may sell such shares
in reliance on Rule 144 90 days after effectiveness without complying with the
holding period, public information, volume limitation or notice requirements of
Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 13,656,361 shares of our
common stock, or their transferees, will be entitled to rights with respect to
the registration of their shares under the Securities Act. Registration of their
shares under the Securities Act would result in these shares becoming freely
tradeable without restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of such
registration.
STOCK OPTIONS
We intend to file a registration statement under the Securities Act after
the effective date of this offering to register shares to be issued pursuant to
our employee and director benefit plans. As a result, any options or rights
exercised under the 1999 equity incentive plan, the 2000 equity incentive plan,
the 2000 employee stock purchase plan and the 2000 non-employee directors' stock
option plan will also be freely tradable in the public market. However, shares
held by affiliates will still be subject to the volume limitation, manner of
sale, notice and public information requirements of Rule 144, unless otherwise
resalable under Rule 701. As of January 31, 2000, we had granted options to
purchase 728,500 shares of common stock that had not been exercised, of which
options to purchase 273,250 shares were both exercisable and not subject to a
right of repurchase in our favor. In addition, as of that date we had reserved
386,500 shares for possible future issuance under our 1999 equity incentive
plan.
59
<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
We have entered into an underwriting agreement with the underwriters named
below. Warburg Dillon Read LLC, Chase Securities Inc., and Prudential Securities
Incorporated are acting as representatives of the underwriters.
The underwriting agreement will provide for the purchase of a specific
number of shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specific number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter will severally agree to purchase
the number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Warburg Dillon Read LLC.....................................
Chase Securities Inc........................................
Prudential Securities Incorporated..........................
-------
Total...................................................
=======
</TABLE>
This is a firm commitment underwriting. This means that the underwriters
have agreed to purchase all of the shares offered by this prospectus, other than
those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.
The representatives have advised us that the underwriters propose to offer
the shares directly to the public at the public offering price that appears on
the cover page of this prospectus. In addition, the representatives may offer
some of the shares to certain securities dealers at such price less a concession
of $ per share. The underwriters may also allow to dealers, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.
We have granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of 825,000 additional shares of
our common stock to cover over-allotments. If the underwriters exercise all or
part of this option, they will purchase shares covered by the option at the
public offering price that appears on the cover page of this prospectus, less
the underwriting discount. If this option is exercised in full, the underwriters
will purchase shares from us, the total price to the public will be
, and the total proceeds to us will be . The underwriters have
severally agreed that, to the extent the over-allotment option is exercised,
each of the underwriters will purchase a number of additional shares
proportionate to its initial amount reflected in the above table.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us:
<TABLE>
<CAPTION>
PAID BY US
---------------------------------------------
NO EXERCISE OF FULL EXERCISE OF
OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------------------- ---------------------
<S> <C> <C>
Per Share.............................. $ $
Total.................................. $ $
</TABLE>
60
<PAGE>
We estimate that the total expenses of this offering, excluding the
underwriter discount, will be approximately $ .
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act.
We and our directors, executive officers, and all of the holders of our
common stock and securities convertible into or exercisable or exchangeable for
common stock issued prior to this offering, have agreed pursuant to certain
"lock-up" agreements with the underwriters that we and they will not offer,
sell, contract to sell, pledge, grant any option to sell, or otherwise dispose
of, directly or indirectly, any shares of common stock or securities convertible
into or exercisable or exchangeable for common stock for a period of 180 days
after the date of this prospectus without the prior written consent of Warburg
Dillon Read LLC. Warburg Dillon Read LLC, in its sole discretion, may release
the shares subject to the lock-up agreements in whole or in part at any time
with or without notice. However, Warburg Dillon Read LLC has no current plan to
do so.
At our request, the underwriters have reserved for sale at the initial
public offering price up to shares of our common stock for our officers,
directors, employees, clients, friends and related persons who express an
interest in purchasing these shares. The number of shares of our common stock
available for sale to the general public will be reduced to the extent these
persons purchase these reserved shares. The underwriters will offer any shares
not so purchased by these persons to the general public on the same basis as the
other shares in this initial public offering.
Prior to his offering, there has been no public market for our common stock.
Consequently, the offering price for our common stock will be determined by
negotiations between us and the underwriters and will not necessarily be related
to our asset value, net worth or other established criteria of value. The
factors to be considered in these negotiations, in addition to prevailing market
conditions, will include the history of and prospects for the industry in which
we compete, an assessment of our management, our prospects, our capital
structure and certain other factors as are deemed relevant.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of shares is
completed. However, the underwriters may engage in the following activities in
accordance with the rules:
- STABILIZING TRANSACTIONS--The representatives may make bids for or
purchases of the shares for the purpose of pegging, fixing or maintaining
the price of the shares, so long as stabilizing bids do not exceed a
specified maximum.
- OVER-ALLOTMENTS AND SYNDICATE COVERING TRANSACTIONS--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with this offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market.
The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
- PENALTY BIDS--If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of these transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither us nor the underwriters make any representation or prediction as to
the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the
61
<PAGE>
Nasdaq National Market or otherwise. If these transactions are commenced, they
may be discontinued without notice at any time.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
In January 2000, we issued an aggregate of 4,966,361 shares of our Series B
preferred stock, including the shares issued to Chase Securities Inc. at a per
share price of $5.59. Chase Securities Inc. acted as the placement agent for
this private placement for which it received a customary cash fee for its
services and 120,000 shares of Series B preferred stock.
LEGAL MATTERS
- --------------------------------------------------------------------------------
The validity of the shares of our common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. As of the date of this
prospectus, certain partners and associates of Cooley Godward LLP own an
aggregate of 17,889 shares of common stock through an investment partnership.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts.
EXPERTS
- --------------------------------------------------------------------------------
Our financial statements as of December 31, 1998 and 1999 and for the period
from February 25, 1998 (inception) to December 31, 1998, the year ended
December 31, 1999 and for the period from February 25, 1998 (inception) through
December 31, 1999 included in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as stated in their
report appearing in this prospectus and registration statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
- --------------------------------------------------------------------------------
We have filed with the Securities and Exchange Commission a registration
statement (of which this prospectus forms a part) on Form S-1 with respect to
the common stock being offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedule thereto. For further information with respect to us and
the shares of common stock offered hereby, reference is made to the registration
statement, including the exhibits and schedules thereto. Statements contained in
this prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and, where any contract is an exhibit to the
registration statement, each statement with respect to the contract is qualified
in all respects by the provisions of the relevant exhibit, to which reference is
hereby made. You may read and copy any document we file at the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and the Securities and Exchange Commission's
Regional Offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. You may call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information about the operation of the
public reference rooms.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Upon approval of the common stock
for quotation on the Nasdaq National Market, such reports, proxy and information
62
<PAGE>
statements and other information may also be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, NW, Washington, D.C.
20006.
The Securities and Exchange Commission maintains a World Wide Website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The address of the Securities and Exchange Commission's website is
http://www.sec.gov.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INTERMUNE PHARMACEUTICALS, INC.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Ernst & Young LLP, independent auditors........... F-2
Balance sheets as of December 31, 1998 and 1999............. F-3
Statements of operations for the period from February 25,
1998 (inception) to December 31, 1998, the year ended
December 31, 1999, and for the period from February 25,
1998 (inception) to December 31, 1999..................... F-4
Statements of cash flows for the period from February 25,
1998 (inception) to December 31, 1998, the year ended
December 31, 1999, and for the period from February 25,
1998 (inception) to December 31, 1999..................... F-5
Statements of redeemable convertible preferred stock and
stockholders' equity (deficit) for the period from
February 25, 1998 (inception) to December 31, 1999........ F-6
Notes to financial statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
InterMune Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of InterMune
Pharmaceuticals, Inc. (a development stage company) as of December 31, 1998 and
1999 and the related statements of operations, redeemable convertible preferred
stock and stockholders' equity (deficit), and cash flows for the period from
February 25, 1998 (inception) to December 31, 1998, the year ended December 31,
1999, and for the period from February 25, 1998 (inception) to December 31,
1999. 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 auditing standards generally
accepted in the United States. 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 InterMune
Pharmaceuticals, Inc. (a development stage company) at December 31, 1998 and
1999, and the results of its operations and its cash flows for the period from
February 25, 1998 (inception) to December 31, 1998, the year ended December 31,
1999, and for the period from February 25, 1998 (inception) to December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Palo Alto, California
January 28, 2000
F-2
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
DECEMBER 31, DECEMBER 31, 1999
1998 1999 (UNAUDITED)
------------ ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $2,314,781 $ 3,772,110
Short-term investments, available for sale......................... 2,405,050 442,184
Accounts receivable, net........................................... -- 409,392
Inventories........................................................ -- 831,145
Notes receivable from officer...................................... -- 103,750
Other current assets and prepaid expenses.......................... -- 18,696
---------- -------------
Total current assets................................................. 4,719,831 5,577,277
Office equipment, net.............................................. -- 27,901
Restricted cash balance............................................ -- 250,000
---------- -------------
Total assets......................................................... $4,719,831 $ 5,855,178
========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses.............................. $ 120,626 $ 1,809,028
Accrued payroll.................................................... 70,073 93,652
Payable to Connetics............................................... 347,837 538,434
Royalty payable to Genentech....................................... -- 1,913,785
---------- -------------
Total current liabilities............................................ 538,536 4,354,899
Long-term obligations payable to Connetics........................... -- 1,624,343
Redeemable convertible preferred stock............................... -- 7,773,877 $ --
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, no par value:
Authorized shares--14,870,000 at December 31, 1999
Issued and outstanding shares--11,200,000 at December 31, 1998
and 1,835,000 at December 31, 1999; no shares pro forma........ 10,253,000 4,506,804 --
Common stock, no par value;
Authorized shares--30,000,000 at December 31, 1999
Issued and outstanding shares--none at December 31, 1998 and
1,890,833 at December 31, 1999; 9,725,833 shares pro forma..... -- 3,049,664 15,330,345
Deferred compensation related to stock options..................... -- (3,172,926) (3,172,926)
Accumulated other comprehensive income............................. 16 41 41
Deficit accumulated during the development stage................... (6,071,721) (12,281,524) (12,281,524)
---------- ------------- -------------
Total stockholders' equity (deficit)................................. 4,181,295 (7,897,941) $ (124,064)
---------- ------------- =============
Total liabilities and stockholders' equity (deficit)................. $4,719,831 $ 5,855,178
========== =============
</TABLE>
See accompanying notes.
F-3
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE
FEBRUARY 25, PERIOD FROM
1998 FEBRUARY 25,
(INCEPTION) 1998
TO YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------- ------------- --------------
<S> <C> <C> <C>
Product sales, net................................................. $ -- $556,401 $556,401
Costs and expenses:
Cost of goods sold............................................... -- 239,802 239,802
Research and development......................................... 1,234,957 2,934,695 4,169,652
General and administrative....................................... 892,295 2,551,793 3,444,088
Acquired pre-FDA approval rights................................. 4,000,000 1,093,750 5,093,750
----------- ------------- --------------
Total costs and expenses........................................... 6,127,252 6,820,040 12,947,292
Loss from operations............................................... (6,127,252) (6,263,639) (12,390,891)
Other income (expense):
Interest income.................................................. 55,531 239,778 295,309
Interest expense................................................. -- (185,942) (185,942)
----------- ------------- --------------
Net loss........................................................... (6,071,721) (6,209,803) (12,281,524)
Preferred stock accretion.......................................... -- (656,765) (656,765)
----------- ------------- --------------
Net loss applicable to common stockholders......................... $(6,071,721) $ (6,866,568) $ (12,938,289)
=========== ============= ==============
Historical basic and diluted net loss per share.................... $ (8.94)
=============
Weighted average shares outstanding, basic and diluted............. 768,333
=============
Pro forma basic and diluted net loss per share..................... $ (0.80)
=============
Pro forma basic and diluted weighted average shares outstanding.... 7,770,000
=============
</TABLE>
See accompanying notes.
F-4
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM FROM
FEBRUARY 25, FEBRUARY 25,
1998 (INCEPTION) YEAR ENDED 1998 (INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1998 1999 1999
---------------- -------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................................... $(6,071,721) $(6,209,803) $(12,281,524)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred compensation....................... -- 205,895 205,895
Accretion of long-term obligations payable to Parent
Connetics................................................. -- 110,674 110,674
Stock issued for acquired pre-FDA approval rights........... 4,000,000 1,093,750 5,093,750
Forgiveness of related party obligation..................... 253,000 -- 253,000
Depreciation................................................ -- 2,564 2,564
Changes in operating assets and liabilities:
Accounts receivable....................................... -- (409,392) (409,392)
Inventories............................................... -- (831,145) (831,145)
Notes receivable from officer............................. -- (103,750) (103,750)
Restricted cash........................................... -- (250,000) (250,000)
Other assets.............................................. -- (18,696) (18,696)
Accounts payable and accrued expenses..................... 120,626 1,688,402 1,809,028
Accrued payroll........................................... 70,073 23,579 93,652
Payable to Connetics...................................... 347,837 (309,403) 38,434
Royalty payable to Genentech.............................. -- 1,913,785 1,913,785
-------------- -------------- --------------
Net cash used in operating activities......................... (1,280,185) (3,093,540) (4,373,725)
INVESTING ACTIVITIES
Purchase of office equipment................................ -- (30,465) (30,465)
Purchase of marketable securities........................... (11,408,960) (24,197,543) (35,606,503)
Maturities of marketable securities......................... 9,003,926 26,160,434 35,164,360
-------------- -------------- --------------
Net cash (used) provided in investing activities.............. (2,405,034) 1,932,426 (472,608)
FINANCING ACTIVITIES
Contributed capital for preferred stock..................... 6,000,000 395,600 6,395,600
Return of capital to Parent (Connetics)..................... -- (5,221,877) (5,221,877)
Proceeds from redeemable preferred stock.................... -- 7,117,112 7,117,112
Proceeds from issuance of common stock...................... -- 305,900 305,900
Proceeds from exercise of stock options..................... -- 22,500 22,500
Repurchase of restricted stock.............................. -- (792) (792)
-------------- -------------- --------------
Net cash provided by financing activities..................... 6,000,000 2,618,443 8,618,443
-------------- -------------- --------------
Net increase in cash and cash equivalents..................... 2,314,781 1,457,329 3,772,110
Cash and cash equivalents at beginning of period.............. -- 2,314,781 --
Short-term investments, available for sale.................... 2,405,050 442,184 442,184
-------------- -------------- --------------
Cash, cash equivalents and short-term investments at end of
period...................................................... $4,719,831 $4,214,294 $4,214,294
============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Return of capital on obligation to Parent (Connetics)....... -- $(2,013,669) $(2,013,669)
Long-term obligation on return of capital................... -- $1,513,669 $1,513,669
Short-term obligation on return of capital.................. -- $500,000 $500,000
Deferred stock compensation................................. -- $3,378,821 $3,378,821
</TABLE>
See accompanying notes.
F-5
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM FEBRUARY 25, 1998 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------
REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------------- ------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders................... -- $ -- -- $ -- 1,600,000 $ 1,600
Repurchase of common stock............................. -- -- -- -- (1,600,000) (1,600)
Capital transactions with Parent (Connetics):
Issuance of Series A convertible
preferred stock for contributed capital:...........
Intellectual capital contributed by Parent
(Connetics).................................... -- -- 4,369,453 4,000,000 -- --
Cash............................................. -- -- 6,830,547 6,253,000 -- --
Gain on investments.................................... -- -- -- -- -- --
Net loss............................................... -- -- -- -- -- --
--------- ----------- ----------- ------------ ----------- ----------
BALANCE AT DECEMBER 31, 1998........................... -- -- 11,200,000 10,253,000 -- --
Issuance of restricted common stock to founders for
cash................................................. -- -- -- -- 815,000 8,150
Capital transactions with Parent (Connetics):
Exchange of convertible preferred shares
Return of Series A................................. -- -- (11,200,000) -- -- --
Issuance of Series A-1............................. -- -- 960,000 -- -- --
Contributed capital from Parent (Connetics) (cash)... -- -- -- 395,600 -- --
Return of capital to Parent (Connetics) (cash)....... -- -- -- (4,721,877) -- --
Return of capital to Parent (Connetics) (cash and
stock)............................................. -- -- -- (2,513,669) -- --
Issuance of Series A-1 convertible preferred stock for
license rights....................................... -- -- 875,000 1,093,750 -- --
Issuance of Series A-2 redeemable convertible preferred
stock for cash, net of issuance costs of $94,888..... 4,800,000 5,617,112 -- -- -- --
Issuance of common stock for cash...................... -- -- -- -- 975,000 297,750
Issuance of Series A-2 redeemable convertible preferred
stock for cash....................................... 800,000 1,000,000 -- -- -- --
Issuance of Series A-2 redeemable convertible preferred
stock for cash....................................... 400,000 500,000 -- -- -- --
Repurchase of common stock............................. -- -- -- -- (79,167) (792)
Exercise of stock options.............................. -- -- -- -- 180,000 22,500
Gain on investments.................................... -- -- -- -- -- --
Deferred compensation.................................. -- -- -- -- -- 3,378,821
Amortization of deferred compensation.................. -- -- -- -- -- --
Preferred stock accretion.............................. -- 656,765 -- -- -- (656,765)
Net loss............................................... -- -- -- -- -- --
--------- ----------- ----------- ------------ ----------- ----------
BALANCE AT DECEMBER 31, 1999........................... 6,000,000 $ 7,773,877 1,835,000 $ 4,506,804 1,890,833 $3,049,664
========= =========== =========== ============ =========== ==========
<CAPTION>
DEFICIT
DEFERRED ACCUMULATED TOTAL
COMPENSATION GAIN OR DURING THE STOCKHOLDERS'
RELATED TO LOSS ON DEVELOPMENT EQUITY
STOCK OPTIONS INVESTMENTS STAGE (DEFICIT)
------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Issuance of common stock to founders................... $ -- $ -- $ -- $ 1,600
Repurchase of common stock............................. -- -- -- (1,600)
Capital transactions with Parent (Connetics):
Issuance of Series A convertible
preferred stock for contributed capital:...........
Intellectual capital contributed by Parent
(Connetics).................................... -- -- -- 4,000,000
Cash............................................. -- -- -- 6,253,000
Gain on investments.................................... -- 16 -- 16
Net loss............................................... -- -- (6,071,721) (6,071,721)
----------- --------- ------------- -----------
BALANCE AT DECEMBER 31, 1998........................... -- 16 (6,071,721) 4,181,295
Issuance of restricted common stock to founders for
cash................................................. -- -- -- 8,150
Capital transactions with Parent (Connetics):
Exchange of convertible preferred shares
Return of Series A................................. -- -- -- --
Issuance of Series A-1............................. -- -- -- --
Contributed capital from Parent (Connetics) (cash)... -- -- -- 395,600
Return of capital to Parent (Connetics) (cash)....... -- -- -- (4,721,877)
Return of capital to Parent (Connetics) (cash and
stock)............................................. -- -- -- (2,513,669)
Issuance of Series A-1 convertible preferred stock for
license rights....................................... -- -- -- 1,093,750
Issuance of Series A-2 redeemable convertible preferred
stock for cash, net of issuance costs of $94,888..... -- -- -- --
Issuance of common stock for cash...................... -- -- -- 297,750
Issuance of Series A-2 redeemable convertible preferred
stock for cash....................................... -- -- -- --
Issuance of Series A-2 redeemable convertible preferred
stock for cash....................................... -- -- -- --
Repurchase of common stock............................. -- -- -- (792)
Exercise of stock options.............................. -- -- -- 22,500
Gain on investments.................................... -- 25 -- 25
Deferred compensation.................................. (3,378,821) -- -- --
Amortization of deferred compensation.................. 205,895 -- -- 205,895
Preferred stock accretion.............................. -- -- -- (656,765)
Net loss............................................... -- -- (6,209,803) (6,209,803)
----------- --------- ------------- -----------
BALANCE AT DECEMBER 31, 1999........................... $(3,172,926) $ 41 $ (12,281,524) $(7,897,941)
=========== ========= ============= ===========
</TABLE>
F-6
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OVERVIEW
InterMune Pharmaceuticals, Inc. ("InterMune" or the "Company") develops and
commercializes innovative products for the treatment of serious pulmonary and
infectious diseases and congenital disorders. The Company has the exclusive
license rights in the United States to ACTIMMUNE (interferon gamma-1b injection)
for a range of indications, chronic granulomatous disease, osteopetrosis,
including idiopathic pulmonary fibrosis, mycobacterial infections, systemic
fungal infections and cystic fibrosis. The Company has active development
programs underway for these indications, several of which are in mid- or
advanced-stage human testing, or clinical trials. The FDA has approved ACTIMMUNE
for the treatment of chronic granulomatous disease, and the Company currently
markets and sells ACTIMMUNE in the United States for this disease. In
August 1999, the Company filed a supplement to its biologics license
application, or BLA, with the FDA for the expanded use of ACTIMMUNE for the
treatment of osteopetrosis.
The Company was incorporated on February 25, 1998 in the State of California
and commenced operations as a wholly-owned subsidiary of Connetics in May of
1998. Beginning in May 1998, Connetics contributed certain development rights
and intellectual property valued at $4 million, cash of $6 million and
unreimbursed operating costs of $0.3 million to InterMune, then its wholly-owned
subsidiary. The value of the development rights and intellectual property
contributed was determined by the amount Connetics had paid Genentech for those
same rights in May 1998. The entire value of these rights had been allocated to
in-process research and development by Connetics and has also been reflected in
InterMune's statement of operations for the period from February 25, 1998
(inception) through December 31, 1998, as acquired pre-FDA approval rights with
a corresponding increase to capital contributed by parent. The determination of
the portion of the value of the rights allocable to in-process research and
development was made based upon the discounted cash flows of the rights acquired
projected over a ten year period, and included the costs of research and
development efforts necessary to prove efficacy of the molecule to which the
rights pertain.
On April 27, 1999, the Company obtained venture capital funding and was
reorganized pursuant to the Series A-1 and A-2 Preferred Stock Purchase
Agreement (See note 3). At the time of the reorganization, approximately
$4.7 million of the $10.3 million of capital originally contributed by Connetics
to InterMune, its wholly owned subsidiary, was returned to Connetics in the form
of cash. The Company also recorded a liability for $3.0 million to be paid to
Connetics over the next several years in cash and stock (see note 3), the
present value of which was recorded as a return of capital to Connetics. The
Company cancelled all of the 11.2 million shares of Series A preferred stock it
had originally issued to Connetics. Connetics also received 960,000 shares of
InterMune's Series A-1 preferred stock and net sales of ACTIMMUNE (as well as
incurring associated costs and expenses) up to a baseline amount through
December 2001, both in exchange for the remaining $3.4 million of Connetics'
contributed capital. See note 3 for a more complete description of the
April 27, 1999 agreements. At that time, Connetics retained approximately 9.0%
ownership in the Company.
BASIS OF ACCOUNTING
The accompanying financial statements include the operations of InterMune
for the period from February 25, 1998 to April 27, 1999 as a wholly-owned
subsidiary of Connetics. Separate accounting records for the Company were
maintained, but were included in the consolidated financial statements of
Connetics for this period. Prior to the date of InterMune's incorporation,
February 25, 1998,
F-7
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Connetics had licensed certain rights to ACTIMMUNE for dermatological
indications from Genentech and has retained an option to such dermatological
rights. In April 1998, after the incorporation of InterMune, Connetics licensed
the rights to ACTIMMUNE from Genentech for different indications, including the
treatment of serious infectious and pulmonary diseases and congenital disorders,
for $4 million of Connetics stock. Those rights were subsequently sublicensed to
InterMune in exchange for InterMune convertible preferred stock. On April 27,
1999, InterMune issued to Genentech 875,000 shares of InterMune Series A
preferred stock valued at $1,093,750 in exchange for additional ACTIMMUNE
development rights in Japan and a reduction of future royalties on potential
ACTIMMUNE net product revenues through its sublicense agreement with Connetics.
Through the date of these financial statements, the Company is considered to
be a development stage company. Since inception, the Company has incurred
significant losses and, as of December 31, 1999, had an accumulated deficit of
$12,281,524.
LIQUIDITY AND FINANCIAL VIABILITY
In the course of its development activities, the Company has sustained
continuing operating losses and expects such losses to continue for at least the
next several years. The Company's future capital uses and requirements depend on
numerous factors, including the progress of its research and development
programs, the progress of clinical and advanced-stage clinical testing, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, and enforcing patent claims and other intellectual property rights,
competing technological and market developments, the ability of the Company to
establish collaborative arrangements, the level of product sales of ACTIMMUNE,
the possible acquisition of new products and technologies, and the initiation of
significant commercialization activities. Therefore, such capital uses and
requirements may increase in future periods. As a result, the Company may
require substantial additional funds prior to reaching profitability and plans
to continue to finance its operating activities with a combination of stock
sales, product revenue, bank loans and/or debt financing. The inability to
obtain sufficient funds may require the Company to delay, scale back or
eliminate some or all of its research and product development programs, limit
the marketing of its product, or license to third parties the rights to
commercialize products or technologies that the Company would otherwise seek to
develop and market itself.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of highly liquid investments with original
maturities when purchased of less than three months. Investments with maturities
beyond three months at the date of acquisition and that mature within one year
from the balance sheet date are considered to be short-term investments. Cash
equivalents and short-term investments are carried at fair value, with
unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity. The cost of securities sold is based on the specific
identification method.
Management of the Company believes it has established guidelines for
investment of its excess cash relative to diversification and maturities that
maintain safety and liquidity.
F-8
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, Accounting for Certain Investments in Debt and Equity Securities, the
Company's investment securities are classified as available-for-sale and
unrealized holding gains or losses are included in comprehensive income (loss).
Realized gains or losses, calculated based on the specific identification
method, were not material for any period.
INVENTORIES
Inventories consist principally of finished good products and are stated at
the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method.
OFFICE EQUIPMENT
Equipment is stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets, generally 3 to 5 years.
NOTES RECEIVABLE
In connection with Dr. Harkonen's transition from Connetics to InterMune,
the Company assumed his outstanding loan of $100,000 by Connetics to
Dr. Harkonen pursuant to a secured loan agreement and promissory note dated
July 1, 1999. The interest rate on the promissory note is 7.5% per annum. The
principal and accrued interest are due on October 30, 2000.
RESTRICTED CASH
On December 18, 1999, the Company entered into a facility-operating lease
requiring a letter of credit secured by a restricted cash balance with the
Company's bank. The amount of the letter of credit approximates 12 months of
operating rent payable to the landlord of the facility.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of, if indicators of impairment
exist, the Company assesses the recoverability of the affected long-lived assets
by determining whether the carrying value of such assets can be recovered
through undiscounted future operating cash flows. If impairment is indicated,
the Company will measure the amount of such impairment by comparing the carrying
value of the asset to the present value of the expected future cash flows
associated with the use of the asset. To date, no such indicators of impairment
have been identified.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities, and long-term royalty
payable, are carried at cost, which management believes approximates fair value
because of the short-term maturity of these instruments.
F-9
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues from product sales are recognized upon shipment, net of allowances
for estimated returns, rebates and chargebacks. The Company is obligated to
accept from customers the return of pharmaceuticals that have reached their
expiration date. The Company has not experienced any significant returns of
expired product.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed in the period incurred.
INCOME TAXES
In accordance with SFAS No. 109, Accounting for Income Taxes, a deferred tax
asset or liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. The Company
provides a valuation allowance against net deferred tax assets unless, based
upon the available evidence, it is more likely than not that the deferred tax
assets will be realized.
PATENT COSTS
Costs related to patent prosecution are expensed as incurred as
recoverability of such expenditures is uncertain.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB 25") and related Interpretations
in accounting for stock-based employee compensation. Under APB 25, if the
exercise price of the Company's employee and director stock options equals or
exceeds the deemed fair value of the underlying stock on the date of grant, no
compensation expense is recognized.
When the exercise price of the employee or director stock options is less
than the deemed fair value of the underlying stock on the grant date, the
Company records deferred compensation for the difference. Deferred compensation
is being amortized on an accelerated basis over the vesting period of the
original award, generally five years. Options or stock awards issued to
non-employees are recorded at their fair value as determined in accordance with
SFAS No. 123 and recognized over the related service period.
COMPREHENSIVE INCOME (LOSS)
As of July 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income (loss).
SEGMENT REPORTING
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, during 1998. SFAS No. 131 requires the use
of a management approach in identifying segments of an enterprise. Management
has determined that the Company operates in one business segment.
F-10
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff
Accounting Bulletin (or SAB) No. 98, basic net income (loss) per share is
computed by dividing the net income (loss) for the period by the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per share is computed by dividing the net income (loss) for the
period by the weighted average number of common and common equivalent shares
outstanding during the period. Potentially dilutive securities composed of
incremental common shares issuable upon the exercise of stock options and common
shares issuable on conversion of preferred stock, were excluded from historical
diluted loss per share because of their anti-dilutive effect.
The Company's capital structure during 1998 was that of a wholly owned
subsidiary. Earnings per share data for 1998 has not been presented as the
capital structure changes that took place in 1999 made such presentation less
meaningful.
Under the provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. Founders shares of 735,833 were
issued for nominal consideration but are subject to repurchase by the Company.
Shares for which repurchase rights have lapsed have been included in the per
share calculations.
Pro forma net loss per share has been computed as described above and also
gives effect to common equivalent shares arising from preferred stock that will
automatically convert upon the closing of the initial public offering
contemplated by this prospectus (using the as-if converted method from the
original date of issuance). For the year ended December 31, 1999, the pro forma
shares also reflect the common equivalent shares of preferred and common stock
issued on April 27, 1999 in connection with the reorganization as though they
had been outstanding for the entire year.
F-11
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The calculation of historical and pro forma basic and diluted net loss per
share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Historical:
Net loss...................................................................... $6,866,568
==========
Weighted average shares of common stock outstanding........................... 1,201,736
Less: weighted average shares of common stock that may be repurchased......... (433,403)
----------
Weighted average shares of common stock outstanding used in computing basic
and diluted net loss per share.............................................. 768,333
==========
Basic and diluted net loss per share.......................................... $ (8.94)
==========
Pro forma:
Net loss (before preferred stock accretion)................................... $6,209,803
==========
Weighted average shares used in computing basic and diluted net loss per share
(from above)................................................................ 768,333
Adjustment to reflect the effect of the assumed conversion of preferred stock
to common stock from the date of issuance................................... 4,790,000
Adjustment to reflect the effect of the stock issued on April 27, 1999 and the
assumed conversion of the related preferred stock to common stock from the
beginning of the period through the date of issuance........................ 2,211,667
----------
Weighted average shares used in computing pro forma basic and diluted net loss
per share................................................................... 7,770,000
==========
Pro forma basic and diluted net loss per share................................ $ (0.80)
==========
</TABLE>
F-12
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
If the Company had reported net income, the calculation of historical and
pro forma diluted earnings per share would have included approximately an
additional 260,612 common equivalent shares related to the outstanding stock
options not included above (determined using the treasury method) for the period
ended December 31, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
The Company expects to adopt SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective January 1, 2001. SFAS No. 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. The Company does not anticipate that the adoption of the SFAS No. 133
will have a significant effect on its results of operations or financial
position.
3. COLLABORATION, LICENSE AND SERVICE AGREEMENTS WITH RELATED PARTIES
SUBLICENSE AND COLLABORATION AGREEMENTS
On August 21, 1998, the Company and Connetics entered into an exclusive
sublicense agreement (the sublicense agreement), pursuant to which:
(a) Connetics granted an exclusive sublicense to InterMune under the Genentech
License for ACTIMMUNE for specific indications; (b) InterMune granted to
Connetics the exclusive option to practice such sublicensed rights in the
dermatology field and; (c) InterMune agreed to pay all amounts owed by Connetics
to Genentech related to ACTIMMUNE net sales except with respect to sales made by
Connetics in the event Connetics exercises its option. Under the sublicense
agreement, InterMune agreed to be responsible for all costs of development and
commercialization of ACTIMMUNE in the specified indications, to pay specified
payments to Genentech upon completion of certain development and
commercialization milestones, and to pay future royalties on net annual
ACTIMMUNE sales annually.
On April 27, 1999, Connetics amended the terms of its license agreement with
Genentech and obtained additional rights to ACTIMMUNE which it simultaneously
sublicensed to InterMune.
On April 27, 1999, InterMune and Connetics also signed a Collaboration
Agreement. As a result of the sublicense, transition, service, and collaboration
agreements between InterMune and Connetics, Connetics received 960,000 shares of
InterMune's Series A-1 preferred stock, rights to net sales of ACTIMMUNE up to a
baseline amount through December 2001, less associated cost of goods sold and
marketing expenses, a nominal royalty on ACTIMMUNE net sales, and the following
payments of cash and stock, all of which represent the return of a portion of
Connetics' invested capital: $4.7 million of cash on April 27, 1999; an
additional $500,000 cash payment on April 27, 1999; $500,000 cash due on
March 31, 2001; $1.5 million payable in installments of cash or stock beginning
on March 31, 2002 and due in full by March 31, 2004; and an additional
$1.5 million payable in stock and cash. Of the additional $1.5 million, $500,000
has been accrued in the accompanying financial statements as a
F-13
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COLLABORATION, LICENSE AND SERVICE AGREEMENTS WITH RELATED PARTIES
(CONTINUED)
reduction of capital contributed by parent. This amount was paid to Connetics in
Series B preferred stock on January 7, 2000. The Company also agreed to issue an
additional $1 million in cash or InterMune stock contingent upon a subsequent
closing of a round of financing, an initial public offering or the acquisition
of the Company. This $1 million contingent return of capital has not been
reflected in the accompanying financial statements.
SERVICE AGREEMENT
On October 12, 1998, the Company entered into a five year agreement, as
amended, whereby Connetics will provide to the Company certain information
services, accounting activities, facilities, employee benefit administration and
research and development services. The agreement may be terminated by either
party with 90 days prior written notice. The Company has paid Connetics a total
of $362,108 and $1,189,920 for the period from February 25, 1998 (inception) to
December 31, 1998 and for the year ended December 31, 1999, respectively, under
this agreement.
TRANSITION AGREEMENT
On April 27, 1999, the Company and Connetics entered into a 3-year
Transition Agreement. This agreement effectively transferred certain ACTIMMUNE
distribution, sales and marketing responsibilities from Connetics to InterMune.
Under the terms of the agreement InterMune will:
- Provide to Connetics certain order entry, packaging, shipping, invoicing
and credit and collection activities related to the sales of ACTIMMUNE
units. Total costs reimbursed from Connetics totaled $73,056 and $347,731
for the period from February 25, 1998 (inception) to December 31, 1998 and
for the year ended December 31, 1999, respectively.
- Pay Connetics each month the net sales of ACTIMMUNE up to a predetermined
baseline for the period from January 15, 1999 through December 31, 2001
less associated cost of goods sold and marketing expenses. The
predetermined baseline is preset for each calendar year under the
agreement. The Company paid to Connetics $1,357,436 under this arrangement
for the year ended December 31, 1999. After December 31, 2001, the net
sales for ACTIMMUNE will fully revert to the Company.
- Transition manufacturing of ACTIMMUNE from Genentech to a third-party
alternative manufacturer. In order to expedite and effect this transfer of
manufacturing, Connetics will pay a percentage of all actual costs, up to
a pre-determined cap, to complete the transfer of manufacturing of
ACTIMMUNE to a third party alternative manufacturer. Approximately
$100,000 has been incurred by InterMune from inception through
December 31, 1999.
ACQUIRED PRE-FDA APPROVAL RIGHTS
InterMune sublicenses its development and marketing rights for ACTIMMUNE
from Connetics. Connetics obtained these rights for ACTIMMUNE through its
License Agreement with Genentech in May 1998 as amended in April 1999.
Connetics' associated rights to ACTIMMUNE include uses in chronic granulomatous
disease, osteopetrosis, pulmonary fibrosis, infectious diseases, and cystic
fibrosis, (see Transition Agreement). Connetics sublicensed the rights to all of
these disease indications, except for net sales of ACTIMMUNE up to a baseline
amount through December 2001, to InterMune.
F-14
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COLLABORATION, LICENSE AND SERVICE AGREEMENTS WITH RELATED PARTIES
(CONTINUED)
ACTIMMUNE has been approved by the FDA for use in the treatment of CGD. For
other indications ACTIMMUNE is in development. The Company will incur
significant costs to develop and prove efficacy in each of the other
indications.
Connetics paid Genentech $4 million for these rights in May 1998. The
Company has valued its sublicensed rights at $4 million based on this amount
paid by the Company's then parent company, Connetics. A discounted cash flow
analysis of the projected revenues and costs based on the potential market, the
estimated costs to obtain the required approvals and costs to manufacture and
market ACTIMMUNE for each indication shows a negative cash flow for the chronic
granulomatous disease indication and positive cash flows for several of the
other indications with larger patient populations. Negative cash flows from
chronic granulomatous disease result from a small U.S. market of only
400 patients, high costs of manufacturing due to small quantities, a royalty
payable to Genentech and significant costs to market the product. In addition,
InterMune does not capture revenues associated with chronic granulomatous
disease for the first three years of the sublicense, which has further adverse
impact on the discounted cash flow analysis of the projected revenues for
chronic granulomatous disease as it relates to InterMune specifically. Because
realization of the non-chronic granulomatous disease indications' revenue
streams is uncertain, due to the early stages of development and the high costs
to develop, the Company has expensed the $4 million acquisition cost.
On April 27, 1999, InterMune acquired additional ACTIMMUNE development
rights in Japan as well as reduction of future royalties of potential ACTIMMUNE
annual net sales above a certain threshold. For these rights, InterMune issued
Genentech 875,000 shares of Series A-1 convertible preferred stock. The acquired
rights were valued at $1.1 million, the purchase price of the stock issued, as
paid by new investors in the then most recent round of financing. The acquired
development rights were estimated to have no immediate realizable value, as no
approvals for ACTIMMUNE have been obtained in Japan and significant costs will
be incurred to obtain such approvals. The reduction of the royalty rate was
similarly deemed to have no current realizable value because sales of ACTIMMUNE
for chronic granulomatous disease (the only FDA approved use of ACTIMMUNE) were
not likely to exceed the annual sales threshold due to the small U.S. market
size of 400 patients. Accordingly, a $1.1 million charge to acquired pre-FDA
approval rights was recorded.
4. SHORT--TERM INVESTMENTS AVAILABLE FOR SALE
At December 31, 1999, short-term investments consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
COST VALUE GAIN
---------- ---------- -------------
<S> <C> <C> <C>
Obligations of U.S. government agencies.................. $ -- $ -- $ --
Corporate debt securities................................ 442,143 442,184 41
---------- ---------- ---------
Total short-term investments............................. $ 442,143 $ 442,184 $ 41
========== ========== =========
</TABLE>
F-15
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHORT--TERM INVESTMENTS AVAILABLE FOR SALE (CONTINUED)
At December 31, 1998, short-term investments consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
COST VALUE GAIN
------------ ------------ -------------
<S> <C> <C> <C>
Obligations of U.S. government agencies............... $ -- $ -- $ --
Corporate debt securities............................. 2,405,034 2,405,050 16
------------ ------------ ---------
Total short-term investments.......................... $ 2,405,034 $ 2,405,050 $ 16
============ ============ =========
</TABLE>
The net unrealized holding gain (loss) on available-for-sale investments
included as a separate component of stockholders' equity at December 31, 1998
and 1999, totaled $16 and $41, respectively. The gross realized losses on sales
of available-for-sale investments for the period from February 25, 1998
(inception) to December 31, 1998, and for the year ended December 31, 1999,
totaled $400 and $910, respectively. Realized gains and losses were calculated
based on the specific identification method.
5. OFFICE EQUIPMENT
Office equipment and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Computer equipment............................................... $ -- $ 5,657
Office furniture and fixtures.................................... -- 24,808
---------- ----------
-- 30,465
---------- ----------
Less accumulated depreciation.................................... -- (2,564)
---------- ----------
$ -- $ 27,901
========== ==========
</TABLE>
Total depreciation expense amounted to $2,564 for the year ended
December 31, 1999.
F-16
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable convertible preferred stock and convertible preferred stock are
issuable in series, with rights and preferences designated by series. As of
December 31, 1999, the shares designated and outstanding are as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
NUMBER OF ----------------------------------------
SHARES CUMULATIVE
-------------------------- AGGREGATE UNDECLARED
ISSUED AND LIQUIDATION CARRYING PREFERRED
DESIGNATED OUTSTANDING PREFERENCE AMOUNT DIVIDENDS
------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Redeemable convertible preferred stock:
Series A-2................................... 6,000,000 6,000,000 $ 7,500,000 $ 7,117,112 $ 364,603
Series B..................................... 5,200,000 -- -- -- --
------------ ------------ ------------ ------------- ---------
11,200,000 6,000,000 7,500,000 7,117,112 364,603
Accretion of preferred stock................. -- -- -- 656,765 --
------------ ------------ ------------ ------------- ---------
11,200,000 6,000,000 7,500,000 7,773,877 364,603
Convertible preferred stock:
Series A-1................................... 1,835,000 1,835,000 2,293,750 4,506,804 125,182
Series A-3................................... 6,000,000 -- -- -- --
Series A-4................................... 1,835,000 -- -- -- --
Series B-1................................... 5,200,000 -- -- -- --
------------ ------------ ------------ ------------- ---------
14,870,000 1,835,000 2,293,750 4,506,804 125,182
------------ ------------ ------------ ------------- ---------
Total........................................ 26,070,000 7,835,000 $ 9,793,750 $ 11,623,916 $ 489,785
============ ============ ============ ============= =========
</TABLE>
CONVERSION
Redeemable convertible preferred stock and convertible preferred stock are
collectively referred to as "preferred stock." Each share of preferred stock
automatically converts into one share of common stock in the event of an initial
public offering of the Company's common stock in which gross offering proceeds
exceed $15,000,000 and the offering price is at least $7.50 per share or: for
Series B and B-1 preferred stock upon affirmative vote of each of the holders of
not less than a majority of the outstanding shares of Series B and B-1 preferred
stock voting as a separate class; for Series A-2 and A-3 upon affirmative vote
of each of the holders of not less than 65% of the outstanding shares of
Series A-2 and A-3 preferred stock, voting together as a separate class; and for
Series A-1 and A-4 preferred stock, upon affirmative vote of the holders of not
less than 55% of the outstanding shares of Series A-1 and A-4 preferred stock,
voting together as a separate class.
No dividends will be declared or paid to the holders of Series A-1 or A-2
preferred stock or common stock unless the holders of Series B, Series B-1,
Series A-2, and Series A-3 preferred stock have been paid in full for all of the
dividends to which they are entitled. After full cumulative dividends have been
declared and paid to holders of preferred stock, the board of directors may
declare additional dividends to be prorated to all holders of the Company stock
based on the number of common shares held assuming full conversion of preferred
stock.
F-17
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
LIQUIDATION
Upon any liquidation, dissolution, or winding up of the Company, the holders
of Series B and B-1 preferred and Series A-2 and A-3 preferred stock shall be
entitled to be paid out of any assets of the Company legally available, an
amount per share of $5.59 and $1.25, respectively, plus all declared and unpaid
dividends on such shares of Series B and B-1 preferred and Series A-2 and A-3
preferred (subject to certain adjustments) held. If the assets of the Company
are insufficient to permit payment in full, the entire assets of the Company
available for distribution will be distributed ratably among the holders of the
Series B and B-1 preferred and Series A-2 and A-3 preferred in proportion to the
full amount to which they would otherwise be respectively entitled.
After full payment of the holders of Series B, B-1, A-2 and A-3 as described
above, upon liquidation, dissolution or winding up of the Company, holders of
Series A-1 and A-4 are entitled to $1.25 per share plus all declared and unpaid
dividends. If the assets and funds are insufficient for a full $1.25 per share
payment, the entire assets and funds legally available shall be distributed
ratably among the holders of Series A-1 and A-4 in proportion to the full amount
to which they would otherwise be entitled. After full payment of preferred
shareholders, the remaining assets of the Company shall be distributed ratably
among the holders of the common stock.
REDEMPTION
Series A-1, A-3, A-4 and B-1 preferred shares are not redeemable. After
April 15, 2004, any outstanding shares of Series A-2 and Series B may be
redeemed upon vote or written consent of at least 75% of the outstanding shares
of Series A-2 and B, provided that the Company had revenues of at least
$20 million for twelve full months immediately preceding the redemption.
Redemption will be completed in four annual installments of cash for a total of
$11.18 per share of Series B and $2.50 per share of Series A-2, plus declared
and unpaid dividends. Accretion of redemption value from the date of issuance of
the Series A-2 redeemable convertible preferred stock (April 27, 1999) through
December 31, 1999 was $656,765.
COMMON STOCK SUBJECT TO REPURCHASE
In connection with the issuance of common stock to founders and the exercise
of options pursuant to the Company's 1999 Stock Option/Stock Issuance Plan,
employees entered into restricted stock purchase agreements with the Company.
Under the terms of these agreements, the Company has a right to repurchase any
unvested shares at the original exercise price of the shares. With continuous
employment with the company, the repurchase rights lapse at a rate of 20% at the
end of the first year and at a rate of 1/48th of the remaining purchased shares
for each continuous month of service thereafter. As of December 31, 1999,
675,501 shares were subject to repurchase by the Company.
STOCK COMPENSATION PLANS
In May 1999, the Company adopted the 1999 Stock Option/Stock Issuance Plan
("1999 Plan"). The 1999 Plan provides for the granting of options to purchase
common stock and the issuance of shares of common stock, subject to Company
repurchase rights, to directors, employees and consultants. Certain options are
immediately exercisable, at the discretion of the board of directors. Shares
issued pursuant to the exercise of an unvested option are subject to the
Company's right of
F-18
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
repurchase which lapses over periods specified by the board of directors,
generally five years from the date of grant. At December 31, 1999 the number of
shares issuable under the 1999 Plan was 2,000,000.
The stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
---------- -----------
<S> <C> <C>
Balance at February 25, 1998........................................... -- --
---------- ---------
Granted.............................................................. -- --
Cancelled............................................................ -- --
Exercised............................................................ -- --
---------- ---------
Balance at December 31, 1998........................................... -- --
---------- ---------
Granted.............................................................. 1,170,000 $ 0.125
Cancelled............................................................ -- --
Exercised............................................................ (180,000) $ 0.125
---------- ---------
Balance at December 31, 1999........................................... 990,000 $ 0.125
========== =========
</TABLE>
At December 31, 1999, 830,000 shares were available for future option
grants. The weighted average grant-date fair value of options granted in 1999
was $0.125.
In December 1999, the Company repurchased 79,167 shares of common stock at
$0.01 per share from one of its founders pursuant to a stock repurchase
agreement.
The following table summarizes information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ -----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OF SHARES LIFE PRICE OF SHARES PRICE
- ----------- ---------- ----------- ----------- ---------- -----------
<C> <C> <S> <C> <C> <C>
0$.125..... 990,000 9.5 years $ 0.125 990,000 $ 0.125
</TABLE>
The fair value of these options was estimated at the date of grant using the
Black-Scholes option valuation model with the following weighted average
assumptions for 1999: risk-free interest rate of 6%; dividend yield of 0%;
volatility of 70% and a weighted-average life of the options of five years. The
Company recorded deferred stock compensation based upon deemed fair value of the
options which exceeded the Black-Scholes valuation. Therefore, pro forma
disclosure of earnings (loss) per share is not required under SFAS 123.
DEFERRED COMPENSATION
In connection with the grant of certain stock options to employees for the
year ended December 31, 1999, the Company recorded deferred stock compensation
within stockholders' deficit of approximately $3.4 million, representing the
difference between the deemed fair value of the common stock for accounting
purposes and the option exercise price of these options at the date of grant.
The
F-19
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
Company recorded amortization of deferred compensation of approximately
$206,000, for the year ended December 31, 1999.
In connection with the grant of options to employees in January 2000, the
Company will record an additional $1.7 million of deferred stock compensation
during January 2000. The deferred stock compensation expense is being amortized
on an accelerated basis over the vesting period of the individual award,
generally five years. This method is in accordance with Financial Accounting
Standards Board Interpretation No. 28. Accordingly, at December 31, 1999, the
remaining deferred compensation of approximately $4.9 million will be amortized
as follows: $2.4 million during fiscal 2000, $1.3 million during fiscal 2001,
$0.7 million during fiscal 2002, $0.4 million during fiscal 2003 and
$0.1 million during fiscal 2004. The amortization expense relates to options
awarded to employees in all operating expense categories. The amortization of
deferred stock compensation has not been separately allocated to these
categories. The amount of deferred compensation expense to be recorded in future
periods could decrease if options for which accrued but unvested compensation
has been recorded are forfeited.
In November 1999 and January 2000, the Company issued 133,000 options to
purchase shares of common stock at a weighted average exercise price of $0.37
per share to consultants in exchange for research and development consulting
services. Compensation expense is recorded as the options vest based upon the
fair value of the option, determined quarterly using the Black-Scholes pricing
model.
COMMON STOCK
InterMune's Articles of Incorporation provide for issuance up to 30,000,000
shares of common stock. The holder of each share of common stock shall have one
right to one vote.
At December 31, 1999, common stock subject to future issuance is as follows:
<TABLE>
<S> <C>
Conversion of convertible redeemable preferred stock............. 7,835,000
Outstanding common stock options................................. 990,000
Common stock available for grant under stock option plan......... 830,000
---------
9,655,000
=========
</TABLE>
7. INCOME TAXES
At December 31, 1999, the Company has federal and state tax net operating
loss carryforwards of approximately $7,400,000 and $7,300,000, respectively. The
Company also had federal and state research and development tax credit
carryforwards of approximately $100,000. The federal net operating loss and
credit carryforwards will expire at various dates beginning in the year 2018
through 2019 if not utilized. The state of California net operating losses will
expire in the year 2006, if not utilized.
Utilization of the federal and state net operating loss and credit
carryforwards may be subject to a substantial annual limitation due to the
"change in ownership" provisions of the Internal Revenue Code of 1986. The
annual limitation may result in the expiration of net operating losses and
credits before utilization.
F-20
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of the Company's deferred
tax assets for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 900,000 $ 2,900,000
Research and development credits.............................. -- 100,000
In-process research........................................... 1,500,000 1,800,000
------------- -------------
Total deferred tax assets....................................... 2,400,000 4,800,000
------------- -------------
Valuation allowance........................................... (2,400,000) (4,800,000)
------------- -------------
Net deferred tax assets......................................... $ -- $ --
============= =============
</TABLE>
Due to the Company's lack of earnings history, the net deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $2,400,000 and $2,400,000 during the period from February 25, 1998
(inception) to December 31, 1998, and for the year ended December 31, 1999,
respectively.
8. COMMITMENTS
LEASES
The Company currently utilizes facilities from Connetics Corporation based
upon the Service Agreement signed April 27, 1999. In December 1999, the Company
entered into a lease of additional office space and will relocate during the
first quarter of 2000, approximately 20 miles from the current location, to
Burlingame, California. This office space lease extends through December 2004.
Total rent expense under this lease was approximately $18,609 in 1999.
The following is a schedule by year of future minimum lease payments at
December 31, 1999:
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
- ------------------------------------------------------------------------------------ ------------
<S> <C>
2000................................................................................ $ 223,988
2001................................................................................ 232,108
2002................................................................................ 240,229
2003................................................................................ 248,349
2004................................................................................ 234,477
------------
$ 1,179,151
============
</TABLE>
CONSULTING AGREEMENTS
Beginning in January 2000 the Company has entered into consulting agreements
with a number of individuals for scientific advisory services. Each individual
receives a certain number of nonqualified stock options. In certain cases, the
options vest ratably over the duration of the contract. In other
F-21
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS (CONTINUED)
cases, the options vest ratably over a specified period, generally two years.
Compensation expense is measured and recorded as the service is completed in
accordance with EITF 96-18.
9. ACTIMMUNE PRODUCT SALES AND LONG-TERM ROYALTY PAYABLE TO GENENTECH
Product sales consist of ACTIMMUNE unit sales in excess of the annual
predetermined baseline for the year ended December 31, 1999. In connection with
the Genentech License and the Sublicense with Connetics, InterMune is obligated
to pay royalties on ACTIMMUNE sales to Genentech beginning January 15, 1999.
Under the terms of the Genentech License, the accrued royalties are payable the
earlier of March 31, 2002 or upon the completion of an initial public offering.
Interest accrues on unpaid quarterly royalties at prime plus 2% from the end of
each quarter. As of December 31, 1999, accrued royalties and related interest of
$1,913,785 are classified as long-term.
10. SPONSORED RESEARCH AND LICENSE AGREEMENTS
LICENSE AGREEMENT WITH MCW RESEARCH FOUNDATION
Under an agreement with MCW Research Foundation, Inc. dated March 25, 1999,
the Company acquired an exclusive worldwide license to develop, manufacture and
sell the Pseudomonas V Antigen in the field of human disease therapy. The
Company paid a license fee of $50,000, agreed to make future milestone payments
upon the completion of specified developmental milestones and to pay a royalty
on net sales of licensed product. The Company can terminate the agreement at any
time upon giving at least 90 days written notice.
SPONSORED RESEARCH AND LICENSE AGREEMENT
Under a three year agreement with Panorama Research, Inc. dated January 1,
2000, the Company acquired an exclusive worldwide license to develop and
commercialize peptides that block staphylococcus aureus infections. The Company
agreed to fund research as incurred, make future milestone payments upon
completion of specified developmental milestones and to pay a royalty on net
sales of licensed product. The Company can terminate the agreement at any time
upon giving at least 30 days written notice.
11. SAVINGS PLAN
On May 1, 1999, the Company adopted a 401(k) defined contribution plan that
covers 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). The
Company makes no matching contributions.
12. SUBSEQUENT EVENTS
On January 7 and January 27, 2000, the Company issued 4,876,916 aggregate
shares of Series B redeemable convertible preferred stock at $5.59 per share for
aggregate proceeds of $26,600,000. The Company incurred approximately
$1.5 million of issuance costs, including 120,000 additional shares of Series B
redeemable convertible preferred stock valued at $5.59 per share.
F-22
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS (CONTINUED)
On January 7, 2000, pursuant to the terms of the collaboration agreement
with Connetics, the Company also issued to Connetics 89,445 shares of
series B-1 convertible preferred stock. This stock issuance has been reflected
as a return of capital to Connetics in the accompanying December 31, 1999
financial statements as the Company had concluded that the event triggering the
issuance (the closure of the Series B financing) was probable at December 31,
1999.
At the dates of issuance of Series B redeemable convertible preferred stock
in January 2000, the Company believed the per share price of $5.59 represented
the fair value of the preferred stock and was in excess of the deemed fair value
of its common stock. Subsequent to the commencement of the Company's initial
public offering process, the Company re-evaluated the deemed fair market value
of its common stock as of January 2000 and determined it to be $7.50 per share.
Accordingly, the incremental fair value of $9,300,000 is deemed to be the
equivalent of a redeemable preferred stock "dividend". The Company will reflect
that beneficial conversion feature as a deemed dividend on its redeemable
convertible preferred stock in its first quarter 2000 financial statements.
PROPOSED PUBLIC OFFERING OF COMMON STOCK AND PRO FORMA DECEMBER 31, 1999
STOCKHOLDERS' EQUITY (DEFICIT)
In January 2000, the Board of Directors authorized the Company to proceed
with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, each share of outstanding convertible
preferred stock will automatically convert into one share of common stock. The
effects of the conversion of preferred stock are reflected in the unaudited pro
forma balance sheet at December 31, 1999. The Company plans to reincorporate in
Delaware prior to the closing of the initial public offering.
STOCK OPTION GRANTS
In January 2000, the Board of Directors granted options to purchase 443,500
common shares at a weighted average exercise price of $2.82 per share.
F-23
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY
SHARES OF INTERMUNE PHARMACEUTICALS, INC. COMMON STOCK ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE INTERMUNE COMMON
STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Forward-Looking Statements........... 16
Use of Proceeds...................... 16
Dividend Policy...................... 16
Dilution............................. 17
Capitalization....................... 18
Selected Financial Data.............. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................. 24
Management........................... 38
Related Party Transactions........... 50
Principal Stockholders............... 52
Description of Capital Stock......... 55
Shares Eligible for Future Sale...... 58
Underwriting......................... 60
Legal Matters........................ 62
Experts.............................. 62
Where You Can Find More Information.. 62
Index to Financial Statements........ F-1
</TABLE>
PRELIMINARY PROSPECTUS
5,500,000 Shares
[LOGO]
Common Stock
Warburg Dillon Read LLC
Chase H&Q
Prudential Vector Healthcare
a unit of Prudential Securities
<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 the 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, the Nasdaq National Market application fee and the
NASD filing fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 26,717
Nasdaq National Market application fee...................... 10,620
NASD filing fee.............................................
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 450,000
Accounting fees and expenses................................ 400,000
Transfer agent and registrar fees........................... 10,000
Directors' and Officers' Insurance..........................
Miscellaneous...............................................
Total..................................................... $
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
- for any breach of duty of loyalty to us or to our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify its
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.
We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify each
director and officer for some expenses including attorneys' fees, judgments,
fines and settlement amounts incurred by any of these persons in any action or
proceeding, including any action by or in the right of InterMune, arising out of
person's services as our director or officer, any subsidiary of ours or any
other company or enterprise to which the person provides services at our
request.
The underwriting agreement will provide for indemnification by the
underwriters of InterMune, our directors, our officers who sign the registration
statement, and our controlling persons for some liabilities, including
liabilities arising under the Securities Act.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception in February 1998, we have sold and issued the following
unregistered securities:
(1) From June 1999 through January 2000, we have granted stock options to
purchase 1,613,500 shares of the our common stock to employees, consultants
and directors pursuant to our 1999 equity incentive plan. Of these stock
options, 885,000 shares have been exercised, none have been repurchased and
728,500 shares remain outstanding.
(2) In March 1998, we issued an aggregate of 1,600,000 shares of common stock to
two purchasers at a purchase price of $0.001 per share for an aggregate
purchase price of $1,600.00.
(3) In October 1998, we issued 11,200,000 shares of Series A preferred stock to
a single purchaser at a purchase price of $1.00 per share for an aggregate
purchase price of $11,200,000.00.
(4) In April 1999, we issued an aggregate of 1,790,000 shares of common stock to
ten purchasers at a purchase price of $0.01 per share for an aggregate
purchase price of $17,900.00.
(5) In April 1999, we issued an aggregate of 4,800,000 shares of Series A-2
preferred stock to nine purchasers at a purchase price of $1.25 per share
for an aggregate purchase price of $6,000,000.00. We simultaneously issued
an aggregate of 1,835,000 shares of Series A-1 preferred stock to two
purchasers at a purchase price of $1.25 per share for an aggregate purchase
price of $2,293,750.00. Shares of Series A-1 and A-2 preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series A-1 and A-2 preferred stock owned.
(6) In August 1999, we issued an aggregate of 800,000 shares of Series A-2
preferred stock to two purchasers at a purchase price of $1.25 per share for
an aggregate purchase price of $1,000,000.00.
(7) In September 1999, we issued an aggregate of 400,000 shares of Series A-2
preferred stock to two purchasers at a purchase price of $1.25 per share for
an aggregate purchase price of $500,000.00.
(8) In January 2000, we issued an aggregate of 4,846,361 shares of Series B
preferred stock to 50 purchasers at a purchase price of $5.59 per share for
an aggregate purchase price of $27,091,157.99. Shares of Series B preferred
stock are convertible into shares of common stock at the rate of one share
of common stock for each share of Series B preferred stock owned.
(9) In January 2000, we issued 120,000 shares of Series B preferred stock to a
placement agent as partial consideration for services rendered.
The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 701 of the Securities Act in that they were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701. The sales and
issuances of securities described in paragraphs (2) through (9) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 4(2), Regulation D or Regulation S promulgated thereunder.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of Registrant, to be effective
upon Registrant's reincorporation in Delaware.
3.2* Amended and Restated Certificate of Incorporation of
Registrant to be effective upon the closing of the offering
made pursuant to this Registration Statement.
3.3* Bylaws of Registrant to be effective upon Registrant's
reincorporation in Delaware and upon the closing of the
offering made pursuant to this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2 Amended and Restated Investor Rights Agreement, dated
January 7, 2000, between Registrant and holders of the
Registrant's Series A-1 Preferred Stock, Series A-2
Preferred Stock and Series B Preferred Stock.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement.
10.2* 1999 Equity Incentive Plan and related documents.
10.3* 2000 Equity Incentive Plan and related documents.
10.4* 2000 Employee Stock Purchase Plan and related documents.
10.5* 2000 Non-Employee Directors' Stock Option Plan and related
documents.
10.6 Lease Agreement, dated November 9, 1999, between Registrant
and American Heart Association, Western States Affiliate.
10.7 Employment Agreement, dated April 27, 1999, between
Registrant and W. Scott Harkonen.
10.8 Employment Offer Letter, dated October 28, 1999, between
Registrant and Timothy P. Lynch.
10.9 Employment Offer Letter, dated October 22, 1999, between
Registrant and Peter Van Vlasselaer.
10.10 Employment Offer Letter, dated December 19, 1999, between
Registrant and Christine Czarniecki.
10.11 Secured Loan Agreement, Secured Promissory Note, and
Security Agreement, dated July 1, 1999, between Registrant
and W. Scott Harkonen.
10.12+ Amended and Restated Exclusive Sublicense Agreement, dated
April 27, 1999, between Registrant and Connetics
Corporation.
10.13 Collaboration Agreement, dated April 27, 1999, between
Registrant and Connetics Corporation (incorporated by
reference from Exhibit 10.9 to the Quarterly Report on
Form 10-Q for the Period Ended March 31, 1999 as filed
May 13, 1999 by Connetics Corporation).
10.14 Transition Agreement, dated April 27, 1999, between
Registrant and Connetics Corporation (incorporated by
reference from Exhibit 10.7 to the Quarterly Report on
Form 10-Q for the Period Ended March 31, 1999 as filed
May 13, 1999 by Connetics Corporation).
10.15* Amended and Restated Service Agreement, dated April 7, 1999,
between the Registrant and Connetics Corporation.
10.16 Supply Agreement, dated May 5, 1998, between Registrant (as
successor in interest to Connetics Corporation by
assignment) and Genentech, Inc. (incorporated by reference
from Exhibit 10.3 to the Quarterly Report on Form 10-Q for
the Period Ended June 30, 1998 as filed August 13, 1998 by
Connetics Corporation).
10.17+ Sponsored Research and License Agreement, dated January 1,
2000, between Registrant and Panorama Research, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
10.18+ License Agreement, dated March 25, 1999, between Registrant
and MCW Research Foundation, Inc.
10.19* Data Transfer, Clinical Trial, and Market Supply Agreement,
dated January 27, 1999 between the Registrant and Boehringer
Ingleheim.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.
24.1 Power of Attorney. Reference is made to the signature page.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment requested with respect to certain portions of this
exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act, the
information omitted from the form of this 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) That for purposes 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 the securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 15 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission this indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against these liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer, or controlling person of
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by a director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of whether the
indemnification by it is against public policy as expressed in the
Securities Act of 1933, and will be governed by the final adjudication of
this issue.
(4) To provide to the Underwriters at the closing specified in the Underwriting
Agreement certificates in the denomination and registered in the names
required by the Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Santa Clara, State of
California, on the 2nd day of February, 2000.
<TABLE>
<S> <C>
INTERMUNE PHARMACEUTICALS, INC.
By: /s/ W. SCOTT HARKONEN
--------------------------------------------
W. Scott Harkonen
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints W. Scott
Harkonen and Timothy P. Lynch his or her true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments
and registration statements filed pursuant to Rule 462) to the Registration
Statement on Form S-1, and to any registration statement filed under Securities
and Exchange Commission Rule 462, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
President and Chief
/s/ W. SCOTT HARKONEN Executive Officer and
------------------------------------------- Director (principal February 2, 2000
W. Scott Harkonen executive officer)
Vice President and Chief
/s/ TIMOTHY P. LYNCH Financial Officer
------------------------------------------- (principal financial February 2, 2000
Timothy P. Lynch and accounting officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JAMES I. HEALY
------------------------------------------- Director February 2, 2000
James I. Healy
/s/ EDGAR ENGLEMAN
------------------------------------------- Director February 2, 2000
Edgar Engleman
/s/ JOHN L. HIGGINS
------------------------------------------- Director February 2, 2000
John L. Higgins
/s/ JONATHAN S. LEFF
------------------------------------------- Director February 2, 2000
Jonathan S. Leff
/s/ NICHOLAS J. SIMON
------------------------------------------- Director February 2, 2000
Nicholas J. Simon
/s/ MICHAEL F. POWELL
------------------------------------------- Director February 2, 2000
Michael F. Powell
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of Registrant, to be effective
upon Registrant's reincorporation in Delaware.
3.2* Amended and Restated Certificate of Incorporation of
Registrant to be effective upon the closing of the offering
made pursuant to this Registration Statement.
3.3* Bylaws of Registrant to be effective upon Registrant's
reincorporation in Delaware and upon the closing of the
offering made pursuant to this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2 Amended and Restated Investor Rights Agreement, dated
January 7, 2000, between Registrant and holders of the
Registrant's Series A-1 Preferred Stock, Series A-2
Preferred Stock and Series B Preferred Stock.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement.
10.2* 1999 Equity Incentive Plan and related documents.
10.3* 2000 Equity Incentive Plan and related documents.
10.4* 2000 Employee Stock Purchase Plan and related documents.
10.5* 2000 Non-Employee Directors' Stock Option Plan and related
documents.
10.6 Lease Agreement, dated November 9, 1999, between Registrant
and American Heart Association, Western States Affiliate.
10.7 Employment Agreement, dated April 27, 1999, between
Registrant and W. Scott Harkonen.
10.8 Employment Offer Letter, dated October 28, 1999, between
Registrant and Timothy P. Lynch.
10.9 Employment Offer Letter, dated October 22, 1999, between
Registrant and Peter Van Vlasselaer.
10.10 Employment Offer Letter, dated December 19, 1999, between
Registrant and Christine Czarniecki.
10.11 Secured Loan Agreement, Secured Promissory Note, and
Security Agreement, dated July 1, 1999, between Registrant
and W. Scott Harkonen.
10.12+ Amended and Restated Exclusive Sublicense Agreement, dated
April 27, 1999, between Registrant and Connetics
Corporation.
10.13 Collaboration Agreement, dated April 27, 1999, between
Registrant and Connetics Corporation (incorporated by
reference from Exhibit 10.9 to the Quarterly Report on
Form 10-Q for the Period Ended March 31, 1999 as filed
May 13, 1999 by Connetics Corporation).
10.14 Transition Agreement, dated April 27, 1999, between
Registrant and Connetics Corporation (incorporated by
reference from Exhibit 10.7 to the Quarterly Report on
Form 10-Q for the Period Ended March 31, 1999 as filed
May 13, 1999 by Connetics Corporation).
10.15* Amended and Restated Service Agreement, dated April 7, 1999,
between the Registrant and Connetics Corporation.
10.16 Supply Agreement, dated May 5, 1998, between Registrant (as
successor in interest to Connetics Corporation by
assignment) and Genentech, Inc. (incorporated by reference
from Exhibit 10.3 to the Quarterly Report on Form 10-Q for
the Period Ended June 30, 1998 as filed August 13, 1998 by
Connetics Corporation).
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.17+ Sponsored Research and License Agreement, dated January 1,
2000, between Registrant and Panorama Research, Inc.
10.18+ License Agreement, dated March 25, 1999, between Registrant
and MCW Research Foundation, Inc.
10.19* Data Transfer, Clinical Trial and Market Supply Agreement,
dated January 27, 1999, between Registrant and Boehringer
Ingleheim.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.
24.1 Power of Attorney. Reference is made to the signature page.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment requested with respect to certain portions of the
exhibit. Omitted portions have been filed separately with Securities and
Exchange Commission.
<PAGE>
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
INTERMUNE PHARMACEUTICALS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C>
1. DEFINITIONS..............................................................................................1
2. REGISTRATION; TRANSFER RESTRICTIONS......................................................................3
2.1 Transfer Restrictions...........................................................................3
2.2 Demand Registration.............................................................................4
2.3 Piggyback Registration..........................................................................6
2.4 Form S-3 Registration...........................................................................7
2.5 Expenses Of Registration........................................................................8
2.6 Obligations of the Company......................................................................8
2.7 Termination of Registration Rights..............................................................9
2.8 Delay of Registration; Furnishing Information..................................................10
2.9 Indemnification................................................................................10
2.10 Assignment of Registration Rights..............................................................12
2.11 Amendment of Registration Rights...............................................................12
2.12 Limitation on Subsequent Registration Rights...................................................13
2.13 "Market Stand-Off" Agreement...................................................................13
2.14 Rule 144 Reporting.............................................................................13
3. COVENANTS OF THE COMPANY................................................................................14
3.1 Basic Financial Information and Reporting......................................................14
3.2 Inspection Rights..............................................................................15
3.3 Confidentiality of Records.....................................................................15
3.4 Reservation of Common Stock....................................................................15
3.5 Stock Vesting..................................................................................15
3.6 Key Person Insurance...........................................................................16
3.7 Proprietary Information and Inventions Agreement...............................................16
3.8 Approval.......................................................................................16
3.9 Directors' Liability and Indemnification.......................................................16
3.10 Real Property Holding Corporation..............................................................16
3.11 Termination of Covenants.......................................................................16
3.12 Certain Covenants Relating to Management and Board Participation...............................17
</TABLE>
<PAGE>
TABLE OF CONTENTS
CONTINUED
<TABLE>
PAGE
<S> <C>
4. RIGHTS OF FIRST REFUSAL.................................................................................18
4.1 Subsequent Offerings...........................................................................18
4.2 Exercise Of Rights.............................................................................18
4.3 Issuance of Equity Securities to Other Persons.................................................18
4.4 Termination of Rights of First Refusal.........................................................19
4.5 Transfer of Rights of First Refusal............................................................19
4.6 Excluded Securities............................................................................19
5. MISCELLANEOUS...........................................................................................20
5.1 Governing Law..................................................................................20
5.2 Survival.......................................................................................20
5.3 Successors and Assigns.........................................................................20
5.4 Entire Agreement...............................................................................20
5.5 Severability...................................................................................20
5.6 Amendment and Waiver...........................................................................20
5.7 Delays or Omissions............................................................................21
5.8 Notices........................................................................................21
5.9 Attorneys' Fees................................................................................21
5.10 Titles and Subtitles...........................................................................21
5.11 Prior Agreement................................................................................21
5.12 Counterparts...................................................................................22
</TABLE>
<PAGE>
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement")
is made effective as of the 7th day of January, 2000, by and among INTERMUNE
PHARMACEUTICALS, INC., a California corporation (the "Company"), the holders of
the Company's Series A-1 Preferred Stock and Series A-2 Preferred Stock
(collectively the "Series A Stock"), and the purchasers of the Company's Series
B Preferred Stock (the "Series B Stock") set forth on Exhibit A of that certain
Series B Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement"). The purchasers of the Series B Stock may be referred to hereinafter
as the "Purchasers" and each individually as a "Purchaser", and the holders of
the Series A Stock (the "Series A Holders"), the holders of the Series B Stock
(the "Series B Holders") and the Purchasers, the Series A Holders, and Series B
Holders may be referred to hereinafter as the "Investors" and each individually
as an "Investor."
RECITALS
WHEREAS, the Company proposes to sell and issue up to five million two
hundred thousand (5,200,000) shares of its Series B Stock pursuant to the
Purchase Agreement; and
WHEREAS, the Company and the Series A Holders previously entered into
that certain Investor Rights Agreement, dated as of April 27, 1999, as amended
August 19, 1999 (as amended, the "Prior Agreement"); and
WHEREAS, as a condition of entering into the Purchase Agreement, the
Purchasers have requested that the Company and the Series A Holders agree to
amend and restate the Prior Agreement to extend to them registration rights,
information rights and other rights as set forth below;
WHEREAS, pursuant to Section 5.6 of the Prior Agreement, the holders of
at least sixty-five percent (65%) of the Series A-1 Preferred Stock and Series
A-2 Preferred Stock, voting separately by series, have agreed to amend and
restate the Prior Agreement in its entirety with this Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
1. DEFINITIONS.
As used in this Agreement the following terms shall have the following
respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which
1
<PAGE>
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
"HOLDER" means any person owning of record Registrable Securities that
have not been sold to the public or any assignee of record of such Registrable
Securities in accordance with Section 2.10 hereof.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act in connection with which the Company's Preferred Stock is converted into
Common Stock.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"REGISTRABLE SECURITIES" means (i) Common Stock of the Company issued
or issuable upon conversion of the Shares; (ii) an aggregate of 975,000 shares
of Common Stock of the Company issued to certain of the Investors pursuant to a
Common Stock Purchase Agreement between certain of the Investors and the
Company, dated April 27, 1999; and (iii) any Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, such above-described securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 promulgated under the Securities Act or sold in a private
transaction in which the transferor's rights under Section 2 of this Agreement
are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements of a
single special counsel for the Holders, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.
2
<PAGE>
"SHARES" shall mean the Company's Series A Stock issued pursuant to the
Company's Series A-1 and A-2 Preferred Stock Purchase Agreement, dated April 27,
1999, and held by the Investors listed on Exhibit A thereto, the Company's
Series A Stock issued pursuant to the Company's Series A-2 Preferred Stock
Purchase Agreement, dated August 19, 1999, and the Company's Series B Stock
issued pursuant to the Purchase Agreement and held by the Investors listed on
Exhibit A thereto and their permitted assigns. For the purposes of this
Agreement, "Shares" shall be deemed to include Series A-4 Preferred Stock,
Series A-3 Preferred Stock, or Series B-1 Preferred Stock of the Company issued
to a Holder or its permitted assign in the event that Series A-1 Preferred
Stock, Series A-2 Preferred Stock, or Series B Preferred Stock is converted into
Series A-4 Preferred Stock, Series A-3 Preferred Stock, or Series B-1 Preferred
Stock pursuant to the Company's Amended and Restated Articles of Incorporation.
References to Series A-1 Preferred Stock, Series A-2 Preferred Stock, and Series
B Preferred Stock shall be deemed for the purposes of this Agreement to mean the
Series A-1 Preferred Stock and Series A-4 Preferred Stock, the Series A-2
Preferred Stock and the Series A-3 Preferred Stock, and the Series B Preferred
Stock and Series B-1 Preferred Stock when determining the rights and obligations
of the parties hereto.
2. REGISTRATION; TRANSFER RESTRICTIONS.
2.1 TRANSFER RESTRICTIONS.
(a) Each Holder agrees not to make any disposition of
all or any portion of the Shares or the shares of Common Stock issuable upon
conversion of the Shares unless and until:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in
writing to be bound by the terms of this Agreement, (B) such Holder shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances surrounding the proposed
disposition, and (C) if reasonably requested by the Company, such Holder shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of such
shares under the Securities Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of
paragraphs (i) and (ii) above, no such registration statement or opinion of
counsel shall be necessary for a transfer by a Holder which is (A) a partnership
to its partners or former partners in accordance with partnership interests, (B)
a corporation to its shareholders in accordance with their interest in the
corporation, (C) a limited liability company to its members or former members in
accordance with their interest in the limited liability company, or (D) to the
Holder's family member or trust
3
<PAGE>
for the benefit of an individual Holder; provided that in each case the
transferee will be subject to the terms of this Agreement to the same extent as
if he were an original Holder hereunder.
(b) Each certificate representing Shares or
Registrable Securities shall (unless otherwise permitted by the provisions of
the Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue
promptly unlegended certificates at the request of any Holder thereof if the
Holder shall have obtained an opinion of counsel (which counsel may be counsel
to the Company) reasonably acceptable to the Company to the effect that the
securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if
the Company receives a written request from either (i) the Holders of more than
a majority of the Registrable Securities then held by the Series A Holders (but
only a single time) or (ii) the Holders of more than a majority of the
Registrable Securities then held by the Series B Holders (but only a single
time) (the "Initiating Holders") that the Company file a registration statement
under the Securities Act covering the registration of at least a majority of
Registrable Securities then outstanding (or a lesser percentage if the
anticipated aggregate offering price, net of underwriting discounts and
commissions would exceed $50 million), then the Company shall, within thirty
(30) days of the receipt thereof, give written notice of such request to all
Holders, and subject to the limitations of this Section 2.2, use its best
efforts to effect, as soon as practicable, the registration under the Securities
Act of all Registrable Securities that the Holders request to be registered;
provided, however, if such request is made prior to the Company's first firm
commitment underwritten public offering of its Common Stock, the aggregate
offering price to the public must be in excess of $15,000,000 and with a per
share price of not less than $7.50 per share.
4
<PAGE>
(b) If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 or any request pursuant to Section 2.4 and the Company shall
include such information in the written notice referred to in Section 2.2(a) or
Section 2.4(a) as applicable. In such event, the right of any Holder to include
its Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided in this Agreement. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 2.2 or Section 2.4, if the
underwriter advises the Company that marketing factors require a limitation of
the number of securities to be underwritten (including Registrable Securities)
then the Company shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares that
may be included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be required to effect a
registration pursuant to this Section 2.2:
(i) prior to the earlier of April 27, 2001
or one year following the Initial Offering; or
(ii) after the Company has effected two (2)
registrations pursuant to this Section 2.2, and such registrations have been
declared or ordered effective;
(iii) during the period starting with the
date of filing of, and ending on the date one hundred eighty (180) days
following the effective date of the registration statement pertaining to the
Initial Offering; provided that the Company makes all reasonable good faith
efforts to cause such registration statement to become effective; or
(iv) if within thirty (30) days of receipt
of a written request from Initiating Holders pursuant to Section 2.2(a), the
Company gives notice to the Holders of the Company's intention to make its
Initial Offering within ninety (90) days; or
(v) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 2.2, a certificate
signed by the Chairman of the Board stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be effected at
such time, in which event the Company shall have the right to defer such filing
for
5
<PAGE>
a period of not more than ninety (90) days after receipt of the request of the
Initiating Holders; provided that such right to delay a request shall be
exercised by the Company not more than twice in any twelve (12) month period.
2.3 PIGGYBACK REGISTRATION. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
the filing of any registration statement under the Securities Act for purposes
of a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within twenty (20) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(a) UNDERWRITING. If the registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, the Company shall so advise the Holders of Registrable Securities. In
such event, the right of any such Holder to be included in a registration
pursuant to this Section 2.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of the Agreement, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated, first, to the Company; second, to the
Holders on a pro rata basis based on the total number of Registrable Securities
held by the Holders; and third, to any shareholder of the Company (other than a
Holder) on a pro rata basis. Notwithstanding the foregoing, in no event shall
the amount of securities of the selling Holders included in the offering be
reduced below thirty percent (30%) of the total amount of securities included in
such offering, unless such offering is the Initial Offering, in which case, the
selling Holders may be excluded if the underwriter makes the determination
described above and no other shareholder's securities are included in the
offering.
(b) RIGHT TO TERMINATE REGISTRATION. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this Section 2.3 prior to the effectiveness of such registration whether
or not any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.5 hereof.
6
<PAGE>
2.4 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or Holders of at least fifteen percent (15%) of the Registrable
Securities then outstanding, a written request or requests that the Company
effect a registration on Form S-3 (or any successor to Form S-3) or any similar
short-form registration statement and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section 2.4:
(i) if Form S-3 (or any successor or similar
form) is not available for such offering by the Holders, or
(ii) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than One Million Dollars
($1,000,000), or
(iii) if the Company shall furnish to the
Holders a certificate signed by the Chairman of the Board of Directors of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 2.4: provided, that such
right to delay a request shall be exercised by the Company not more than twice
in any twelve (12) month period, or
(iv) if the Company has, within the six (6)
month period preceding the date of such request, already effected one (1)
registration on Form S-3 for any Holders pursuant to this Section 2.4, or the
Company within the twelve (12) month period preceding the request already
effected two (2) registrations on Form S-3 for any Holders pursuant to this
Section 2.4, or
(v) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
7
<PAGE>
(c) Subject to the foregoing, the Company shall file
a Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All such Registration Expenses incurred
in connection with registrations requested pursuant to this Section 2.4 shall be
paid by the Company.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 2.2 or
2.4, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were reasonably not aware
at the time of such request or (b) the Holders of a majority of Registrable
Securities agree to forfeit their right to one requested registration pursuant
to Section 2.2 or Section 2.4, as applicable, in which event such right shall be
forfeited by all Holders. If the Holders are required to pay the Registration
Expenses, such expenses shall be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to the number
of shares for which registration was requested. If the Company is required to
pay the Registration Expenses of a withdrawn offering pursuant to clause (a)
above, then the Holders shall not forfeit their rights pursuant to Section 2.2
or Section 2.4 to a demand registration or Form S-3 registration, respectively.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect
the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)
days or, if earlier, until the Holder or Holders have completed the distribution
related thereto.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
8
<PAGE>
(d) Use all reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(g) Furnish, at the request of a majority of the
Holders participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to the underwriters in an
underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and if
permitted by applicable accounting standards, to the Holders requesting
registration of Registrable Securities
2.7 TERMINATION OF REGISTRATION RIGHTS. All registration
rights granted under this Section 2 shall terminate and be of no further force
and effect five (5) years after the date of the Company's Initial Offering. In
addition, a Holder's registration rights shall expire if (i) the Company has
completed its Initial Offering and is subject to the provisions of the Exchange
Act, (ii) such Holder (together with its affiliates, partners and former
partners) holds less than 1% of the Company's outstanding Common Stock (treating
all shares of convertible Preferred Stock on an as converted basis) and (iii)
all Registrable Securities held by and issuable to such Holder (and its
affiliates, partners and former partners) may be sold under Rule 144 during any
ninety (90) day period.
9
<PAGE>
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek
an injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
(c) The Company shall have no obligation with respect
to any registration requested pursuant to Section 2.2 or Section 2.4 if, due to
the operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 2.2 or Section 2.4,
whichever is applicable.
2.9 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, members, officers,
directors and legal counsel of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) 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, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, member, officer or director, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this Section 2.9(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to
10
<PAGE>
the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, member,
officer, director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will,
if Registrable Securities held by such Holder are included in the securities as
to which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, member, director, officer or controlling person of such
other Holder may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder and stated to be specifically for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, or partner, member, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.9 exceed the proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 2.9 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the
11
<PAGE>
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this
Section 2.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution by
a Holder hereunder exceed the proceeds from the offering received by such
Holder.
(e) The obligations of the Company and Holders under
this Section 2.9 shall survive completion of any offering of Registrable
Securities in a registration statement and the termination of this Agreement. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities which
(i) is a subsidiary, parent, member, general partner, limited partner or retired
partner of a Holder, (ii) is a Holder's family member or trust for the benefit
of an individual Holder, or (iii) acquires at least two hundred thousand
(200,000) shares of Registrable Securities (as adjusted for stock splits and
combinations); provided, however, (A) the transferor shall, within ten (10) days
after such transfer, furnish to the Company written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned and (B) such transferee shall agree
to be subject to all restrictions set forth in this Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Section 2 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company, the Holders of at
least fifty five percent (55%) of the Series A-1 Preferred Stock then
outstanding held by Holders, voting as a separate class, the Holders of at least
sixty five percent (65%) of the Series A-2 Preferred Stock then outstanding held
by Holders, voting as a separate class, and the Holders of at least a majority
of the Series B Preferred Stock then outstanding held by Holders,
12
<PAGE>
voting as a separate class. Any amendment or waiver effected in accordance
with this Section 2.11 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Section 2, Holders of Registrable
Securities hereby agree to be bound by the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of at least fifty five percent (55%) of the Series A-1
Preferred Stock held by Holders, voting as a separate class, the Holders of
at least sixty five percent (65%) of the Series A-2 Preferred Stock then
outstanding held by Holders, voting as a separate class, and the Holders of
at least a majority of the Series B Preferred Stock then outstanding held by
Holders, voting as a separate class, enter into any agreement with any holder
or prospective holder of any securities of the Company that would grant such
holder registration rights senior to those granted to the Holders hereunder.
2.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that, if requested to do so by the underwriters of the Company's Common Stock,
such Holder shall not sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by such Holder (other than those
included in the registration) for a period specified by the representative of
the underwriters of Common Stock (or other securities) of the Company not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that:
(a) such agreement shall apply only to the Company's
Initial Offering; and
(b) all officers and directors of the Company and all
other holders of at least 5% of the Company's securities enter into similar
agreements and such agreements are not waived or terminated.
Each Holder agrees to execute and deliver such other agreements as may be
reasonably requested by the Company or the underwriter which are consistent with
the foregoing or which are necessary to give further effect thereto. The
obligations described in this Section 2.13 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day period.
2.14 RULE 144 REPORTING. With a view to making available to
the Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in SEC Rule 144 or any similar or
analogous rule promulgated under the
13
<PAGE>
Securities Act, at all times after the effective date of the first registration
filed by the Company for an offering of its securities to the general public;
(b) File with the SEC, in a timely manner, all
reports and other documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable
Securities, furnish to such Holder forthwith upon request: a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 of the Securities Act, and of the Exchange Act (at any time after it has
become subject to such reporting requirements); a copy of the most recent annual
or quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
3. COVENANTS OF THE COMPANY.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records
of account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each
fiscal year of the Company, and in any event within ninety (90) days thereafter,
the Company will furnish each Major Investor (as defined below), a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company, for such year, all prepared in accordance with generally accepted
accounting principles consistently applied and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail. Such financial statements shall be accompanied by a report and opinion
thereon by independent public accountants of national standing selected by the
Company's Board of Directors.
(c) The Company will furnish each Major Investor, as
soon as practicable after the end of the first, second and third quarterly
accounting periods in each fiscal year of the Company, and in any event within
forty-five (45) days thereafter, a consolidated balance sheet of the Company as
of the end of each such quarterly period, and a consolidated statement of income
and a consolidated statement of cash flows of the Company for such period and
for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.
(d) So long as an Investor (with its affiliates)
shall own not less than two hundred thousand (200,000) shares of Registrable
Securities (as adjusted for stock splits and
14
<PAGE>
combinations) (a "Major Investor"), the Company will furnish each such Major
Investor (i) at least thirty (30) days prior to the beginning of each fiscal
year an annual budget and operating plans for such fiscal year (and as soon as
available, any subsequent revisions thereto); and (ii) as soon as practicable
after the end of each month, and in any event within thirty (30) days
thereafter, a consolidated balance sheet of the Company as of the end of each
such month, and a consolidated statement of income and a consolidated statement
of cash flows of the Company for such month and for the current fiscal year to
date, including a comparison to plan figures for such period, prepared in
accordance with generally accepted accounting principles consistently applied,
with the exception that no notes need be attached to such statements and
year-end audit adjustments may not have been made; and (iii) an annual financial
statement within one hundred twenty (120) days of the end of each fiscal year
which may be audited as determined by the Board of Directors of the Company.
3.2 INSPECTION RIGHTS. Each Major Investor shall have the
right to visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the Company
or any of its subsidiaries with its officers, and to review such information as
is reasonably requested all at such reasonable times and as often as may be
reasonably requested; provided, however, that the Company shall not be obligated
under this Section 3.2 with respect to a competitor of the Company or with
respect to information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use,
and to use its best efforts to insure that its authorized representatives use,
the same degree of care as such Investor uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may disclose
such proprietary or confidential information to any partner, member, subsidiary
or parent of such Investor for the purpose of evaluating its investment in the
Company as long as such partner, member, subsidiary or parent is advised of the
confidentiality provisions of this Section 3.3 and agrees to be bound thereby.
3.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the conversion
of the Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
3.5 STOCK VESTING. Unless otherwise approved by the Board of
Directors, all stock options and other stock equivalents issued after the date
of this Agreement to employees, directors, consultants and other service
providers shall be subject to vesting as follows: (i) twenty-five percent (25%)
of such stock shall vest at the end of the first year following the earlier of
the date of issuance or such person's services commencement date with the
Company, and (ii) seventy-five percent (75%) of such stock shall vest monthly in
equal installments over the following thirty-six (36) months. With respect to
any shares of stock purchased by any such person, the Company's repurchase
option shall provide that upon such person's termination of employment or
service with the Company, with or without cause, the Company or its assignee
15
<PAGE>
(to the extent permissible under applicable securities laws and other laws)
shall have the option to purchase at cost any unvested shares of stock held by
such person.
3.6 KEY PERSON INSURANCE. Subject to the approval of the Board
of Directors, the Company will use commercially reasonable efforts to obtain and
maintain in full force and effect term life insurance in the amount of one
million ($1,000,000) dollars on the Company's President; naming the Company as
beneficiary.
3.7 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The
Company shall require all employees and consultants to execute and deliver a
Proprietary Information and Inventions Agreement in a form approved by the
Company's Board of Directors.
3.8 APPROVAL. The Company shall not without the unanimous
consent of the Board of Directors, authorize or enter into any transactions with
any director or management employee, or such director's or employee's immediate
family.
3.9 DIRECTORS' LIABILITY AND INDEMNIFICATION. The Company's
Articles of Incorporation and Bylaws shall provide (i) for elimination of the
liability of each director of the Company to the maximum extent permitted by law
and (ii) for indemnification of directors for acts on behalf of the Company to
the maximum extent permitted by law. In addition, the Company shall enter into
and use its best efforts to at all times maintain indemnification contracts with
each of its directors to indemnify such directors to the maximum extent
permissible under California law. The Company shall have in force a directors
and officers liability insurance policy in an amount and with a carrier approved
by the unanimous consent of the Board of Directors. The Company will use its
reasonable efforts to limit the liability, to the fullest extent permissible
under California law, of any director representing any of the Investors.
3.10 REAL PROPERTY HOLDING CORPORATION. The Company covenants
that it will operate in a manner such that it will not become a "United States
real property holding corporation" as that term is defined in Section 897(c)(2)
of the Internal Revenue Code of 1986, as amended, and the regulations thereunder
("FIRPTA"). The Company agrees to make determinations as to its status as a
USRPHC, and will file statements concerning those determinations with the
Internal Revenue Service, in the manner and at the times required under Reg.
Section 1.897-2(h), or any supplementary or successor provision thereto. Within
30 days of a request from an Investor or any of its partners or members, the
Company will inform the requesting party, in the manner set forth in Reg.
Section 1.897- 2(h)(1)(iv) or any supplementary or successor provision thereto,
whether that party's interest in the Company constitutes a United States real
property interest (within the meaning of Internal Revenue Code Section 897(c)(1)
and the regulations thereunder) and whether the Company has provided to the
Internal Revenue Service all required notices as to its USRPHC status.
3.11 TERMINATION OF COVENANTS. All covenants of the Company
contained in Section 3 of this Agreement (except Sections 3.9 and 3.12(c) and
(d)) shall expire and terminate as to each Investor on the earlier of the
effective date of the registration statement pertaining to the Initial Offering
or acquisition of the Company by another corporation or entity by
16
<PAGE>
consolidation, merger, or other reorganization in which the holders of the
Company's outstanding voting stock immediately prior to such transaction own,
immediately after such transaction, securities representing less than fifty
percent (50%) of the voting power of the corporation or other entity surviving
such transaction.
3.12 CERTAIN COVENANTS RELATING TO MANAGEMENT AND BOARD
PARTICIPATION.
(a) CONSULTATION WITH MANAGEMENT. The Investors shall
be entitled to consult with and advise management of the Company on significant
business issues, including management's proposed annual operating plans, and
management will meet with Investors regularly during each year at the Company's
facilities at mutually agreeable times for such consultation and advise and to
review progress in achieving said plans.
(b) BOARD OF DIRECTORS REPRESENTATIVE. If, at any
time, any of the Sanderling, BioAsia, or Sofinnova venture capital firms control
Investors holding an aggregate of at least 500,000 shares of Series A Stock and
there is not a representative of Sanderling, BioAsia, or Sofinnova, as the case
may be, on the Company's Board of Directors, the Company shall invite
Sanderling, BioAsia, of Sofinnova (whichever is not already on the Board of
Directors) to attend all meetings of its Board of Directors in a non-voting
observer capacity, and in this respect shall give such representative copies of
all notices, minutes, consents and other material that it provides to its
directors; provided, however, that the Company reserves the right to exclude
such representative from access to any material or meeting or portion thereof if
the Company believes upon advice of counsel that such exclusion is reasonably
necessary to preserve the attorney-client privilege, to protect highly
confidential proprietary information or for other similar reasons. Such
representative may participate in discussions of matters brought to the Board of
Directors.
(c) Following the Initial Offering, until the earlier
of (i) such date as the Warburg entities own beneficially (within the meaning of
Rule13d-3 under the Exchange Act) that number of shares as is less than to
ninety-five percent (95%) of the shares of Common Stock held by the Warburg
entities as of the closing of the Series B Preferred Stock financing (including
the Series B Stock held by the Warburg entities on an as-converted basis) or
(ii) the date which is four years from the date of this agreement, the Company
will nominate and use reasonable efforts to elect and to cause to remain as a
director on the Company's Board of Directors at least one individual designated
by the Warburg entities.
(d) Following the Initial Offering, until the earlier
of (i) such date as the Sanderling entities own beneficially (within the meaning
of Rule13d-3 under the Exchange Act) that number of shares as is less than
ninety-five percent (95%) of the shares of Common Stock held by the Sanderling
entities as of the closing of the Series B Preferred Stock financing (including
the Series A Stock and Series B Stock held by the Sanderling entities on an
as-converted basis) or (ii) the date which is four years from the date of this
agreement, the Company will nominate and use reasonable efforts to elect and to
cause to remain as a director on the Company's Board of Directors at least one
individual designated by the Sanderling entities.
17
<PAGE>
4. RIGHTS OF FIRST REFUSAL.
4.1 SUBSEQUENT OFFERINGS. Each Major Investor shall have a
right of first refusal to purchase its pro rata share of all Equity Securities,
as defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 4.6 hereof. The pro rata share of each Major Investor is
equal to the ratio of (A) the number of shares of the Company's Common Stock
(including all shares of Common Stock issued or issuable upon conversion of the
Shares) which such Major Investor is deemed to be a holder immediately prior to
the issuance of such Equity Securities to (B) the total number of shares of the
Company's outstanding Common Stock (including all shares of Common Stock issued
or issuable upon conversion of the Shares or upon the exercise of outstanding
warrants or options) immediately prior to the issuance of the Equity Securities.
The term "Equity Securities" shall mean (i) any Common Stock, Preferred Stock or
other equity security of the Company, (ii) any security convertible, with or
without consideration, into any Common Stock, Preferred Stock or other equity
security (including any option to purchase such a convertible security), (iii)
any security carrying any warrant or right to subscribe to or purchase any
Common Stock, Preferred Stock or other equity security or (iv) any such warrant
or right.
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each Major Investor written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Major
Investor shall have fifteen (15) days from the giving of such notice to agree to
purchase its pro rata share of the Equity Securities for the price and upon the
terms and conditions specified in the notice by giving written notice to the
Company and stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell such Equity Securities to any Major Investor who would cause the Company to
be in violation of applicable federal securities laws by virtue of such offer or
sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If certain
of the Major Investors do not elect to purchase their pro rata share of the
Equity Securities, then the Company shall promptly notify in writing Major
Investors who do so elect and shall offer to Major Investors the right to
acquire such unsubscribed shares in accordance with their pro rata share. Such
Major Investors shall have five (5) days after receipt of such notice to notify
the Company of its election to purchase all or a portion thereof of the
unsubscribed shares. If the Major Investors fail to exercise in full the rights
of first refusal, the Company shall have ninety (90) days thereafter to sell the
Equity Securities in respect of which the rights of the Major Investors were not
exercised, at a price and upon general terms and conditions materially no more
favorable to the purchasers thereof than specified in the Company's notice to
the Major Investors pursuant to Section 4.2 hereof. If the Company has not sold
such Equity Securities within ninety (90) days of the notice provided pursuant
to Section 4.2, the Company shall not thereafter issue or sell any Equity
Securities, without first offering such securities to the Major Investors in the
manner provided above.
18
<PAGE>
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of
first refusal established by this Section 4 shall not apply to, and shall
terminate, upon the effective date of the registration statement pertaining to
the Company's Initial Offering.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal of each Major Investor under this Section 4 may be transferred to the
same parties, subject to the same restrictions as any transfer of registration
rights pursuant to Section 2.10.
4.6 EXCLUDED SECURITIES. The rights of first refusal
established by this Section 4 shall have no application to any of the following
Equity Securities:
(a) up to 2,000,000 shares (or such larger number if
otherwise approved by the holders of at least a majority of the Registrable
Securities held by Major Investors) of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary or entities with whom
the Company or its subsidiaries does business, pursuant to stock purchase or
stock option plans or other arrangements that are approved by the Board of
Directors;
(b) stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options and warrants outstanding
as of the date of this Agreement; and stock issued pursuant to any such rights
or agreements granted after the date of this Agreement, provided that the rights
of first refusal established by this Section 4 applied with respect to the
initial sale or grant by the Company of such rights or agreements;
(c) shares of Common Stock issued in connection with
any stock split, stock dividend or recapitalization by the Company;
(d) shares of Common Stock issued upon conversion of
the Shares;
(e) any Equity Securities issued pursuant to any
equipment leasing arrangement, or debt financing from a bank or similar
financial institution;
(f) up to two hundred thousand (200,000) shares of
Equity Securities issued in connection with strategic transactions involving the
Corporation and other entities, including join ventures, manufacturing,
marketing, distribution, technology transfer or development arrangements;
(g) shares of Series B Stock (including shares of
Common Stock issuable upon conversion of such Series B Stock); or
(h) any Equity Securities that are issued by the
Company pursuant to a registration statement filed under the Securities Act.
19
<PAGE>
5. MISCELLANEOUS.
5.1 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.
5.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a Holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the Holder of such shares in its records as the absolute owner and Holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
5.4 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, the
Purchase Agreement and the other documents delivered pursuant thereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
5.5 SEVERABILITY. In case any provision of the Agreement shall
be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
5.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company, the Holders of at least fifty five percent (55%) of the Series A-1
Preferred Stock then outstanding held by Holders, voting as a separate class,
the Holders of at least sixty five percent (65%) of the Series A-2 Preferred
Stock then outstanding held by Holders, voting as a separate class, and the
Holders of at least a majority of the Series B Preferred Stock then outstanding
held by Holders, voting as a separate class.
(b) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the
20
<PAGE>
written consent of the Holders of at least fifty five percent (55%) of the
Series A-1 Preferred Stock then outstanding held by Holders, the Holders of at
sixty five percent (65%) of the Series A-2 Preferred Stock then outstanding held
by Holders, voting as a separate class, and the Holders of at least a majority
of the Series B Preferred Stock then outstanding held by Holders, voting as a
separate class.
(c) Notwithstanding the foregoing, this Agreement may
be amended with only the consent of the Company to include additional purchasers
of the Shares as "Investors", "Holders", and parties hereto.
5.7 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to any Holder, upon
any breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval of
any kind or character on any Holder's part of any breach, default or
noncompliance under the Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to Holders,
shall be cumulative and not alternative.
5.8 NOTICES. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on the signature
pages hereof or Exhibit A hereto or at such other address as such party may
designate by ten (10) days advance written notice to the other parties hereto.
5.9 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
5.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.11 PRIOR AGREEMENT. The Prior Agreement is hereby superseded
in its entirety and shall be of no further force or effect.
21
<PAGE>
5.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
INTERMUNE PHARMACEUTICALS, INC.
By: /s/ W. Scott Harkonen
------------------------------
W. SCOTT HARKONEN
President
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTORS:
WARBURG, PINCUS EQUITY PARTNERS, L.P.
By: Warburg, Pincus & Co., General Partner
By: /s/ Jonathan Leff
---------------------------------------------------
Print Name: Jonathan Leff
-------------------------------------------
Title: Partner
------------------------------------------------
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I., C.V.
By: Warburg, Pincus & Co., General Partner
By: /s/ Jonathan Leff
---------------------------------------------------
Print Name: Jonathan Leff
-------------------------------------------
Title: Partner
------------------------------------------------
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V.
By: Warburg, Pincus & Co., General Partner
By: /s/ Jonathan Leff
---------------------------------------------------
Print Name: Jonathan Leff
-------------------------------------------
Title: Partner
------------------------------------------------
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.
By: Warburg, Pincus & Co., General Partner
By: /s/ Jonathan Leff
---------------------------------------------------
Print Name: Jonathan Leff
-------------------------------------------
Title: Partner
-----------------------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
CONNETICS CORPORATION
By: /s/ Thomas G. Wiggans
---------------------------------------------------
Print Name: Thomas G. Wiggans
-------------------------------------------
Title: President and CEO
-----------------------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
GENENTECH, INC.
By: /s/ Brad Goodwin
---------------------------------------------------
Print Name: Brad Goodwin
-------------------------------------------
Title: V.P.-Finance
------------------------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
SANDERLING VENTURE PARTNERS IV, L.P.
/s/ Fred A. Middleton /s/ Robert G. McNeil
- ---------------------------------- ----------------------------------
FRED A. MIDDLETON ROBERT G. MCNEIL
General Partner General Partner
SANDERLING IV LIMITED, L.P.
/s/ Fred A. Middleton /s/ Robert G. McNeil
- ---------------------------------- ----------------------------------
FRED A. MIDDLETON ROBERT G. MCNEIL
General Partner General Partner
SANDERLING IV BIOMEDICAL, L.P.
/s/ Fred A. Middleton /s/ Robert G. McNeil
- ---------------------------------- ----------------------------------
FRED A. MIDDLETON ROBERT G. MCNEIL
General Partner General Partner
SANDERLING [FERI TRUST] VENTURE PARTNERS IV, L.P.
/s/ Fred A. Middleton /s/ Robert G. McNeil
- ---------------------------------- ----------------------------------
FRED A. MIDDLETON ROBERT G. MCNEIL
General Partner General Partner
SANDERLING IV VENTURE MANAGEMENT
/s/ Fred A. Middleton /s/ Robert G. McNeil
- ---------------------------------- ----------------------------------
FRED A. MIDDLETON ROBERT G. MCNEIL
General Partner General Partner
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
SANDERLING IV CO-INVESTMENT FUND, L.P.
/s/ Fred A. Middleton /s/ Robert G. McNeil
- ---------------------------------- ----------------------------------
Fred A. Middleton Robert G. McNeil
General Partner General Partner
SANDERLING IV BIOMEDICAL CO-INVESTMENT FUND, L.P.
/s/ Fred A. Middleton /s/ Robert G. McNeil
- ---------------------------------- ----------------------------------
Fred A. Middleton Robert G. McNeil
General Partner General Partner
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
BIOTECHNOLOGY DEVELOPMENT FUND, L.P. BIOTECHNOLOGY DEVELOPMENT FUND II, L.P.
By: BioAsia Investments, LLC, By: BioAsia Investments, LLC,
Its General Partner its General Partner
By: /s/ Frank Kung By: /s/ Frank Kung
---------------------------------- ---------------------------------
Print Name: Frank Kung Print Name: Frank Kung
-------------------------- -------------------------
Title: Managing Member Title: Managing Member
------------------------------- ------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
CHARTER VENTURES III, LLC
By: /s/ A. Barr Dolan
----------------------------------
Print Name: A. Barr Dolan
--------------------------
Title: Managing Member
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
SOFINNOVA VENTURE PARTNERS IV, LP
By: Sofinnova Management IV, LLC, General Partner
By: /s/ Michael F. Powell
----------------------------------------------
Name: Michael F. Powell
--------------------------------------------
Title: Managing Director
SOFINNOVA VENTURE AFFILIATES IV, LLC
By: Sofinnova Management IV, LLC
By: /s/ Michael F. Powell
----------------------------------------------
Name: Michael F. Powell
--------------------------------------------
Title: Managing Director
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
ALTA CALIFORNIA PARTNERS II, L.P.
By: Alta California Management Partners II, LLC
--------------------------------------------
By: /s/ Alix Marduel
--------------------------------------------
Name: Alix Marduel
------------------------------------------
Title: General Partner
-----------------------------------------
ALTA EMBARCADERO PARTNERS II, LLC
By: /s/ Guy Nohra
-------------------------------------------
Name: Guy Nohra
-----------------------------------------
Title: Member
----------------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
VERON INTERNATIONAL, LTD.
By: /s/ Nina Kung (Nina T. H. Wang)
------------------------------------
Print Name: Nina Kung (Nina T. H. Wang)
----------------------------
Title: Director
--------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this _____ day of
________________, 2000 by and between INTERMUNE PHARMACEUTICALS, INC., a
Delaware corporation (the "Corporation"), and __________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as _______ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as _________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; PROVIDED,
HOWEVER, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE>
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the Code and
the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent solely for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that is established by a
final judgment as knowingly fraudulent or deliberately dishonest or that
constituted willful misconduct;
(c) on account of Agent's conduct that is established by a
final judgment as constituting a breach of Agent's duty of loyalty to the
Corporation or resulting in any personal profit or advantage to which Agent was
not legally entitled;
(d) for which payment is actually made to Agent under a valid
and collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement, except in respect of any excess beyond payment under
such insurance, clause, bylaw or agreement;
(E) if indemnification is not lawful (and, in this respect,
both the Corporation and Agent have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such indemnification
is expressly required to be made by law, (ii) the
2.
<PAGE>
proceeding was authorized by the Board of Directors of the Corporation, (iii)
such indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly notified
and electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such
3.
<PAGE>
action, in each of which cases the fees and expenses of Agent's separate counsel
shall be at the expense of the Corporation. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which Agent shall have made the conclusion
provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, PROVIDED THAT the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
4.
<PAGE>
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the
signature page hereof.
5.
<PAGE>
(b) If to the Corporation, to:
INTERMUNE PHARMACEUTICALS, INC.
3294 West Bayshore Road
Palo Alto, CA 94303
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
INTERMUNE PHARMACEUTICALS, INC.
By:
----------------------------------------
W. Scott Harkonen, M.D.
President and Chief Executive Officer
AGENT
By:
----------------------------------------
Name:
-----------------------------------
Address:
--------------------------------
--------------------------------
6.
<PAGE>
Exhibit 10.6
STANDARD OFFICE LEASE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions").
1.1 PARTIES: This Lease, dated, for reference purposes only,
November 9, 1999, is made by and between American Heart Association,
Western States Affiliate, a New York non-profit corporation, (herein called
"Lessor") and InterMune Pharmaceutical, Inc., a California corporation
business under the name of N/A, (herein called "Lessee").
1.2 PREMISES: Suite Number(s) 301, ________________ floors, consisting
of approximately 6,767 feet, more or less, as defined in paragraph 2 and as
shown on Exhibit "A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 1710 Gilbreth
Road, in the City of Burlingame, County of San Mateo, State of California,
and as defined in paragraph 2.
1.4 USE: General office, sales and administrative use, subject to
paragraph 6.
1.5 TERM: Sixty (60) months commencing December 13, 1999 ("Commencement
Date") and ending December 12, 2004, as defined in paragraph 3.
1.6 BASE RENT: $18,609.25 per month, payable on the 1st day of each
month, per paragraph 4.1.
1.7 BASE RENT INCREASE: On each anniversary of the Commencement Date
the monthly Base Rent payable under paragraph 1.6 above shall be adjusted as
provided in the Addendum.
1.8 RENT PAID UPON EXECUTION: $18,609.25 for ________________________
___________________________________________________________________________.
1.9 SECURITY DEPOSIT: see Addendum.
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 20.5% as defined in
paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in paragraph 1.3 of the
Basic Lease Provisions. "Building" shall include adjacent parking structures
used in connection therewith. The Premises, the Building, the Common Areas,
the land upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as
the "Office Building Project." Lessor hereby leases to Lessee and Lessee
leases from Lessor for the term, at the rental, and upon all of the
conditions set forth herein, the real property referred to in the Basic Lease
Provisions, paragraph 1.2, as the "Premises," including rights to the Common
Areas as hereinafter specified.
2.2 VEHICLE PARKING: Subject to the rules and regulations attached
hereto, and as established by Lessor from time to time, Lessee shall be
entitled to use a PRORATA SHARE OF parking spaces in the Office Building
Project four (4) of which shall be reserved parking spaces, and the balance
unassigned.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon
demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $N/A per
month at the commencement of the term of this Lease.
2.3 COMMON AREAS-DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior
boundary line of the Office Building Project that are provided and designated
by the Lessor from time to time for the general non-exclusive use of Lessor,
Lessee and of other lessees of the Office Building Project and their
respective employees, suppliers, shippers, customers and invitees, including
but not limited to common entrances, lobbies, corridors, stairways and
stairwells, public restrooms, elevators, escalators, parking areas to the
extent not otherwise prohibited by this Lease, loading and unloading areas,
trash areas, roadways, sidewalks, walkways, parkways, ramps, driveways,
landscaped areas and decorative walls.
2.4 COMMON AREAS-RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor or such other person(s) as Lessor may appoint shall have the
exclusive control and management of the Common Areas and shall have the
right, from time to time, to modify, amend and enforce said rules and
regulations. Lessor shall not be responsible to Lessee for the
non-compliance with said rules and regulations by other lessees, their
agents, employees and invitees of the Office Building Project.
2.5 COMMON AREAS-CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the
lobbies, windows, stairways, air shafts, elevators, escalators, restrooms,
driveways, entrances, parking spaces, parking areas, loading and unloading
areas, ingress, egress, direction of traffic, decorative walls, landscaped
areas and walkways; provided, however, Lessor shall at all times provide the
parking facilities required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided
that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Office Building Project as
Lessor may, in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if
for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease
or the obligations of Lessee hereunder or extend the term hereof; but, in
such case, Lessee shall not be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease, except as may be
otherwise provided in this Lease, until possession of the Premises is
tendered to Lessee, as
FULL SERVICE-GROSS
PAGE 1 OF 11
<PAGE>
hereinafter defined; provided, however, that if Lessor shall not have
delivered possession of the Premises Lessee may, at Lessee's option, by
notice in writing to Lessor within ten (10) days thereafter, cancel this
Lease, in which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations, Lessee first
reimburses Lessor for all costs incurred for Non-Standard improvements and,
as to Lessor's obligations, Lessor shall return any money previously
deposited by Lessee (less any offsets due Lessor for Non-Standard
improvements); and provided further, that if such written notice by Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to
cancel this Lease hereunder shall terminate and be of no further force or
effect.
3.2.1 POSSESSION TENDERED-DEFINED. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises,
(3) Lessee has reasonable access to the Premises, and (4) ten (10) days shall
have expired following advance written notice to Lessee of the occurrence of
the matters described in (1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of
rent, and the sixty (60) day period following the Commencement Date before
which Lessee's right to cancel this Lease accrues under paragraph 3.2, shall
be deemed extended to the extent of any delays caused by acts or omissions of
Lessee, Lessee's agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease
term is defined as the completion of the improvements, Lessee and Lessor
shall execute an amendment to this Lease establishing the date of Tender of
Possession (as defined in paragraph 3.2.1) or the actual taking of possession
by Lessee, whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in
paragraph 4.3, and except as may be otherwise expressly provided in this
Lease, Lessee shall pay to Lessor the Base Rent for the Premises set forth in
paragraph 1.6 of the Basic Lease Provisions, without offset or deduction.
Lessee shall pay Lessor upon execution hereof the advance Base Rent described
in paragraph 1.8 of the Basic Lease Provisions. Rent for any period during
the term hereof which is for less than one month shall be prorated based upon
the actual number of days of the calendar month involved. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may
designate in writing.
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter
defined, for each Comparison Year exceeds the amount of all Operating
Expenses for the Base Year, such excess being hereinafter referred to as the
"Operating Expense Increase," in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of
the Premises by the total approximate square footage of the rentable space
contained in the Office Building Project. It is understood and agreed that
the square footage figures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and Shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office
Building Project.
(b) "Base Year" is defined as the calendar year 2000.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee
shall have no obligation to pay a share of the Operating Expense Increase
applicable to the first twelve (12) months of the Lease Term (other than such
as are mandated by a governmental authority, as to which government mandated
expenses Lessee shall pay Lessee's Share, notwithstanding they occur during
the first twelve (12) months). Lessee's Share of the Operating Expense
Increase for the first and last Comparison Years of the Lease Term shall be
prorated according to that portion of such Comparison Year as to which Lessee
is responsible for a share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window coverings, and
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, stairways, parkways, driveways, landscaped areas,
striping, bumpers, irrigation systems, Common Area lighting facilities,
building exteriors and roofs, fences and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire
detection systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by
Lessor under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and
costs, materials, supplies and tools, used in maintaining and/or cleaning the
Office Building Project and accounting and a management fee attributable to
the operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby
amortized over its useful life according to Federal income tax regulations or
guidelines for depreciation thereof (including interest on the unamortized
balance as is then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to Federal income tax
guidelines of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements
of equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise
reimbursed by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable
by Lessee within thirty (30) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option,
however, an amount may be estimated by Lessor from time to time in advance of
Lessee's Share of the Operating Expense Increase for any Comparison Year, and
the same shall be payable monthly or quarterly, as Lessor shall designate,
during each Comparison Year of the Lease term, on the same day as the Base
Rent is due hereunder. In the event that Lessee pays Lessor's estimate of
Lessee's Share of Operating Expense Increase as aforesaid, Lessor shall
deliver to Lessee within sixty (60) days after the expiration of each
Comparison Year a reasonably detailed statement showing Lessee's Share of the
actual Operating Expense Increase incurred during such year. If Lessee's
payments under this paragraph 4.2(g) during said Comparison Year exceed
Lessee's Share as indicated on said statement, Lessee shall be entitled to
credit the amount of such overpayment against Lessee's Share of Operating
Expense Increase next falling due. If Lessee's payments under this paragraph
during said Comparison Year were less than Lessee's Share as indicated on
said statement, Lessee shall pay to Lessor the amount of the deficiency
within thirty (30) days after delivery by Lessor to Lessee of said statement.
Lessor and Lessee shall forthwith adjust between them by cash payment any
balance determined to exist with respect to that portion of the last
Comparison Year for which Lessee is responsible as to Operating Expense
Increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
FULL SERVICE-GROSS
PAGE 2 OF 11
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions
as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may
use, apply or retain all or any portion of said deposit for the payment of
any rent or other charge in default for the payment of any other sum to which
Lessor may become obligated by reason of Lessee's default, or to compensate
Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so
uses or applies all or any portion of said deposit, Lessee shall within ten
(10) days after written demand therefor deposit cash with Lessor in an amount
sufficient to restore said deposit to the full amount then required of
Lessee. Lessor shall not be required to keep said security deposit separate
from its general accounts. If Lessee performs all of Lessee's obligations
hereunder, said deposit, or so much thereof as has not heretofore been
applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest hereunder) at the expiration of the
term hereof, and after Lessee has vacated the Premises. No trust relationship
is created herein between Lessor and Lessee with respect to said Security
Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose
set forth in paragraph 1.4 of the Basic Lease Provisions or any other use
which is reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of
record, or any applicable building code, regulation or ordinance in effect on
such Lease term Commencement Date. In the event it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor,
after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in
effect or which may hereafter come into effect, whether or not they reflect a
change in policy from that now existing, during the term or any part of the
term hereof, relating in any manner to the Premises and the occupation and
use by Lessee of the Premises. Lessee shall conduct its business in a lawful
manner and shall not use or permit the use of the Premises or the Common
Areas in any manner that will tend to create waste or a nuisance or shall
tend to disturb other occupants of the Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, and heating system in the Premises shall be in good operating
condition. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the
violation, to promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition
existing as of the Lease Commencement Date or the date that Lessee takes
possession of the Premises, whichever is earlier, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and any easements,
covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto.
Lessee acknowledges that it has satisfied itself by its own independent
investigation that the Premises are suitable for its intended use, and that
neither Lessor nor Lessor's agent or agents has made any representation or
warranty as to the present or future suitability of the Premises, Common
Areas, or Office Building Project for the conduct of Lessee's business.
See Addendum For Additional Section 6.4
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building
Project, including the Premises, interior and exterior walls, roof, and
common areas, and the equipment whether used exclusively for the Premises or
in common with other premises, in good condition and repair; provided,
however, Lessor shall not be obligated to paint, repair or replace wall
coverings, or to repair or replace any improvements that are not ordinarily a
part of the Building or are above then Building standards. Except as provided
in paragraph 9.5, there shall be no abatement of rent or liability of Lessee
on account of any injury or interference with Lessee's business with respect
to any improvements, alterations or repairs made by Lessor to the Office
Building Project or any part thereof. Lessee expressly waives the benefits of
any statute now or hereafter in effect which would otherwise afford Lessee
the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in
good condition and repair, Lessee shall be responsible for payment of the
cost thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located)
that serves only Lessee or the Premises, to the extent such cost is
attributable to causes beyond normal wear and tear. Lessee shall be
responsible for the cost of painting, repairing or replacing wall coverings,
and to repair or replace any Premises improvements that are not ordinarily a
part of the Building or that are above then Building standards. Lessor may,
at its option, upon reasonable notice, elect to have Lessee perform any
particular such maintenance or repairs the cost of which is otherwise
Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices by Lessee. Lessee shall repair any damage to the
Premises occasioned by the installation or removal of Lessee's trade
fixtures, alterations, furnishings and equipment. Except as otherwise stated
in this Lease, Lessee shall leave the air lines, power panels, electrical
distribution systems, lighting fixtures, air conditioning, window coverings,
wall coverings, carpets, wall paneling, ceilings and plumbing on the
Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, Utility Installations or repairs
in, on or about the Premises, or the Office Building Project. As used in
this paragraph 7.3 the term "Utility Installation" shall mean carpeting,
window and wall coverings, power panels, electrical distribution systems,
lighting fixtures, air conditioning, plumbing, and telephone and
telecommunication wiring and equipment. At the expiration of the term,
Lessor may require the removal of any or all of said alterations,
improvements, additions or Utility Installations, and the restoration of the
Premises and the Office Building Project to their prior condition, at
Lessee's expense. Should Lessor permit Lessee to make its own alterations,
improvements, additions or Utility Installations, Lessee shall use only such
contractor as has been expressly approved by Lessor, and Lessor may require
Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for
mechanic's and materialmen's liens and to insure completion of the work. The
alterations and improvements described in Exhibit C to this Lease shall be
deemed proved by Lessor and such alterations and improvements need not be
removed by Lessee. Should Lessee
The alterations and improvements described in Exhibit C to this lease
shall be deemed approved by Lessor and such alterations and improvements need
not be removed by Lessee.
FULL SERVICE-GROSS
PAGE 3 OF 11
<PAGE>
make any alterations, improvements, additions or Utility Installations
without the prior approval of Lessor, or use a contractor not expressly
approved by Lessor, Lessor may, at any time during the term of this Lease,
require that Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form,
with proposed detailed plans. If Lessor shall give its consent to Lessee's
making such alteration, improvement, addition or Utility Installation, the
consent shall, be deemed conditioned upon Lessee acquiring a permit to do so
from the applicable governmental agencies, furnishing a copy thereof to
Lessor prior to the commencement of the work, and compliance by Lessee with
all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises, the Building or the
Office Building Project, upon the condition that if Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an
amount equal to such contested lien claim or demand indemnifying Lessor
against liability for the same and holding the Premises, the Building and the
Office Building Project free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's reasonable attorneys'
fees and costs in participating in such action if Lessor shall decide it is
to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including
but not limited to, floor coverings, panelings, doors, drapes, built-ins,
moldings, sound attenuation, and lighting and telephone or communication
systems, conduit, wiring and outlets, shall be made and done in a good and
workmanlike manner and of good and sufficient quality and materials and shall
be the property of Lessor and remain upon and be surrendered with the
Premises at the expiration of the Lease term, unless Lessor requires their
removal pursuant to paragraph 7.3(a). Provided Lessee is not in default,
notwithstanding the provisions of this paragraph 7.3(e), Lessee's personal
property and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises or the
Building, and other than Utility Installations, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of paragraph
7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building
Project, including, but not by way of limitation, such utilities as plumbing,
electrical systems, communication systems, and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE--LESSEE. Lessee shall at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Commercial
General Liability insurance utilizing an Insurance Service Office Standard
form with Broad Form General Liability Endorsement (GL0404), or equivalent,
in an amount of not less than $2,000,000.00 per occurrence of bodily injury
and property damage combined or in a greater amount as reasonably determined
by Lessor and shall insure Lessee with Lessor as an additional insured
against liability arising out of the use, occupancy or maintenance of the
Premises. Compliance with the above requirement shall not, however, limit
the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other
risks Lessor deems advisable from time to time, insuring Lessor, but not
Lessee, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than
$2,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire and extended coverage insurance, with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount
of the full replacement cost thereof, as the same may exist from time to
time, utilizing Insurance Services Office standard form, or equivalent,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, plate glass, and such
other perils as Lessor deems advisable or may be required by a lender having
a lien on the Office Building Project. In addition, Lessor shall obtain and
keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all Operating Expenses for said period. Lessee
will not be named in any such policies carried by Lessor and shall have no
right to any proceeds therefrom. The policies required by these paragraphs
8.2 and 8.4 shall contain such deductibles as Lessor or the aforesaid lender
may determine. In the event that the Premises shall suffer an insured loss
as defined in paragraph 9.1(f) hereof, the deductible amounts under the
applicable insurance policies shall be deemed an Operating Expense. Lessee
shall not do or permit to be done anything which shall invalidate the
insurance policies carried by Lessor. Lessee shall pay the entirety of any
increase in the property insurance premium for the Office Building Project
over what it was immediately prior to the commencement of the term of this
Lease if the increase is specified by Lessor's insurance carrier as being
caused by the nature of Lessee's occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days prior written notice to Lessor. Lessee shall, at
least thirty (30) days prior to the expiration of such policies, furnish
Lessor with renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the
other, for direct or consequential loss or damage arising out of or incident
to the perils covered by property insurance carried by or required to be
carried by such party, whether due to the negligence of Lessor or Lessee or
their agents, employees, contractors and/or invitees. If necessary all
property insurance policies required under this Lease shall be endorsed to so
provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or
any entity arising from Lessee's use of the Office Building Project, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims, costs and expenses arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the
terms of this Lease, or arising from any act or omission of Lessee, or any of
Lessee's agents, contractors, employees or invitees, and from and against
all costs, attorney's fees, expenses and liabilities incurred by Lessor as
the result of any such use, conduct, activity, work, things done, permitted
or suffered, breach, default or negligence, and in dealing reasonably
therewith, including but not limited to the defense or pursuit of any claim
or any action or proceeding involved therein; and in case any action or
proceeding be brought against Lessor by reason of any such matter. Lessee
upon notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in
such defense. Lessor need not have first paid any such claim in order to be
so indemnified. Lessee, as a material part of the consideration to Lessor,
hereby assumes all risk of damage to property of Lessee or injury to persons,
in, upon or about the Office Building Project arising from any cause and
Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for loss of or damage to the goods, wares, merchandise or
other property of Lessee, Lessee's employees, invitees, customers, or any
other person in or about the Premises or the Office Building Project, nor
shall Lessor be liable for injury to the person of Lessee, Lessee's
employees, agents or contractors, whether such damage or injury is caused by
or results from theft, fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether said damage or injury results from conditions
arising upon the Premises or upon other portions of the Office Building
Project, or from other sources or places, or from new construction or the
repair, alteration or improvement of any part of the Office Building Project,
or of the equipment, fixtures or appurtenances
FULL SERVICE-GROSS
PAGE 4 OF 11
<PAGE>
applicable thereto, and regardless of whether the cause of such damage or
injury or the means of repairing the same is inaccessible, Lessor shall not
be liable for any damages arising from any act or neglect of any other
lessee, occupant or user of the Office Building Project, nor from the failure
of Lessor to enforce the provisions of any other lease of any other lessee of
the Office Building Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that
the cost to repair is less than fifty percent (50%) of the then Replacement
Cost of the Building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the
extent that the cost to repair is fifty percent (50%) or more of the then
Replacement Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall
mean if the Office Building Project Buildings are damaged or destroyed to the
extent that the cost to repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises
Damage or Premises Building Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense,
repair such damage (but not Lessee's fixtures, equipment or tenant
improvements originally paid for by Lessee) to its condition existing at the
time of the damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from making any substantial
use of the Premises, Lessor may at Lessor's option either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written
notice to Lessee within thirty (30) days after the date of the occurrence of
such damage of Lessor's intention to cancel and terminate this Lease as of
the date of the occurrence of such damage, in which event this Lease shall
terminate as of the date of the occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total
Destruction, then Lessor may at Lessor's option either (i) repair such damage
or destruction as soon as reasonably possible at Lessor's expense (to the
extent the required materials are readily available through usual commercial
channels) to its condition existing at the time of the damage, but not
Lessee's fixtures, equipment or tenant improvements, and this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of occurrence of such damage of
Lessor's intention to cancel and terminate this Lease, in which case this
Lease shall terminate as of the date of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to
the Premises, Lessor may at Lessor's option cancel and terminate this Lease
as of the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within 30 days after the date of
occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later than twenty (20) days after
the occurrence of an Insured Loss falling within the classification of
Premises Damage during the last twelve (12) months of the term of this Lease.
If Lessee duly exercises such option during said twenty (20) day period,
Lessor shall, at Lessor's expense, repair such damage, but not Lessee's
fixtures, equipment or tenant improvements, as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option during said twenty (20) day period, then Lessor may at
Lessor's option terminate and cancel this Lease as of the expiration of said
twenty (20) day period by giving written notice to Lessee of Lessor's
election to do so within ten (10) days after the expiration of said twenty
(20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building; or
Premises pursuant to the provisions of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage, repair
or restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to
the extent the operation and profitability of Lessee's business as operated
from the Premises is adversely affected. Except for said abatement of rent,
if any, Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
or the Building under the provisions of this Paragraph 9 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel
and terminate this Lease by giving Lessor written notice of Lessee's election
to do so at any time prior to the commencement or completion, respectively,
of such repair or restoration. In such event this Lease shall terminate as of
the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Office Building Project subject
to reimbursement by Lessee of Lessee's Share of such taxes in accordance with
the provisions of paragraph 4.2, except as otherwise provided in paragraph
10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Office Building Project or
any portion thereof by any authority having the direct or indirect power to
tax, including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Office
Building Project or in any portion thereof, as against Lessor's right to rent
or other income therefrom, and as
FULL SERVICE-GROSS
PAGE 5 OF 11
<PAGE>
against Lessor's business of leasing the Office Building Project. The term
"real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax", or (ii) the nature of which was hereinbefore included within
the definition of "real property tax," or (iii) which is imposed for a
service or right not charged prior to June 1, 1978 or, if previously
charged, has been increased since June 1, 1978, or (iv) which is imposed as a
result of a change in ownership, as defined by applicable local statutes for
property tax purposes, of the Office Building Project or which is added to a
tax or charge hereinbefore included within the definition of real property
tax by reason of such change of ownership, or (v) which is imposed by reason
of this transaction, any modifications or changes hereto, or any transfers
hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are
not separately assessed, Lessee's portion of that tax shall be equitably
determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information (which may include the cost
of construction) as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines,
water for reasonable and normal drinking and lavatory use, and replacement
light bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided
during generally accepted business days and hours of Monday through Friday,
holidays excepted, from 8:00 am 6:00 pm. Utilities and services required
at other times shall be subject to advance request and reimbursement by,
Lessee to Lessor of the cost thereof.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water,
lighting or power, or suffer or permit any act that causes extra burden upon
the utilities or services, including but not limited to security services,
over standard office usage for the Office Building Project. Lessor shall
require Lessee to reimburse Lessor for any excess expenses or costs that may
arise out of a breach of this subparagraph by Lessee. Lessor may, in its
sole discretion, install at Lessee's expense supplemental equipment and/or
separate metering applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Lessor shall respond to Lessee's request for consent
hereunder in a timely manner and any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void, and
shall constitute a material default and breach of this Lease without the need
for notice to Lessee under paragraph 13.1. stock, including any public or
private offering or Lessee's capital stock, shall not be deemed an
assignment, subletting or other transfer of the Lease or Premises requiring
Lessor's consent.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the stock or assets of Lessee as a going concern of the business
that is being conducted on the Premises, all of which are referred to as
"Lessee Affiliate"; provided that before such assignment shall be effective,
(a) said assignee shall assume, in full, the obligations of Lessee under this
Lease and (b) Lessor shall be given written notice of such assignment and
assumption. Any such assignment shall not, in any way, affect or limit the
liability of Lessee under the terms of this Lease even if after such
assignment or subletting the terms of this Lease are materially changed or
altered without the consent of Lessee, the consent of whom shall not be
necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligation hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all
other obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a
waiver of estoppel of Lessor's right to exercise its remedies for the breach
of any of the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligation under this Lease have been guaranteed
by third parties, then an assignment or sublease, and Lessor's consent
thereto, shall not be effective unless said guarantors give their written
consent to such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent and such action shall not relieve such persons from liability under
this Lease or said sublease; however, such persons shall not be responsible
to the extent any such amendment or modification enlarges or increases the
obligations of the Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or anyone else responsible
for the performance of this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default
then exists under this Lease of the obligations to be performed by Lessee nor
shall such consent be deemed a waiver of any then existing default, except as
may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent
null and void. See Addendum For Additional Section 12.3 (1)
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
Regardless of Lessor's consent, the following terms and Conditions shall
apply to any subletting by Lessee of all or any part of the Premises and
shall be deemed included in all subleases under this Lease whether or not
expressly incorporated therein.
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however,
that until a default shall occur in the performance of Lessee's obligations
under this Lease, Lessee may receive, collect and enjoy the rents accruing
under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such
sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor
stating that a default exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents due and to become due under the
sublease. Lessee agrees that such sublessee shall have the right to rely
upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without an
FULL SERVICE-GROSS
PAGE 6 OF 11
<PAGE>
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary Lessee
shall have no right or claim against said sublessee or Lessor for any such
rents so paid by said sublessee to Lessor, except to the extent such rents
exceed XXX
(b) No sublease entered into by Lessee shall be effective unless
and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by
reason of entering into a sublease under this Lease, be deemed for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every obligation herein to be performed by Lessee other than such
obligations as are contrary to or inconsistent with provisions contained in a
sublease to which Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event
Lessor shall undertake the obligations of Lessee under such sublease from the
time of the exercise of said option to the termination of such sublease
provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to Lessee or for any other prior
defaults of Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or Sublet the
Premises or request the consent of Lessor to any assignment or subletting or
if Lessee shall request the consent of Lessor for any act Lessee proposes to
do then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the
proposed assignee or sublessee shall conduct a business on the Premises of a
quality substantially equal to that of Lessee and consistent with the general
character of the other occupants of the Office Building Project and not in
violation of any exclusives or rights then held by other tenants, and (b) the
proposed assignee or sublessee be financially responsible as determined by
Lessor.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment
or subletting), 13.1(a) (abandonment), 13.1(e) (insolvency), 13.1(f) (false
statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be
material, non-curable defaults without the necessity of any notice by Lessor
to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of five (5) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee other than those referenced in subparagraphs (b) and (c), above,
where such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee; provided, however, that if the
nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently pursues such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within
sixty (60) days; (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Premises or
of Lessee's interest in this Lease, where possession is not restored to
Lessee within thirty (30) days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days. In the event that any provision of this
paragraph 13.1(e) is contrary to any applicable law, such provision shall be
of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee all damages
incurred by Lessor by reason of Lessee's default including, but not limited
to, the cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and any real estate commission actually paid; the worth at
the time of award by the court having Jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such
award exceeds the amount of such rental loss for the same period that Lessee
proves could be reasonably avoided; that portion of the leasing commission
paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of
this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all
of Lessor's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such 30-day
period and thereafter diligently pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense Increase
or other sums due hereunder will cause Lessor to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Office Building Project.
Accordingly, if any installment of Base Rent, Operating Expense Increase, or
any other sum due from Lessee shall not be received by Lessor or Lessor's
designee within ten (10) days after such amount shall be due, then, without
any requirement for notice to Lessee, Lessee shall pay to Lessor a late
charge equal to 6% of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late
charge by Lessor shall in no event constitute a waiver of Lessee's default
with respect to such overdue amount, nor prevent Lessor from exercising any
of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under
the threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs; provided that is so much of the Premises or the Office Building
Project are taken by such condemnation as would substantially and adversely
affect the operation and profitability of Lessee's business conducted from
the Premises, Lessee shall have the option, to be exercised only in writing
within thirty (30) days after Lessor shall have given Lessee written notice
of such taking (or in the absence of such notice, within thirty (30) days
after the condemning authority shall have taken possession), to terminate
this Lease as of the date the
FULL SERVICE-GROSS
PAGE 7 OF 11
<PAGE>
condemning authority takes such possession. If Lessee does not terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the rent
and Lessee's Share of Operating Expense Increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common
Areas usable by Lessee and no reduction of rent shall occur with respect
thereto or by reason thereof. Lessor shall have the option in its sole
discretion to terminate this Lease as of the taking of possession by the
condemning authority, by giving written notice to Lessee of such election
within thirty (30) days after receipt of notice of a taking by condemnation
of any part of the Premises or the Office Building Project. Any award for the
taking of all or any part of the Premises or the Office Building Project
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that
Lessee shall be entitled to any separate award for loss of or damage to
Lessee's trade fixtures, removable personal property and unamortized tenant
improvements that have been paid for by Lessee. For that purpose the cost of
such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by
reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are BT Commercial Real
Estate as "listing broker" and Cornish & Carey Commercial as "cooperating
broker," licensed real estate broker(s). A "cooperating broker" is defined as
any broker other than the listing broker entitled to a share of any
commission arising under this Lease. Upon execution of this Lease by both
parties, Lessor shall pay to said brokers jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of
$__________________________, for brokerage services rendered by said
broker(s) to Lessor in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under
this Lease, or any subsequently granted option which is substantially Similar
to an Option granted to Lessee under this Lease, or (ii) if Lessee acquires
any rights to the Premises or other premises described in this Lease which
are substantially similar to what Lessee would have acquired had an Option
herein granted to Lessee been exercised, or (iii) if Lessee remains in
possession of the Premises after the expiration of the term of this Lease
after having failed to exercise an Option, or (iv) if said broker(s) are the
procuring cause of any other lease or sale entered into between the parties
pertaining to the Premises and/or any adjacent property in which Lessor has
an interest, or (v) if the Base Rent is increased, whether by agreement or
operation of an escalation clause contained herein, then as to any of said
transactions or rent increases, Lessor shall pay said broker(s) a fee in
accordance with the schedule of said broker(s) in effect at the time of
execution of this Lease. Said fee shall be paid at the time such increased
rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
Such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Each listing and
cooperating broker shall be a third party beneficiary of the provisions of
this paragraph 15 to the extent of their Interest in any commission arising
under this Lease and may enforce that right directly against Lessor;,
provided, however, that all brokers having a right to any part of such total
commission shall be a necessary party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other
than the person(s), If any, whose names are set forth in paragraph 15(a),
above) in connection with the negotiation of this Lease and/or the
consummation of the transaction contemplated hereby, and no other broker or
other person, firm or entity is entitled to any commission or finder's fee in
connection with said transaction and Lessee and Lessor do each hereby
Indemnify and hold the other harmless from and against any costs, expenses,
attorneys' fees or liability for compensation or charges which may be claimed
by any such unnamed broker, finder or other similar party by reason of any
dealings or actions of the indemnifying party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement
in writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the rent and other charges are paid in advance, if any, and
(ii) acknowledging that them are not, to the responding party's knowledge,
any uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the Office Building
Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it
shall be conclusive upon such party that (i) this Lease is in full force and
effect, without modification except as may be represented by the requesting
party, (ii) there are no uncured defaults in the requesting party's
performance, and (iii) if Lessor is the requesting party, not more than one
month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender
or purchaser designated by Lessor such financial statements of Lessee as may
be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Lessor's obligations thereafter to be
performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of
any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or Judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that Interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are paid by
Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only, signed
by the parties in Interest at the time of the modification. Except as
otherwise stated in this Lease, Lessee hereby acknowledges that neither real
estate broker listed in paragraph 15 hereof nor any cooperating broker on
this transaction nor the Lessor or any employee or agents of any said persons
has
FULL SERVICE-GROSS
PAGE 8 OF 11
<PAGE>
made any oral or written warranties or representations to Lessee relative to
the condition or use by Lessee of the Premises or Office Building Project and
Lessee acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act, the legal use and adaptability of the
Premises and the compliance thereof with all applicable laws and regulations
in effect during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or
registered mail, and shall be deemed sufficiently given if delivered or
addressed to Lessee or to Lessor at the address noted below or adjacent to
the signature of the respective parties, as the case may be. Mailed notices
shall be deemed given upon actual receipt at the address required, or three
(3) days following deposit in the mail, postage prepaid, whichever first
occurs. Either party may by notice to the other specify a different address
for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes.
A copy of all notices required or permitted to be given to Lessor hereunder
shall be concurrently transmitted to such party or parties at such addresses
as Lessor may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by either party of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
the other party the same or any other provision. Lessor's consent to, or
approval of, any act shall not be deemed to render unnecessary the obtaining
of Lessor's consent to or approval of any subsequent act by Lessee. The
acceptance of rent hereunder by Lessor shall not be a waiver of any preceding
breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of
this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions
of this Lease pertaining to the obligations of Lessee, except that the rent
payable shall be one hundred fifty percent (150%) of the Rent payable
immediately preceding the termination date of this Lease, and all Options, if
any, granted under the terms of this Lease shall be deemed terminated and be
of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provision
of paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assign. This Lease shall be governed by the
laws of the State where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be
Initiated in the county in which the Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed
of trust, or any other hypothecation or security now or hereafter placed upon
the Office Building Project and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof. Notwithstanding such subordination, Lessee's right to
quiet possession of the Premises shall not be disturbed if Lessee is not in
default and so long as Lessee shall pay the rent and observe and perform all
of the provisions of this Lease, unless this Lease is otherwise terminated
pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect
to have this Lease and any Options granted hereby prior to the lien of its
mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options
are dated prior or subsequent to the date of said mortgage, deed of trust or
ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as
the case may be. Lessee's failure to execute such documents within ten (10)
days after written demand shall constitute a material default by Lessee
hereunder without further notice to Lessee or, at Lessor's option, Lessor
shall execute such documents on behalf of Lessee as Lessees'
attorney-in-fact Lessee does hereby make, constitute and Irrevocably appoint
Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
31. ATTORNEYS' FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to
decision or judgment. The provisions of this paragraph shall inure to the
benefit of the broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all
other costs and expenses incurred in the preparation and service of notice of
default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same,
performing any services required of Lessor, showing the same to prospective
purchasers, lenders, or lessees, taking such safety measures, erecting such
scaffolding or other necessary structures, making such alterations, repairs,
improvements or additions to the Premises or to the Office Building Project
as Lessor may reasonably deem necessary or desirable and the erecting, using
and maintaining of utilities, services, pipes and conduits through the
Premises and/or other premises as long as there is no material adverse effect
to Lessee's use of the Premises. Lessor may at any time place on or about the
Premises or the Building any ordinary "For Sale" signs and Lessor may at any
time during the last 120 days of the term hereof place on or about the
Premises any ordinary "For Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for
the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and
safes, and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or Injuries or Interference with Lessee's property or
business in connection therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common
Areas without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether
to grant such consent. The holding of any auction on the Premises or Common
Areas in violation of this paragraph shall constitute a material default of
this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Office Building
Project. Lessee shall have the right to install Building standard signage on
the Building directory and Lessee's suite door, at Lessee's expense.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all
FULL SERVICE-GROSS
PAGE 9 OF 11
<PAGE>
of such Subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET PERMISSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
40. SECURITY MEASURES, LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the
benefit of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Noting herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within
the definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90
days prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights
expressly given herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) Of the
Building or the Office Building Project or their name(s) in connection with
Lessee's business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure
to do so shall constitute a material default of this Lease by Lessee without
the need for further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of the Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of
such entity represent and warrant that such individual is duly authorized to
execute and deliver this Lease on behalf of said entity. If Lessee is a
corporation, trust or partnership, Lessee shall, within thirty (30) days
after execution of this Lease, deliver to Lessor evidence of such authority
satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or
Addenda of this Lease and the typewritten or handwritten provisions, if any,
shall be
FULL SERVICE-GROSS
PAGE 10 OF 11
<PAGE>
controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully
executed by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an Institutional lender in
connection with the obtaining of normal financing or refinancing of the
Office Building Project, so long as such modifications do not increase the
rent or other obligations of Lessee hereunder or materially adversely affect
Lessee's rights hereunder.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the Joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee, respectively.
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which constitute
a part of this Lease:
EXHIBIT A -- Floor Plan
EXHIBIT B -- Rules and Regulations
ADDENDUM
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT
THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER
OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE
OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE.
<TABLE>
<CAPTION>
LESSOR LESSEE
<S> <C>
American Heart Association InterMune Pharmaceutical, Inc.
- ------------------------------------------------- -------------------------------------------------
Western States Affiliate
- ------------------------------------------------- -------------------------------------------------
By /s/ Sunder D. Juin By /s/ Timothy Lynch
---------------------------------------------- ----------------------------------------------
Its Senior Vice President, Corporate Operations Its Chief Financial Officer
-------------------------------------------- --------------------------------------------
By /s/ Sara Robertsen By
---------------------------------------------- ----------------------------------------------
Its Vice President, Trusts & Estates Its
---------------------------------------------- ----------------------------------------------
Executed at 1710 Gilbreth Rd. Burlingame CA Executed at 3294 W. Bayshore Rd, Palo Alto, CA
-------------------------------------- -------------------------------------
on 12/22/99 on 12/8/99
---------------------------------------------- ----------------------------------------------
</TABLE>
NOTE: These forms are often modifed to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 700 South Rower Street, Suite 600, Los Angeles, CA 90017.
(213) 687-8777.
FULL SERVICE-GROSS
PAGE 11 OF 11
<PAGE>
ADDENDUM TO STANDARD OFFICE LEASE GROSS BETWEEN AMERICAN HEART ASSOCIATION,
WESTERN STATES AFFILIATE (LESSOR) AND INTERMUNE PHARMACEUTICAL, INC. (LESSEE)
DATED NOVEMBER 9, 1999
1.7 Monthly Base Rent for the Premises shall be as follows:
Months 1-12 (12/13/99 - 12/12/00) $18,609.25
Months 13-24 (12/13/00 - 12/12/01) $19,285.95
Months 25-36 (12/13/01 - 12/12/02) $19,962.65
Months 37-48 (12/13/02 - 12/12/03) $20,639.35
Months 49-60 (12/13/03 - 12/12/04) $21,316.05
1.9 Lessee shall deliver to Lessor concurrent with Lessee's execution of
this Lease an unconditional, clean, irrevocable letter of credit (the "L-C")
in the initial amount of $250,000.00, which L-C shall be issued by a money
center bank (a bank which accepts deposits, maintains accounts, has a local
San Francisco Bay Area office which will negotiate a letter of credit, and
whose deposits are insured by the FDIC) reasonably acceptable to Lessor.
Lessee shall pay all expenses, points and/or fees incurred by Lessee in
obtaining the L-C. The L-C shall be held by Lessor as security for the
faithful performance by Lessee of all their terms, covenants, and conditions
of the Lease to be kept and performed by Lessee during the Lease Term. The
L-C shall not be mortgaged, assigned or encumbered in any manner whatsoever
by Lessee without the prior written consent of Lessor. If Lessee is in
default beyond the applicable notice and cure periods of the Lease,
including, but not limited to, the provisions relating to the payment of
Rent, Lessor may, but shall not be required to, draw upon all or any portion
of the L-C for payment of any Rent or any other sum in default, or for the
payment of any amount that Lessor may spend or may become obligated to spend
by reason of Lessee's default, in one or more separate draws against the L-C,
as may be required. The use, application or retention of the L-C, or any
portion thereof, by Lessor shall not prevent Lessor from exercising any other
right or remedy provided by the Lease or by law, it being intended that
Lessor shall not first be required to proceed against the L-C, and the L-C
shall not operate as a limitation on any recovery to which Lessor may
otherwise be entitled. If any portion of the L-C is drawn upon and applied by
Lessor, Lessee shall, within five (5) days after Lessee's receipt of Written
demand therefor, reinstate the L-C to the amount then required under the
Lease. Lessee acknowledges that Lessor has the right to transfer or mortgage
its interest in the Office Building Project and in the Lease the Lessee
agrees that in the event of any such transfer or mortgage, Lessor shall have
the right to transfer or assign the L-C to the transferee or mortgagee, and
in the event of such transfer, if the L-C has been assigned, Lessee shall
look solely to such transferee or mortgagee for the return of the L-C.
Provided that Lessee has not been in default under the terms of this Lease,
and provided that Lessee has a minimum net worth of $5,000,000.00 and cash or
cash equivalents of a minimum of $4,500,000.00, the amount of the L-C may be
reduced by Lessee at the second anniversary of the Commencement Date to
$200,000.00, and if these same conditions are met at the time, may be reduced
by Lessee to $150,000.00 at the third anniversary of the Commencement Date
and to $100,000 at the fourth anniversary of the Commencement Date.
HAZARDOUS SUBSTANCES.
6.4 (a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be at the Office
Building Project, is either: (i) potentially injurious to the public health,
safety or welfare, or the environment of the Office Building Project, (ii)
regulated or monitored by any governmental authority, or (iii) a basis for
potential liability of Lessor to any governmental agency or third party under
any applicable statute or common law theory. Hazardous Substances shall
include, but not be limited to hydrocarbons, petroleum, gasoline, and/or
crude oil or any products, by-products or fractions thereof. Lessee shall not
engage in any activity at the Office Building Project which constitutes a
Reportable Use of Hazardous Substances without the express prior written
consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "Reportable Use" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation,
possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any
governmental authority, and/or (iii) the presence at the Office Building
Project of a Hazardous Substance with respect to which any Applicable
Requirement requires that a notice be given to persons entering or occupying
the Office Building Project or neighboring properties. Notwithstanding the
foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the agreed Use, so long as such
use is in compliance with all Applicable Requirements, is not a Reportable
Use, and does not expose the Office Building Project or neighboring property
to any meaningful risk of contamination or damage or expose Lessor to any
liability therefor. In addition, Lessor may condition its consent to any
Reportable Use upon receiving such additional assurances as Lessor reasonably
deems necessary to protect itself, the public, the Office Building Project
and/or the environment against damage, contamination, injury and/or
liability, including, but not limited to, the installation (and removal on or
before Lease expiration or termination) of protective modifications (such as
concrete encasements) and/or increasing the Security Deposit.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under
or about the Office Building Project, other than as previously consented to
by Lessor, Lessee shall immediately give written notice of such fact to
Lessor, and provide Lessor with a copy of any report, notice, claim or other
documentation which it has concerning the presence of such Hazardous
Substance.
(c) Lessee Remediation. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Office Building Project (including through the plumbing or sanitary sewer
system) and shall promptly, at Lessee's expense, take all investigatory
and/or remedial action reasonably recommended, whether or not formally
ordered or required, for the cleanup of any contamination of, and for the
maintenance, security and/or monitoring of the Office Building Project or
neighboring properties, that was caused or materially contributed to by
Lessee, or pertaining to or involving any Hazardous Substance brought onto
the Office Building Project during the term of this Lease, by or for Lessee.
<PAGE>
(d) Lessee Indemnification. Lessee shall indemnity, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Office
Building Project by or for Lessee (provided, however, that Lessee shall have
no liability under this Lease with respect to underground migration of any
Hazardous Substance under the Office Building Project from areas outside of
the Office Building Project). Lessee's obligations shall include, but not be
limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease. No termination, cancellation or
release agreement entered into by Lessor and Lessee shall release Lessee from
its obligations under this Lease with respect to Hazardous Substances, unless
specifically so agreed by Lessor in writing at the time of such agreement.
12.3(i) Notwithstanding anything to the contrary contained in this Lease, in
the event that Lessee makes a written request to Lessor to approve a sublease
of any portion of the Premises for a term ending within one year of the
expiration of the Lease Term, or to approve a sublease of the entire
Premises, Lessor shall have the right to terminate the Lease with respect to
the affected portion by giving written notice of such election to Lessee
within twenty (20) days after Lessor's receipt of Lessee's request for
approval. In no event shall Lessee sublet to more than one sublessee while
Lessee is in occupancy, or more than two sublessees if Lessee vacates. Any
profits generated by subleasing shall be divided 25% to Lessee and 75% to
Lessor, after Lessee recovers reasonable subletting costs, limited to
reasonable brokerage commissions and tenant improvement costs.
50. Alterations and Additions. All improvements and alterations are at
Lessee's sole cost and expense and are subject to the provisions of Paragraph
7.3 Contractor to be approved by Lessor.
Lessor: AMERICAN HEART ASSOCIATION, Lessee: INTERMUNE PHARMANCEUTICAL, INC.
WESTERN STATES AFFILIATE
By: /s/ Sunder D. Juin By: /s/ Timothy Lynch
--------------------------------- -----------------------------------
Senior Vice President
Title: Corporate Operations Title: Chief Financial Officer
------------------------------ --------------------------------
Date: 12/22/99 Date: 12/8/99
------------------------------- ---------------------------------
By: /s/ Sara Robertsen
------------------------------------
Title: Vice President, Trusts & Estates
---------------------------------
Date: 12/22/99
----------------------------------
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated: November 9, 1999
----------------------------
By and Between American Heart Association, Western States Affiliate, Inc.
and InterMune Pharmaceutical, Inc.
--------------------------------------------------------------
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common
Areas, including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in
good faith judges to be a threat to the safety, reputation, or property of
the Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in
appropriate receptacles for that purpose.
6. Lessee shall not alter any lock or Install new or additional locks
or bolts.
7. Lessee shall be responsible for the Inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to
be inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of
the Premises or Office Building Project.
9. Lessee shall not suffer or permit anything in or around the
Premises or Building that causes excessive vibration or floor loading in any
part of the Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or
out of the building only with the Lessor's knowledge and consent, and subject
to such reasonable limitations, techniques and timing, as may be designated
by Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or
work to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on
Saturdays, Sundays and legal holidays, and on other days between the hours of
5:00 P.M. and 8:30 A.M. of the following day. If Lessee uses the
Premises during such periods. Lessee shall be responsible for securely
locking any doors it may have opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used
by Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the
Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes or tobacco in, on or at the Office Building Project.
17. Lessee shall not use any method of heating or air conditioning
other than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines
upon the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing,
cooking or food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall
not constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep
its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer
than full size, passenger automobiles herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles are herein referred
to as "Oversized Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
or invitees to be loaded, unloaded, or parked in areas other than those
designated by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of
the holder's parking privileges. Lessee will pay such replacement charge as
is reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly
identification devices to any person or entity that willfully refuses to
comply with the applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking
spaces from floor to floor, within one floor, and/or to reasonably adjacent
offsite location(s), and to reasonably allocate them between compact and
standard size spaces, as long as the same complies with applicable laws,
ordinances and regulations.
6. Users of the parking area will obey all posted signs and park only
in the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method
or methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the
parking structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations,
laws and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a
license only and no bailment is intended or shall be created hereby.
Page 1 of 1
<PAGE>
STANDARD OFFICE LEASE
FLOOR PLAN
EXHIBIT A
[IMAGE]
<PAGE>
STANDARD OFFICE LEASE
FLOOR PLAN
EXHIBIT C
[IMAGE]
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
It is understood and agreed that the employment by INTERMUNE
PHARMACEUTICALS, INC., a Delaware corporation (the "Company" or "InterMune"), of
W. SCOTT HARKONEN ("Executive") shall be subject to the terms and conditions of
this Employment Agreement ("Agreement") effective as of the closing date of the
Company's Series A Preferred Stock financing ("Effective Date").
1. DUTIES/AUTHORITY. Subject to the provisions of Section 4 below, Executive
shall serve as the President and Chief Executive Officer of the Company
reporting to the Company's Board of Directors and shall be granted the authority
to perform and shall perform such customary, appropriate and reasonable
executive duties as are usually performed by a President and Chief Executive
Officer in reputable companies engaged in a line of business similar to that of
the Company, or such reasonable duties as may be delegated to him from time to
time by the Board of Directors of the Company (the "Board") or the Chief
Executive Officer. Executive's position with the Company is exempt. Executive
agrees that as a condition of Executive's employment by the Company that
Executive will be bound and subject to the terms and conditions of the Employee
Handbook applicable to all employees. The Employee Handbook may be revised from
time to time in the sole discretion of the Company.
2. CASH COMPENSATION AND BENEFITS.
2.1 BASE COMPENSATION. Executive shall be paid an annual base salary
of Two Hundred Twenty-Five Thousand Dollars ($225,000.00) ("Base
Compensation"), payable in accordance with the Company's general
payroll practices commencing on the Effective Date. A bonus for
calendar year 1999 of up to Twenty-Five Thousands Dollars
($25,000) shall be paid to Executive, based upon achievement of
the first tier milestones ("First Tier Milestones") set forth in
Exhibit A, attached hereto and by this reference made a part
hereof, and up to an additional Twenty-Five Thousand Dollars
($25,000) based upon achievement of the second tier of milestones
set forth in Exhibit A ("Second Tier Milestones"). After calendar
year 1999, Executive's bonuses shall be based upon milestones
determined by the Board of Directors and Executive on an annual
basis (collectively, with the 1999 bonuses, the "Bonuses").
Bonuses, if any, shall be paid within the first quarter of the
following calendar year.
2.2 EXECUTIVE BENEFITS. In addition to the Base Compensation,
Executive shall further be entitled to participate in any employee
benefits programs offer generally from time to time to senior
management employees of the Company. The Company shall reimburse
Executive up to One Thousand Five Hundred Dollars ($1,500) per
year rewards Executive's purchase of an excess long-term
disability policy and UP to Four Hundred Dollars ($400) per year
towards purchase of a term life insurance policy.
1
<PAGE>
2.3 VACATION; HOLIDAYS; ETC. Executive shall be entitled to fully-paid
vacation time of fifteen (15) business days per calendar year. In
addition, Executive shall be entitled to all holidays provided
under the Company's regular holiday schedule and any other
benefits specified in the Employee Handbook.
2.4 STOCK PURCHASE. As additional compensation, Executive shall be
entitled to purchase six hundred ninety thousand (690,000) shares
of the Company's common stock in accordance with the terms and
conditions of the Common Stock Purchase Agreement between the
parties of even date herewith ("Stock Agreement"), which is
incorporated herein by reference.
2.5 EXPENSE REIMBURSEMENTS. Executive's expenses in performing his
duties will be reimbursed by the Company in accordance with the
policies established by the Board from time to time.
2.6 TRANSFER OF CONNETICS LOAN. The Company shall assume
responsibility from Connetics for the loan to Executive (the
"Loan") made by Connetics (i.e. the Company shall assume full
responsibility for satisfying Connetics). Comparable terms and
conditions of the Loan shall be reinstituted between the Company
and Executive, with the Company as obligee and Executive as
obligor. Executive shall secure the new loan with Company stock,
substituting said stock for the prior security consisting of
Connetics' stock.
3. TERMINATIONS AND SEVERANCE COMPENSATION
3.1 DEFINITIONS. For purposes of this Agreement the following terms,
when capitalized and used herein, shall have the following
meanings:
3.1.1. "INVOLUNTARY TERMINATION" SHALL MEAN (I) WITHOUT
EXECUTIVE'S EXPRESS WRITTEN CONSENT, A MATERIAL
REDUCTION OF EXECUTIVE'S DUTIES, POSITIONS OR
RESPONSIBILITIES RELATIVE TO EXECUTIVE'S DUTIES,
POSITIONS, OR RESPONSIBILITIES IN EFFECT IMMEDIATELY
PRIOR TO SUCH MATERIAL REDUCTION ("MATERIAL REDUCTION
OF DUTIES"), (II) WITHOUT EXECUTIVE'S EXPRESS WRITTEN
CONSENT OR OTHER THAN IN CONNECTION WITH A PERCENTAGE
SALARY DECREASE GENERALLY APPLICABLE TO SUBSTANTIALLY
ALL EMPLOYEES OF THE COMPANY, A MATERIAL REDUCTION OF
EXECUTIVE'S COMPENSATION PACKAGE, AS ADJUSTED, IN
EFFECT IMMEDIATELY PRIOR TO SUCH REDUCTION, (II)
WITHOUT EXECUTIVE'S EXPRESS WRITTEN CONSENT, THE
RELOCATION OF EXECUTIVE TO A FACILITY OR LOCATION
OUTSIDE OF THE GREATER SILICON VALLEY AREA, I.E. FIFTY
MILES OR MORE FROM SAN FRANCISCO, OR (IV) ANY
TERMINATION OF THE EXECUTIVE BY THE COMPANY WHICH IS
NOT EFFECTED FOR CAUSE, AS DEFINED BELOW.
NOTWITHSTANDING THE FOREGOING, EXECUTIVE'S
INVOLUNTARY REMOVAL AS EITHER PRESIDENT OR CHIEF
EXECUTIVE OFFICER (BUT NOT
2
<PAGE>
BOTH) SHALL BE DEEMED NOT TO BE A MATERIAL REDUCTION
OF DUTIES IN THE EVENT OF EITHER A CORPORATE
TRANSACTION OR IF SUCH REMOVAL AS EITHER PRESIDENT OR
CHIEF EXECUTIVE OFFICER (BUT NOT BOTH) OCCURS AFTER
DECEMBER 31, 2000.
3.1.2. "CAUSE FOR TERMINATION" SHALL MEAN: (I) EXECUTIVE'S
CONVICTION BY, OR ENTRY OF A PLEA OF GUILTY OR NOLO
CONTENDERE IN, A COURT OF COMPETENT JURISDICTION FOR
ANY CRIME WHICH CONSTITUTES A FELONY IN THE
JURISDICTION INVOLVED (OTHER THAN A FELONY TRAFFIC
OFFENSE), (II) EXECUTIVE'S MISAPPROPRIATION OF FUNDS
OR COMMISSION OF ACT OF FRAUD UPON THE COMPANY, (III)
GROSS NEGLIGENCE BY EXECUTIVE IN THE SCOPE OF
EXECUTIVE'S SERVICES TO THE COMPANY, WHICH GROSS
NEGLIGENCE EXECUTIVE HAS NOT CURED WITHIN THIRTY (30)
DAYS OF WRITTEN NOTICE THEREOF, (IV) A WILLFUL
MATERIAL BREACH BY EXECUTIVE OF A MATERIAL PROVISION
OF THIS AGREEMENT OF THE PROPRIETARY INFORMATION AND
INVENTIONS AGREEMENT, WHICH WILLFUL MATERIAL BREACH
EXECUTIVE HAS NOT CURED WITHIN (30) DAYS OF WRITTEN
NOTICE THEREOF, OR (V) A WILLFUL MATERIAL FAILURE OF
EXECUTIVE TO SUBSTANTIALLY PERFORM HIS DUTIES AS
PRESIDENT OR CHIEF EXECUTIVE OFFICER WHICH WILLFUL
MATERIAL FAILURE EXECUTIVE HAS NOT CURED WITHIN (30)
DAYS OF WRITTEN NOTICE THEROF.
3.2 CAUSE AND VOLUNTARY TERMINATION. The Company shall have the right
to terminate Executive's employment hereunder for Cause upon
written notice to Executive, but effective no earlier than June 2,
1999. The Executive shall have the right voluntarily to terminate
this Agreement at any time upon thirty (30) days' prior written
notice to the Company. If Executive voluntarily terminates his
employment hereunder or the Company terminates Executive's
employment for Cause, the Executive's sole and exclusive right and
remedy hereunder shall be the right to receive his accrued Base
Compensation, accrued Bonus, if any, outstanding expense
reimbursements and accrued Company stock pursuant to the Stock
Agreement, through the date of such termination only and the
Company shall have no responsibility for the payment of any other
compensation or benefits to the Employee for any time period
subsequent to such termination except as may be expressly requited
by law or the respective terms of benefit arrangements to be paid
even upon termination for cause or voluntary termination.
3.3 TERMINATION WITHOUT CAUSE: CORPORATE TRANSACTION. The Company
shall have the right to terminate Executive's employment hereunder
without Cause upon written notice to Executive (but such notice
shall in no event be issued earlier than June 2, 1999). Should
Executive be terminated, without Cause or should there be a
CORPORATE TRANSACTION as defined in the Stock Agreement, the
Company shall give to Executive: any accrued and unpaid Base
Compensation and Bonuses; any accrued pension benefits, insurance
benefits and stock options; any stock and related stock purchase
rights (per the Stock Agreement, E.G., Sections 2(b)-(f)) and any
other rights and benefits to the extent, if at all, Executive is
entitled to them through the effective date
3
<PAGE>
of the termination under their respective terms or the terms
herein. Executive shall also be entitled to continue to receive
from the Company his then-current Base Compensation for a period
of six (6) months; provided, that, if requested to do so by the
Company, Executive shall continue to serve in his capacity(s)
averaging not more than two (2) days per week during the initial
forty-five (45) calendar day period following notice of
termination, and subject to modification by mutual agreement of
the Parties including, without limitation, extension of his
employment for an additional ninety (90) days to facilitate
transition of duties. All such amounts shall be payable in
accordance with the Company's general payroll practices.
4. ATTENTION TO DUTIES; CONFLICT OF INTEREST. While employed by the
Company, Executive shall devote Executive's full business time, energy
and abilities exclusively to the business and interests of InterMune,
and shall perform all duties and services in a faithful and diligent
manner and to the best of Executive's abilities. Executive shall not,
without the Company's prior written consent, render to others, services
of any kind for compensation or engage in any other business activity
that would materially interfere with the performance of Executive's
duties under this Agreement. Executive represents that Executive has no
other outstanding commitments inconsistent with any of the terms of
this Agreement or the services to be rendered to InterMune. While
employed by the Company, Executive shall not no directly or indirectly,
whether as a partner, employee, creditor, shareholder, or otherwise,
promote, participate or engage in any activity or other business
competitive with the Company's business. Executive shall not invest in
any company or business which competes in any manner with the Company,
except those companies whose securities are listed on national
securities exchanges or quoted daily in the Nasdaq National Market
listing of THE WALL STREET JOURNAL. Notwithstanding the foregoing, the
Company agrees that Executive may devote an average of 20% of each work
week to financial consulting services to Connetics Corporation;
provided, that Executive's Base Compensation shall be reduced by 20%
during such period as he performs such consulting services.
5. PROPRIETARY INFORMATION. Executive agrees to be bound by the terms of
the Proprietary Information Agreement and exhibits thereto, which are
attached as Exhibit A and incorporated by this reference ("Proprietary
Agreement"), and, by the rules of confidentiality promulgated by
InterMune from time to time.
4
<PAGE>
6. DEATH; DISABILITY
6.1 DEATH. This Agreement shall terminate automatically upon
Executive's death. If Executive's employment hereunder is
terminated on account of his death, the Company shall pay To
Executive's estate, as its sole right and remedy under this
Agreement, all accrued and unpaid Base Compensation, accrued
Bonus, if any, and expense reimbursements through the date of
Executive's death and the Executive's estate shall also be
entitled to receive any then accrued Company stock pursuant to the
Stock Agreement, insurance and other rights and benefits, to the
extent, if at all, the Executive was entitled to them under their
respective terms.
6.2 DISABILITY. In the event that Executive, because of accident,
disability or physical or mental fitness, is incapable of
performing his usual duties hereunder, the Company shall have the
right to terminate Executives employment hereunder, upon thirty
(30) days prior written notice to Executive. For purposes of this
Section 4.2, Executive shall be deemed to have become incapable of
performing his usual duties hereunder if the Board shall
reasonably determine that Executive is, by reason of any
medically determinable physical or mental impairment expected to
result in death or to be of a duration of not less than six (6)
months, unable to perform consistently and materially his usual
duties for the Company with or without reasonable accommodation.
If Executive's employment hereunder is terminated pursuant to this
Section 6.2, the Company shall pay to Executive, as his sole and
exclusive right and remedy under this Agreement all accrued and
unpaid Base Compensation, Bonuses and reimbursements through the
date of Executive's termination and the Executive shall also be
entitled to receive any then accrued stock pursuant to the Stock
Agreement, insurance and other rights and benefits to the extent,
if at all, the Executive was entitled to them under their
respective terms.
7. BINDING ARBITRATION.
7.1 Any dispute, claim or controversy with respect to Executive's
termination of employment with the Company (whether the
termination of employment is voluntary or involuntary), and any
dispute, claim or controversy with respect to incidents or events
leading to such termination or the method or manner of such
termination, and any question of arbitrability hereunder, shall be
settled exclusively by arbitration.
5
<PAGE>
7.2 Executive and InterMune each waive their constitutional rights to
have such matters determined by a jury. Instead of a jury trial,
an arbitrator shall be chosen by InterMune and Executive.
Arbitration is preferred because, among other reasons, it is
quicker, less expensive and less formal than litigation in court.
The provisions governing arbitration are described in detail in
InterMune's Employee Handbook.
7.3 The arbitrator shall not have the authority to alter, amend,
modify, add to or eliminate any condition or provision of this
Agreement, including, but not limited to, the "at-will" nature of
the employment relationship. The arbitration shall be held in San
Mateo County, California. The award of the arbitration shall be
final and binding on the parties. Judgment upon the arbitrator's
award may be entered in any court, state or federal, having
jurisdiction over the parties. If a written request for
arbitration is not made within one (1) year of the date of the
alleged wrong or violation, all remedies regarding such alleged
wrong or violation shall be waived.
7.4 Should any court determine any provision(s) of this Agreement to
arbitrate is void or invalid, the parties specifically intend
every other provision of this Agreement to arbitrate to remain
enforceable and intact. The parties explicitly and definitely
prefer arbitration to recourse to the courts, for the reasons
described above, and have prescribed arbitration as the sole and
exclusive method of dispute resolution.
7.5 NO INCONSISTENT OBLIGATIONS. Executive represents that Executive
is not aware of any obligations, legal or otherwise, inconsistent
with the terms of this Agreement or Executive's undertakings under
this Agreement.
8. MISCELLANEOUS.
8.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and
inure to the benefit of the parties hereto, and their heirs,
executors, legal representatives, successors and assigns. Neither
party shall have the right to assign its obligations, or all or
any portion of their rights or interests under Agreement without
the prior written consent of the other party hereto, and any
attempt to do so will be null and void; provided, that the Company
shall have the right to assign this Agreement in connection with
(A) any merger or consolidation of the Company with another
entity, whether or not the Company is the continuing or surviving
entity, in which fifty percent (50%) or more of the Company's
voting capital is transferred to holders different from persons or
their affiliates who held the immediately prior to such merger or
consolidation or (B) any sale of all or substantially all of the
Company's assets to another entity or person of which fifty
percent (50%) or more of the capital stock is held by holders
different from persons or their affiliates who hold voting capital
stock of the Company.
6
<PAGE>
8.2 WITHHOLDING. Executive hereby agrees to make appropriate
arrangements with the Company for the satisfaction of all Federal,
State or local income tax withholding requirements and Federal
social security employee tax requirements applicable to this
Agreement.
8.3 AMENDMENT. No promises or changes in Executive's status as an
employee of the Company or any of the terms and conditions of this
Agreement; can be made unless they are made in writing and signed
by the Chief Executive Officer of InterMune. This Agreement and
the terms and conditions described in it cannot be changed orally
or by any conduct of either Executive or InterMune or any course
of dealings between Employee, or another person and InterMune.
8.4 GOVERNING LAW. This Agreement and performance under it, and any
suits or special proceedings brought under it, shall be construed
in accordance with the laws of the United States of America and
the State of California and any arbitration, mediation or other
proceeding arising hereunder shall be filed and adjudicated in San
Mateo County, California.
7
<PAGE>
8.5 SEVERABILITY. If any term or condition, or any part of a term or
condition, of this Agreement shall prove to be invalid, void or
illegal, it shall in no way affect, impair or invalidate any of
the other terms or conditions of this Agreement, which shall
remain in full force and effect.
8.6 WAIVER. The failure of either party at any time to require
performance by the other party of any provision hereof shall not
affect in any way the full right to require such performance at
any time thereafter, nor shall a waiver by either party of a
breach of any provision hereof be taken or held to be a continuing
waiver of such provision, or waiver of any other breach under any
other provision of this Agreement.
8.7 RELIANCE: CONSTRUCTION. The parties to this Agreement represent
and acknowledge that in executing this Agreement they do not rely
and have not relied upon any representation or statement made by
the other party or the other party's agents, attorneys or
representatives regarding the subject matter, basis, or effect of
this Agreement or otherwise, other than those specifically stated
in this written Agreement. This Agreement shall be interpreted in
accordance with the plain meaning of its terms and not strictly
for or against any party. This Agreement shall be construed as if
each party was its author and each party hereby adopts the
language of this Agreement as if it were his, her or its own. The
captions in this Agreement and its sections, subsections, tables
and exhibits are inserted only for convenience and shall not be
construed as part of this Agreement or as a limitation on or
broadening of the scope of this Agreement or any section,
subsection, table or exhibit.
8.8 COUNTERPARTS. This Agreement may be executed by facsimile
signature (which will be as valid as an original signature) and in
any number of counterparts, each of which shall be deemed to be an
original, and all of which together will constitute one and the
same Agreement.
8.9 NO CONFLICT. Executive covenants and represents that he is not a
party in any agreement or understanding which impairs or prohibits
his ability to enter into and perform services under this
Agreement.
Employee and InterMune have executed this Agreement and agree to enter into and
be bound by the provisions hereof as of the date first set forth above.
INTERMUNE PHARMACEUTICALS INC.
By: /s/James T. Healy /s/Edward Engleman
------------------------------ ----------------------------------
James T. Healy Edward Engleman
Director Director
[SIGNATURES CONTINUED]
8
<PAGE>
By: /s/John L. Higgins
-----------------------------------
John L. Higgins
Director
Sign: /s/W. Scott Harkonen
-----------------------------------
W. Scott Harkonen
9
<PAGE>
Exhibit 10.8
INTERMUNE
PHARMACEUTICALS
October 28, 1999
Timothy P. Lynch
1340 Lombard Street, Apt. 1
San Francisco, CA 94109
Dear Mr. Lynch:
On behalf of InterMune Pharmaceuticals, Inc., I am pleased to offer you the
position of Chief Financial Officer and Vice President of Business Development,
reporting to me.
The terms of your employment will be as follows:
Your starting salary will be $160,000 per year. As a full-time employee of
InterMune Pharmaceuticals, you will be eligible for the Company's standard
benefits package including medical and dental insurance coverage. Your position
is exempt, and you will not be eligible for overtime. You will be entitled to
three weeks paid vacation per year, prorated during 1999. As part of your
sign-on bonus, you will be granted two weeks paid vacation during the remainder
of 1999. In addition, you will receive a $10,000 cash payment 30 days after you
begin employment at InterMune.
Subject to approval of the Board of Directors, on date of hire you will be
granted an option to purchase 180,000 shares of InterMune Pharmaceuticals, Inc.
stock. Your right to exercise 165,000 shares of this option will be subject to a
vesting schedule, such that 165,000 shares of your option will be fully vested
at the end of five years completed employment. The remaining 15,000 shares of
stock will fully vest contingent upon the successful completion of a corporate
partnership for one of the Company's products that is acceptable to our board of
directors. The terms and conditions of this option, including vesting, will be
governed by an agreement that you will be required to sign.
In the event of termination of your employment with the Company other than for
cause, or a significant change in your responsibilities following a change in
control of the company, you will be entitled to receive continuation of salary
and benefits for six months following your termination date. In addition, you
will be entitled to continue all vesting with respect to Company stock during
such six-month period.
As a condition of your employment, you will be required to provide proof of US
citizenship or that you are legally entitled to work in the United States, and
to execute and be bound by the terms of the enclosed Proprietary Information and
Invention
3294 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
PHONE: (650) 493-8333
FAX: (650) 858-2937
<PAGE>
Agreement. In that regard, please be aware that Company policy prohibits all
employees from bringing to the Company, or using in performance of their
responsibilities at the Company, any confidential information, trade secrets, or
propriety material or processes of any previous employer. Employment with the
Company is at will, is not for any specific term and can be terminated by you or
the Company at any time for any reason with or without cause.
This Offer remains open through noon on Wednesday, November 3, 1999. Upon
acceptance of this offer, the terms described in this letter and in the
Proprietary Information and Invention Agreement shall be the terms of your
employment, superseding any other employment agreements or understandings with
InterMune. Any additions or modifications of these terms must be in writing and
signed by you and an officer of InterMune Pharmaceuticals, Inc. Your anticipated
date of your start of hire is November 1, 1999.
Again, let me indicate how pleased I am to extend this offer, and how much we at
InterMune look forward to working with you. We anticipate that you will find
this an exciting and challenging position in a dynamic and growing company.
Again, let me indicate how pleased we are to extend this offer, and how much we
at InterMune look forward to working with you. We anticipate that you will find
this an exciting and challenging position in a dynamic and growing company.
Please indicate your acceptance by signing and returning the enclosed duplicate
original of this letter to me.
Very truly yours,
/s/ W. Scott Harkonen
W. Scott Harkonen, M.D.
President and CEO
InterMune Pharmaceuticals, Inc.
UNDERSTOOD AND ACCEPTED:
/s/Timothy P. Lynch 10/25/99
- ----------------------------------------------------------
Timothy P. Lynch Date
<PAGE>
Exhibit 10.9
INTERMUNE
PHARMACEUTICALS
October 22, 1999
Peter Van Vlasselaer, Ph.D.
1065 Hickorynut Court
Sunnyvale, California 94087
Dear Dr. Van Vlasselaer:
On behalf of InterMune Pharmaceuticals, Inc., I am pleased to offer you the
position of Senior Vice President, Technical Operations, reporting to me at our
facility located at 3294 East Bayshore Road in Palo Alto.
The terms of your employment will be as follows:
Your starting salary will be $165,000 per year. As a full-time employee of
InterMune Pharmaceuticals, you will be eligible for the Company's standard
benefits package including medical and dental insurance coverage. Your position
is exempt, and you will not be eligible for overtime. You will be entitled to
three weeks paid vacation per year, prorated during 1999. The Company will
provide you with a one-time sign-on bonus of $10,000 one month following your
first day of employment.
Subject to approval of the Board of Directors, on date of hire you will be
granted an option to purchase 160,000 shares of InterMune Pharmaceuticals, Inc.
stock. Your right to exercise this option will be subject to a vesting schedule,
such that your option will be fully vested at the end of five years completed
employment. The terms and conditions of this option, including vesting, will be
governed by an agreement that you will be required to sign.
As a condition of your employment, you will be required to provide proof of US
citizenship or that you are legally entitled to work in the United States, and
to execute and be bound by the terms of the enclosed Proprietary Information and
Invention Agreement. In that regard, please be aware that Company policy
prohibits all employees from bringing to the Company, or using in performance of
their responsibilities at the Company, any confidential information, trade
secrets, or propriety material or processes of any previous employer. Employment
with the Company is at will, is not for any specific term and can be terminated
by you or the Company at any time for any reason with or without cause.
3294 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
PHONE: (650) 493-8333
FAX: (650) 858-2937
<PAGE>
Offer of Employment
Peter Van Vlasselaer, Ph.D.
Page 2 of 2
In the event of termination of your employment with the Company other than for
cause, you will be entitled to receive continuation of salary and benefits for
three months following your termination date. In addition, you will be entitled
to continue all vesting with respect to Company stock during such three-month
period.
This offer remains open through noon on Friday, October 29, 1999. Upon
acceptance of this offer, the terms described in this letter and in the
Proprietary Information and Invention Agreement shall be the terms of your
employment, superseding any other employment agreements or understandings with
InterMune. Any additions or modifications of these terms must be in writing and
signed by you and an officer of InterMune Pharmaceuticals, Inc.
Again, let me indicate how pleased I am to extend this offer, and how much we at
InterMune are looking forward to working with you. We anticipate that you will
find this an exciting and challenging position in a dynamic and growing company.
Please indicate your acceptance by signing and returning the enclosed duplicate
original of this letter to me.
Very truly yours,
/s/ W. Scott Harkonen
W. Scott Harkonen, M.D.
President and CEO
InterMune Pharmaceuticals, Inc.
UNDERSTOOD AND ACCEPTED:
/s/ Peter Van Vlasselaer, Ph.D. 10/26/99
- -----------------------------------------------------------
Peter Van Vlasselaer, Ph.D. Date
<PAGE>
Exhibit 10.10
INTERMUNE
PHARMACEUTICALS
Ms. Christine W. Czamiecki
1950 Clay Street, Apt. 204
San Francisco, CA 94109
Dear Christine:
On behalf of InterMune Pharmaceuticals, Inc., we are pleased to offer you the
position of Vice President, Regulatory Affairs, reporting to Scott Harkonen,
Chief Executive Officer and President.
The terms of your employment will be as follows:
Your starting salary will be $175,000 per year. As a full-time employee of
InterMune Pharmaceuticals, you will be eligible for the Company's standard
benefits package including medical and dental insurance coverage. Your position
is exempt, and you will not be eligible for overtime. You will be entitled to
three weeks paid vacation per year.
Subject to approval of the Board of Directors, on date of hire you will be
granted an option to purchase 105,000 shares of InterMune Pharmaceuticals, Inc.
stock at an exercise price of $0.25. Your right to exercise the shares of this
option will be subject to a vesting schedule, such that 105,000 shares of your
option will be fully vested at the end of five years completed employment. The
terms and conditions of this option, including vesting, will be governed by an
agreement that you will be required to sign.
As a condition of your employment, you will be required to provide proof of
US citizenship or that you are legally entitled to work in the United States,
and to execute and be bound by the terms of the enclosed Proprietary
Information and Invention Agreement. In that regard, please be aware that
Company policy prohibits all employees from bringing to the Company, or using
in performance of their responsibilities at the Company, any confidential
information, trade secrets, or propriety material or processes of any
previous employer. Employment with the Company is at will, is not for any
specific term and can be terminated by you or the Company at any time for any
reason with or without cause.
3294 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
PHONE: (650) 493-8333
FAX: (650) 858-2937
<PAGE>
In the event of termination of your employment with the Company other than for
cause, you will be entitled to receive continuation of salary and benefits for
four months following your termination date. In addition, you will be entitled
to continue all vesting with respect to Company stock during such four-month
period.
This offer remains open through Friday, December 31, 1999. Upon acceptance of
this offer, the terms described in this letter and in the Proprietary
Information and Invention Agreement shall be the terms of your employment,
superseding any other employment agreements or understandings with InterMune.
Any additions or modifications of these terms must be in writing and signed by
you and an officer of InterMune Pharmaceuticals, Inc. Your anticipated date of
hire is Monday, February 1, 2000.
Again, let me indicate how pleased we are to extend this offer, and how much we
at InterMune look forward to working with you. We anticipate that you will find
this an exciting and challenging position in a dynamic and growing company.
Please indicate your acceptance by signing and returning the enclosed duplicate
original of this letter to me.
Very truly yours,
/s/ W. Scott Harkonen
W. Scott Harkonen, M.D.
President and CEO
InterMune Pharmaceuticals, Inc.
UNDERSTOOD AND ACCEPTED:
/s/ Christine W. Czarniecki 23, December 1999
- --------------------------------------------------------------
Christine W. Czarniecki Date
<PAGE>
Exhibit 10.11
INTERMUNE PHARMACEUTICALS, INC.
SECURED LOAN AGREEMENT
This SECURED LOAN AGREEMENT is made as of July 1. 1999 by and between
INTERMUNE PHARMACEUTICALS, INC., a California corporation (the "Company") and
W. SCOTT HARKONEN ("Borrower").
RECITALS
Borrower desires to borrow, and the Company desires to lend to Borrower
up to an aggregate of $100,000 (the "Borrowed Amount"). The parties desire
that such loan shall be secured pursuant to a Security Agreement of even date
herewith (the "Security Agreement") by an aggregate of 100,000 shares of the
Company's Common Stock (as adjusted for subsequent stock splits, reverse
stock splits and recapitalization) (the "Shares") issuable upon the exercise
of vested options to purchase Common Stock held by Borrower (the "Options")
while any Borrowed Amount is outstanding on the terms and conditions
contained herein and in the Security Agreement.
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO LEND. Subject to the terms and conditions contained in
this Agreement and upon execution of this Agreement, the Company agrees to
issue to Borrower a check or other readily available funds in the Borrowed
Amount upon the date of this Agreement.
2. PROMISSORY NOTE. In consideration of the Company's delivery of the
Borrowed Amount, Borrower will execute a secured promissory note in the form
attached hereto as Exhibit A (the "Note"), in the principal amount of such
Borrowed Amount and bearing interest at a rate of 7.5% per annum, compounded
annually.
3. SECURITY AGREEMENT. Borrower will additionally execute the Security
Agreement in the form attached hereto as Exhibit B as security for Borrower's
obligation to repay the Borrowed Amount, and, upon any exercise of the
Options, will deliver, or cause to be delivered, all certificates
representing Shares to the Company or its designee as pledgeholder of the
Shares, together with such other documents of assignment and other documents
as may be reasonably requested by the Company. The Shares will be held by the
Company or its designee as pledgeholder and shall be released in accordance
with the terms of the Security Agreement.
4. NO EMPLOYMENT RIGHTS. Nothing in this Agreement or the Note is
intended or shall be construed to confer upon Borrower any right to
employment or continued employment with the Company, or shall alter in any
way the nature of Borrower's employment with the Company.
1
<PAGE>
5. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. 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. 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.
(b) GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State
of California, without giving effect to principles of conflicts of law.
(c) NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage
prepaid, if such notice is addressed to the party to be notified at such
party's address or facsimile number as set forth below, or as subsequently
modified by written notice.
(d) SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i)
such provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with
its terms.
(e) ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice
as to its legal rights from legal counsel and that the person signing on its
behalf has read and understood all of the terms and provisions of this
Agreement. This Agreement shall not be construed against any party by reason
of the drafting or preparation thereof.
[Signature Page Follows]
2
<PAGE>
The parties hereto have executed this Secured Loan Agreement as of the
day and year first above written.
By: /s/ W. Scott Harkonen
------------------------------------
W. SCOTT HARKONEN
Address: 70 Mendosa Avenue
San Francisco, California 94116
INTERMUNE PHARMACEUTICALS, INC.
By: /s/ James I. Healy
------------------------------------
James I. Healy
Director
Address: 2483 West Bayshore Road, Suite 103
Palo Alto, CA 94303
3
<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
$100,000 Palo Alto, California
July 1, 1999
FOR VALUE RECEIVED, W. SCOTT HARKONEN ("Borrower") promises to pay to
INTERMUNE PHARMACEUTICALS, INC., a California corporation (the "Company"), the
principal sum of One Hundred Thousand Dollars ($100,000), together with
interest on the unpaid principal hereof from the date hereof at the rate of
7.5% per annum, compounded annually.
All principal and accrued interest shall be due and payable in full on
the earliest of (a) October 30, 2000 or (b) the termination of Borrower's
employment or consulting relationship with the Company for any reason (or for
no reason). Payments of principal and interest shall be made in lawful money
of the United States of America and shall be credited first to the accrued
interest, with the remainder applied to principal.
Borrower may at any time prepay all or any portion of the principal or
interest owing hereunder.
This Note is subject to the terms of a Secured Loan Agreement, dated as
of July 1, 1999, by and between the Company and Borrower, and is secured by a
pledge of Common Stock of the Company issuable upon exercise of vested
options held by Borrower under the terms of a Security Agreement July 1, 1999
and is subject to all the provisions thereof.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by
Borrower.
The holder of this Note shall have full recourse against Borrower, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
By: /s/ W. Scott Harkonen
-----------------------------------
W. SCOTT HARKONEN
1
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
This SECURITY AGREEMENT is made as of July 1, 1999 by and between
INTERMUNE PHARMACEUTICALS, INC., a California corporation ("Pledgee"), and W.
SCOTT HARKONEN ("Pledgor").
RECITALS
Pledgee has loaned to Pledgor, and Pledgor has borrowed from Pledgee, an
aggregate of $100,000, which loan is or shall be evidenced by a promissory
note (the "Note") and is to be secured by up to an aggregate of 100,000
shares of Pledgee's Common Stock (the "Shares") (as adjusted for subsequent
stock splits, reverse stock splits and recapitalization) issuable upon
exercise of vested options held or hereafter acquired by Pledgee (the
"Options").
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties to
this Agreement agree as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST; TRANSFERABILITY; ESCROW.
(a) In consideration of the loan to Pledgor, Pledgor, pursuant to the
Commercial Code of the State of California, hereby pledges the Shares
(sometimes referred to in this Agreement as the "Collateral"). If any of the
Options are exercised, the certificates representing the Shares shall be
delivered immediately, duly endorsed in blank or with executed stock powers,
to the Secretary of Pledgee (the "Pledgeholder"), who shall hold said
certificates subject to the terms and conditions of this Security Agreement.
(b) The pledged stock (together with an executed blank stock assignment
for use in transferring all or a portion of the Shares to Pledgee if, as and
when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the
Secured Loan Agreement.
(c) Except as required to enable Pledgee to exercise its rights as a
secured party, neither the Shares pledged under this Section 1 nor the
Options may be sold, transferred, pledged, hypothecated or otherwise disposed
of by Pledgor.
(d) To ensure the ability of Pledgee to exercise its rights as a secured
party hereunder, Pledgor shall, upon any exercise of the Options, deliver and
deposit with the Secretary of Pledgee, or such other person designated by
Pledgee, the share certificates representing the
1
<PAGE>
Shares. together with a stock power, duly endorsed in blank, in the form
attached hereto as Exhibit B-1. The Shares and stock power(s) shall be held
by Pledgee in escrow, until such time as the Note shall have been paid in
full.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
(a) PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of the Note
secured hereby, together with interest thereon, at the time and in the manner
provided in the Note.
(b) ENCUMBRANCES. All Shares now or hereafter pledged under this Agreement
are and shall be free of all other encumbrances, defenses and liens, and
Pledgor will not further encumber the Shares without the prior written
consent of Pledgee.
3. VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the
terms of the Note, Pledgor shall have the right to vote all of the Shares
pledged hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes declared
or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change
shall be delivered to and held by the Pledgeholder under the terms of this
Security Agreement in the same manner as the Shares originally pledged
hereunder. In the event of substitution of such securities, Pledgor, Pledgee
and Pledgeholder shall cooperate and execute such documents as are reasonable
so as to provide for the substitution of such Collateral and, upon such
substitution, references to "Shares" in this Security Agreement shall include
the substituted shares of capital stock of Pledgee held by Pledgor as a
result thereof.
5. WARRANTS AND RIGHTS. In the event that, during the term of this
pledge, subscription warrants or other rights or options shall be issued in
connection with the pledged Shares, such rights, warrants and options shall
be the property of Pledgor and, if exercised by Pledgor, all new stock or
other securities so acquired by Pledgor as it relates to the pledged Shares
then held by Pledgeholder shall be immediately delivered to Pledgeholder, to
be held under the terms of this Security Agreement in the same manner as the
Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent for
a period of ten (10) days or more; or
(b) Pledgor fails to perform any of the covenants contained in this
Security Agreement for a period of ten (10) days after written notice thereof
from Pledgee.
7. REMEDIES IN THE EVENT OF DEFAULT. In the case of an event of default,
as set forth above, Pledgee shall have the right to accelerate payment of the
Note upon notice to Pledgor,
2
<PAGE>
and shall thereafter be entitled to pursue any or all of its remedies under
applicable law, including, without limitation, (a) offsetting from Pledgor's
salary, bonuses, vacation pay or other amounts due to Pledgor from the Pledgee,
any amount due and payable by Pledgor under the Note, and/or (b) proceeding
against the Collateral in accordance with the California Commercial Code.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. TERM. The pledge of Shares shall continue until the payment of all
indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against Pledgor, or if a receiver is appointed
for the property of Pledgor, or if Pledgor makes an assignment for the
benefit of creditors, the entire amount unpaid on the Note shall become
immediately due and payable, and Pledgee may proceed as provided in the case
of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his
acts, or omissions to act, as Pledgeholder.
12. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. 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. 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.
(b) GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State
of California, without giving effect to principles of conflicts of law.
(c) NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage
prepaid, if such notice is addressed to the party to be notified at such
party's address or facsimile number as set forth below, or as subsequently
modified by written notice.
3
<PAGE>
(d) SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i)
such provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with
its terms.
(e) ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice
as to its legal rights from legal counsel and that the person signing on its
behalf has read and understood all of the terms and provisions of this
Agreement. This Agreement shall not be construed against any party by reason
of the drafting or preparation thereof.
The parties hereto have executed this SECURITY AGREEMENT as of the day and
year first above written.
By: /s/ W. Scott Harkonen
-------------------------------------
W. SCOTT HARKONEN
Address: 70 Mendosa Avenue
San Francisco, California 94116
INTERMUNE PHARMACEUTICALS, INC.
By: /s/ James I. Healy
-------------------------------------
James I. Healy
Director
Address: 2483 W. Bayshore Road, Suite 103
Palo Alto, CA 94303
4
<PAGE>
EXHIBIT B-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I hereby sell, assign and transfer unto INTERMUNE
PHARMACEUTICALS, INC., a California Corporation, (the "Company") One Hundred
Thousand (100,000) shares of the Company's Common Stock standing in my name
on the books of said corporation and represented by Certificate No(s)
___________________________, herewith and do hereby irrevocably constitute and
appoint the Stock Administrator or the Secretary of the Company to transfer
said stock on the books of the within-named corporation with full power of
substitution in the premises.
Dated: July 1, 1999
By: /s/ W. Scott Harkonen
-------------------------------------
W. SCOTT HARKONEN
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Security Agreement between the above assignor and the Company
dated July 1, 1999.
1
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
EXHIBIT 10.12
AMENDED AND RESTATED EXCLUSIVE SUBLICENSE AGREEMENT
BY AND BETWEEN
INTERMUNE PHARMACEUTICALS, INC.
AND
CONNETICS CORPORATION
APRIL 27, 1999
<PAGE>
AMENDED AND RESTATED EXCLUSIVE SUBLICENSE AGREEMENT
THIS AMENDED AND RESTATED EXCLUSIVE SUBLICENSE AGREEMENT (the
"Agreement") is made and entered into as of April 27, 1999 (the "Effective
Date") by and between CONNETICS CORPORATION, a Delaware corporation with a
principal place of business at 3400 West Bayshore Road, Palo Alto, CA 94303
("Connetics"), and INTERMUNE PHARMACEUTICALS, INC., a California corporation
with a principal place of business at 3294 West Bayshore Road, Palo Alto, CA
94303 ("InterMune"). InterMune and Connetics may be referred to herein as a
"Party" or, collectively, as the "Parties."
RECITALS
A. WHEREAS, InterMune is a corporation formed for the purpose of research and
development of biopharmaceutical products for the treatment of infectious and
autoimmune diseases; and
B. WHEREAS, Connetics has licensed the rights to certain immunology-based
products and to the technology relating thereto from Genentech, Inc.
("Genentech") pursuant to that certain License Agreement for Interferon Gamma
by and between Connetics and Genentech dated May 5, 1998 (the "Genentech
License"); and
C. WHEREAS, InterMune and Connetics have entered into that certain Exclusive
Sublicense Agreement dated August 21, 1998 (the "Original Agreement")
pursuant to which (a) Connetics granted an exclusive sublicense to InterMune
under the Genentech License to develop, make, have made, import, offer for
sale and sell therapeutic products containing or derived from such
immunology-based products and technology for use for certain specific
indications, and (b) InterMune granted to Connetics the exclusive option to
practice such sublicensed rights in the dermatology field;
D. WHEREAS, Connetics and Genentech have amended the Genentech License
through Amendment No. 1 to License Agreement effective December 28, 1998,
Amendment No. 2 to License Agreement effective January 15, 1999 and Amendment
No. 3 to the License Agreement effective April 27, 1999, pursuant to which
Connetics acquired from Genentech certain additional rights to the
aforementioned immunology-based products and technology, with the intent of
sublicensing such additional rights to InterMune;
E. WHEREAS, Connetics is participating in that certain financing transaction
for InterMune Series A Preferred Shares (the "Series A Transaction") and, as
partial consideration to Connetics for its participation in the Series A
Transaction, InterMune has agreed to pay to Connetics, (i) pursuant to that
certain Collaboration Agreement between the Parties effective as of even date
herewith (the "Collaboration Agreement"), five hundred thousand dollars
($500,000) on the effective date of the Collaboration Agreement and five
hundred thousand dollars ($500,000) on March 31, 2001, and (ii) pursuant to
this Agreement, a milestone payment of one million five hundred thousand
dollars ($1,500,000) as further described herein;
F. WHEREAS, as further consideration to Connetics for its participation in
the Series A Transaction, InterMune has agreed to issue to Connetics pursuant
to the Collaboration
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
1.
<PAGE>
Agreement, (i) nine hundred sixty thousand (960,000) shares of Series A-1
Preferred Stock, (ii) shares of Series B Preferred Stock of an aggregate
value of five hundred thousand dollars ($500,000), and (iii) shares of Series
C Preferred Stock of an aggregate value of one million dollars ($1,000,000);
and
G. WHEREAS, InterMune and Connetics now desire to replace and supersede the
Original Agreement with this Agreement;
NOW, THEREFORE, the Parties agree as follows:
1. DEFINITIONS
1.1 "AFFILIATE" means any company or entity controlled by, controlling
or under common control with a Party. As used in this Section, "control"
means (a) that an entity or company owns, directly or indirectly, fifty
percent (50%) or more of the voting stock of another entity, or (b) that an
entity, person or group has the actual ability to control and direct the
management of the entity, whether by contract or otherwise, but excluding,
for all purposes of this Agreement, Connetics, as to InterMune, and
InterMune, as to Connetics.
1.2 "AMENDMENT NO. 3" means that certain Amendment No. Three to License
Agreement entered into between Connetics and Genentech effective April 27,
1999. For clarity, the phrase "as amended by Amendment No. 3" as used herein
is intended only for ease of reference and not as a limitation.
1.3 "BEST EFFORTS" means every necessary and prudent effort of a Party
applied in a prompt, commercially reasonable manner, to the maximum extent
reasonably allowed by such Party's available financial resources, taking into
account all of such Party's business commitments for such financial resources.
1.4 "BLA" means a Biologics License Application.
1.5 "CONNETICS KNOW-HOW" means all Know-How in the areas of quality
assurance/quality control (QA/QC), pharmaceutical science, process
development or regulatory affairs that (a) is Controlled by Connetics during
the term of this Agreement, and (b) is necessary or useful to the discovery,
development, use or manufacture of Products, but excluding all Know-How that
is part of the Genentech License Rights.
1.6 "CONTROLLED" means with respect to any material, Know-How or
intellectual property right, that the Party owns or has a license to such
material, Know-How or intellectual property right and has the ability to
grant access, a license, or a sublicense to such material, Know-How or
intellectual property right to the other Party as provided for herein without
violating an agreement with a Third Party as of the time the Party would be
first required hereunder to grant the other Party such access, license or
sublicense.
1.7 "DERMATOLOGY FIELD" means the administration to humans of
therapeutic products for the treatment, prevention or diagnosis of any
dermatological disease or condition, including, without limitation, atopic
dermatitis, keloids/hypertrophic scars, pustular psoriasis and
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
2.
<PAGE>
scleroderma, but excluding (i) any cancer disease or condition, (ii) any
infectious disease or condition, and (iii) any indication outside of the IG
Field.
1.8 "DERMATOLOGY SUBLICENSEE" means a Third Party to which Connetics has
granted a sublicense under the sublicense rights granted by InterMune to
Connetics pursuant to Section 4.1.
1.9 "FDA" means the U.S. Food and Drug Administration, or any successor
agency.
1.10 "GENE THERAPY" means the therapeutic or prophylactic treatment of a
human being with: (a) one or more oligonucleotides or nucleotide sequences,
in native form or chemically modified, which are introduced into the body in
free form, bound to a carrier molecule, contained in any molecular vesicle
(e.g. a liposome), incorporated into or attached to a vector of any type,
contained in any cellular construct and/or contained in any mechanical device
or (b) cells which have been manipulated EX VIVO using one or more
oligonucleotides or nucleotide sequences.
1.11 "GENE THERAPY FIELD" means the administration to humans of Licensed
Gene Product for Gene Therapy for the treatment or prevention of any human
disease or condition, provided however, that "Gene Therapy Field" shall not
include any treatment or prevention of any type of cardiac or cardiovascular
disease or condition.
1.12 "GENENTECH" means Genentech, Inc., a Delaware corporation with its
principal office at 1 DNA Way, South San Francisco, CA 94080.
1.13 "GENENTECH LICENSE" means the License Agreement for Interferon
Gamma between Genentech and Connetics dated May 4, 1998, as amended by
Amendment No. 1 to License Agreement effective December 28, 1998, Amendment
No. 2 to License Agreement effective January 15, 1999, and Amendment No. 3,
all of which are attached hereto as Exhibit 1.13.
1.14 "GENENTECH LICENSE RIGHTS" means all rights under Patents, Know-How
and trademarks granted to Connetics by Genentech under the Genentech License,
but only to the extent the Genentech License permits the practice of such
rights for the uses set forth in Article 3 herein. "Genentech License Rights"
shall not include any Third Party Product Rights.
1.15 "GENENTECH PATENTS" means all the Patent rights which are granted
to Connetics under the Genentech License.
1.16 "GENENTECH SUPPLY AGREEMENT" means the Supply Agreement entered
into between Genentech and Connetics dated May 4, 1998, a copy of which is
attached hereto as Exhibit 1.16.
1.17 "IG FIELD" means the administration to humans of Licensed Protein
Product for the treatment or prevention of any human disease or condition,
provided however, that "IG Field" shall not include: (i) the administration
to humans of Licensed Protein Product for the treatment or prevention of any
type of arthritis or cardiac or cardiovascular disease or condition or (ii)
use of Licensed Protein Product for Gene Therapy.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
3.
<PAGE>
1.18 "INTERFERON GAMMA" OR "IG" means the polypeptide described as
"Interferon Gamma" in Section 1.20 of the Genentech License.
1.19 "INTERMUNE NET SALES" means "Net Sales" of Licensed Protein
Products in the Territory for use in the IG Field by InterMune and its
sublicensees hereunder other than Connetics and its Affiliates and
Dermatology Sublicensees.
1.20 "KNOW-HOW" means all information, data, know-how, trade secrets,
inventions, developments, results, techniques and materials, whether or not
patentable.
1.21 "LICENSED PRODUCT," "LICENSED GENE PRODUCT" AND "LICENSED PROTEIN
PRODUCT" shall each have the same meaning as defined in Section 1.22 of the
Genentech License (as amended by Amendment No. 3).
1.22 "LICENSED TECHNOLOGY" means the Genentech License Rights and the
Connetics Know-How.
1.23 "NET SALES" means "Net Sales" (as defined in Section 1.25 of the
Genentech License) of Licensed Protein Products in the Territory for use in
the IG Field by InterMune and any of its sublicensees hereunder.
1.24 "PATENTS" means any and all issued or pending patents and patent
applications, both foreign and domestic, and including without limitation (a)
all divisionals, continuations and continuations-in-part of any such
applications, (b) any patents that issue from any of the foregoing, and (c)
all substitutions, extensions, reissues, renewals, supplementary protection
certificates and inventors' certificates with respect to any of the foregoing
issued patents.
1.25 "TERRITORY" means the United States and Japan.
1.26 "THIRD PARTY" means any party besides the Parties and their
respective Affiliates.
1.27 "THIRD PARTY PRODUCT RIGHTS" shall have the meaning set forth in
Section 1.37 of the Genentech License (as amended by Amendment No. 3).
1.28 "UNITED STATES" means the United States and its territories and
possessions.
2. ORIGINAL AGREEMENT SUPERSEDED
The Parties agree that the Original Agreement is hereby replaced and
superseded in all respects by this Agreement as of the Effective Date.
3. LICENSES AND COVENANTS
3.1 GENENTECH LICENSE RIGHTS.
(a) Connetics hereby grants to InterMune the exclusive sublicense,
even as to Connetics, under the Genentech License Rights to develop, use,
sell, offer for sale, import, make and have made:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
4.
<PAGE>
(i) Licensed Protein Products in the IG Field in the
Territory, subject to any rights Connetics obtains under Section 4.1 below,
and
(ii) Licensed Gene Products in the Gene Therapy Field in the
United States.
(b) InterMune may sublicense any or all the foregoing rights to the
extent that Connetics is permitted to do so under the Genentech License.
3.2 THIRD PARTY PRODUCT RIGHTS.
(a) Connetics hereby grants to InterMune the exclusive sublicense,
even as to Connetics, under any Third Party Product Rights Connetics acquires
in Japan pursuant to Section 2.1(g)(iii) of the Genentech License (as amended
by Amendment No. 3), which sublicense may be further sublicensed by InterMune
to the extent that Connetics is permitted to do so under the Genentech
License.
(b) Connetics hereby assigns to InterMune its entire right,
title and interest to Connetics' rights of negotiation to Third Party Product
Rights pursuant to Section 2.1(h) of the Genentech License (as amended by
Amendment No. 3). In the event that Genentech notifies Connetics of the
availability of any such Third Party Product Rights, Connetics shall promptly
notify InterMune thereof.
3.3 CONNETICS KNOW-HOW. Connetics hereby grants to InterMune a
non-exclusive license under the Connetics Know-How to develop, use, make,
have made, import, offer for sale and sell (a) Licensed Products in the
Territory, and (b) any products covered by Third Party Patent Rights to which
Connetics or InterMune acquires rights under the Genentech License in the
applicable territory.
3.4 GENENTECH SUPPLY AGREEMENT. Connetics hereby assigns to
InterMune its entire right, title and interest under the Genentech Supply
Agreement and agrees to notify Genentech of such assignment in accordance
with Section 5.4 thereof. As of the Effective Date, InterMune shall be deemed
to be the successor in interest of Connetics under the Genentech Supply
Agreement and shall assume all obligations and be entitled to all rights of
Connetics under such agreement. InterMune hereby covenants that it shall
maintain the Genentech Supply Agreement effective and in good standing. To
the extent Connetics exercises its option pursuant to Section 4.1 below,
InterMune shall procure for and supply to Connetics (and its Dermatology
Sublicensees, if any) its requirements for Bulk Product and Finished Product
(as such terms are defined in the Genentech Supply Agreement) for use in the
Dermatology Field from Genentech pursuant to the Genentech Supply Agreement
or from any Third Party manufacturer(s) contracted by InterMune to
manufacture Finished Product and Bulk Product, provided that Connetics shall
pay to InterMune InterMune's cost, without markup, for procuring and
supplying such Finished Product and Bulk Product to Connetics.
3.5 TRANSFER OF DATA AND MATERIALS. Promptly following the Effective
Date, Connetics and InterMune shall work cooperatively together to transfer
to InterMune all documents or materials in Connetics' possession comprising
or containing the Licensed Technology, including without limitation,
biological and chemical materials, regulatory filings,
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
5.
<PAGE>
and data, and Connetics shall transfer any and all additions or improvements
to the Licensed Technology to InterMune as soon as is reasonably practicable
after the creation, development or acquisition of such addition or
improvements.
3.6 CONNETICS COVENANT. Connetics hereby covenants that it shall
maintain the Genentech License effective and in good standing subject to
InterMune's performance under Section 3.7 below.
3.7 INTERMUNE PERFORMANCE UNDER GENENTECH LICENSE.
(a) InterMune shall perform in lieu and instead of
Connetics in carrying out the rights and obligations of Connetics under the
Genentech License to the extent permitted in Section 2.3(c) of the Genentech
License (including without limitation the insurance obligations set forth in
Section 10.4 of the License Agreement (as amended by Amendment No. 3)), and
except as set forth in Article 4 below. Connetics agrees to use commercially
reasonable diligent efforts to cooperate with InterMune to enable it to
exercise such rights and to perform such obligations thereunder.
(b) In the event that InterMune reasonably anticipates that
it is likely to materially default under any obligation under the Genentech
License that it is obligated to perform pursuant to subsection (a) above,
InterMune shall notify Connetics as promptly as reasonably practicable of
such default. At Connetics' request, InterMune shall cooperate fully with
Connetics in order to prevent, mitigate or cure such default.
4. OPTION TO DERMATOLOGY RIGHTS
4.1 OPTION GRANT. InterMune hereby grants to Connetics the exclusive
option to obtain the exclusive sublicense under the Genentech License Rights
to develop, use, make, have made, import, offer for sale and sell Licensed
Protein Products for use solely in the Dermatology Field in the United
States, subject to Genentech's rights under the Genentech License. Connetics
may exercise such option at any time prior to the [ * ] anniversary of the
Effective Date by providing InterMune written notice of its desire to
exercise such option. Upon InterMune's receipt of such notice, InterMune
shall be deemed to have granted to Connetics the exclusive, royalty-free
(with respect to InterMune only), sublicense under the Genentech License
Rights to use, make, have made, import, offer for sale and sell Licensed
Protein Products in the Dermatology Field in the United States for the term
of this Agreement, subject to the terms of the Genentech License, and
Connetics shall undertake all obligations under the Genentech License
relating to its development and commercialization of Licensed Protein
Products in the Dermatology Field in the United States, including without
limitation those obligations described in Sections 4.2 and 4.4 below. Such
sublicense shall be further sublicenseable by Connetics to the extent
permitted by the Genentech License. If not exercised by the [ * ] anniversary
of the Effective Date, the option granted in this Section 4.1 shall expire.
4.2 PAYMENTS AND OTHER OBLIGATIONS UNDER GENENTECH LICENSE. If
Connetics exercises such option as set forth in Section 4.1 above:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
6.
<PAGE>
(i) In the event that Connetics or a Dermatology
Sublicensee achieves one of the milestones set forth in Sections 8.2(a) or
(b) of the Genentech License with respect to its Licensed Protein Product,
Connetics or such Dermatology Sublicensee shall inform InterMune thereof and
provide such milestone payment due under the Genentech License to InterMune,
and InterMune agrees to render such payment to Genentech on behalf of
Connetics.
(ii) In the event that milestone payments to
Genentech as set forth in Sections 8.1 (c) and (d) of the Genentech License
are triggered by the sale of Licensed Protein Product by both Connetics and
InterMune (and/or their sublicensees) in the Territory, the Parties shall
promptly meet and in good faith determine a fair apportionment between the
Parties of the payment to be made to Genentech for such milestone based upon
the relative Net Sales of each Party for such calendar year or other agreed
upon method of apportionment. Connetics shall then submit to InterMune its
portion of such milestone payment in accordance with the terms of the
Genentech License, and InterMune agrees to render such payment to Genentech
on behalf of Connetics.
(b) ROYALTIES. Connetics shall be responsible for making
all payments due (i) to Genentech under Section 8.3 of the Genentech License,
and (ii) to Genentech or any other Third Party under Section 8.4 of the
Genentech License, in each case on Net Sales of Licensed Protein Products by
Connetics, its Affiliates and its Dermatology Sublicensees, in accordance
with the Genentech License.
(c) DEFAULT. In the event that Connetics reasonably
anticipates that it is likely to materially default under any obligation
under the Genentech License that it is obligated to perform under Section
4.1, including without limitation the obligations described in subsections
(a) and (b) above, Connetics shall notify InterMune as promptly as reasonably
practicable of the nature of such default. At InterMune's request, Connetics
shall cooperate fully with InterMune in order to prevent, mitigate or cure
such default.
4.3 OFF-LABEL SALES. If Connetics exercises the option set forth in
Section 4.1 then:
(a) Each Party agrees and shall require its sublicensees,
if any, to use commercially reasonable efforts to formulate all Licensed
Protein Products developed by such Party or sublicensee thereof in a manner
to reduce, to the extent reasonably practicable, the possibility that such
Licensed Protein Product can be used in the other Party's field of use as
provided hereunder. If a Party cannot so formulate a particular Licensed
Protein Product, then such Party agrees to use its Best Efforts to prevent
sales of such Licensed Protein Product for use in the other Party's field of
use, including without limitation instructing its sales forces, and requiring
all sublicensees to instruct their sales forces, that such Licensed Protein
Product is not to be promoted, marketed or sold for use in the other Party's
field of use.
(b) In the event that either Party determines that a
Licensed Protein Product is being used in a field of use other than for which
it was intended, such Party shall immediately inform the other Party. The
Parties shall then promptly meet and diligently and in good faith determine a
fair and reasonable mechanism for equitable allocation of the sales of such
Licensed Protein Product that are used outside the field of use for which
they are intended.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
7.
<PAGE>
4.4 PATENT COSTS. If Connetics exercises the option set forth in
Section 4.1, then Connetics agrees to reimburse InterMune all costs paid by
InterMune to Genentech under Section 5.2 of the Genentech License which
relate to any patent or patent application the claims of which: (a) are
specifically directed to a Licensed Protein Product for use in the
Dermatology Field and (b) do not relate to a Licensed Protein Product for use
in any area of the IG Field other than the Dermatology Field.
4.5 MILESTONE PAYMENTS. If Connetics exercises its options under
Section 4.1, then Connetics shall make the following cash milestone payments
to InterMune:
(a) [ * ] within thirty (30) days following the date on
which the first NDA or BLA for a Licensed Protein Product is filed with the
FDA by Connetics for an indication in the Dermatology Field.
(b) [ * ] within thirty (30) days following the date
Connetics receives FDA clearance for each new indication in the Dermatology
Field of a Licensed Protein Product for commercial sale in the United States.
4.6 DERMATOLOGICAL INDICATIONS OUTSIDE OF THE DERMATOLOGY FIELD.
(a) It is the intention of the Parties that Connetics shall
be InterMune's preferred marketing partner for sales of Licensed Protein
Product to dermatologists in the United States during the term of this
Agreement. Therefore, during the term of this Agreement, if either Party
desires to sell Licensed Protein Product to dermatologists in the United
States for use for indications that are outside of the Dermatology Field but
within the IG Field (an "Outside Indication"), the provisions of this Section
4.6 shall apply.
(b) In the event that either Party desires to sell a
Licensed Protein Product for an Outside Indication to dermatologists in the
United States during the term of this Agreement, such Party shall give the
other Party written notice of such interest, which notice shall specify the
indication of interest. If InterMune notifies Connetics that InterMune itself
desires to sell such Licensed Protein Product for an Outside Indication
directly to dermatologists in the United States, then the procedures of
subsection (d) shall apply. Otherwise, for ninety (90) days following receipt
of such notice, the Parties shall exclusively negotiate in good faith for the
reasonable commercial terms under which Connetics shall exclusively sell such
Licensed Protein Product for such Outside Indication to dermatologists in the
United States. In the event that, at the end of such ninety (90) day period,
the Parties have failed to enter into a written agreement on such
commercially reasonable terms, Connetics' rights with respect to the sale of
such Licensed Protein Product for such Outside Indication shall terminate and
InterMune shall have no further obligations to Connetics under this Section
4.6 with respect to such Licensed Protein Product for such Outside Indication
except as set forth is subsections (c) and (d) below.
(c) If the Parties have failed to enter into an agreement
by the end of such ninety (90) day period, as described in subsection (b)
above, InterMune shall then have the right during the following one hundred
eighty (180) day period to enter into an agreement with a Third Party for the
sale to dermatologists of such Licensed Protein Product for such Outside
Indication on economic terms that, taken as a whole, are substantially the
same as, or more favorable to
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
8.
<PAGE>
InterMune than, those last offered in writing by Connetics for such rights
pursuant to subsection (b) above. If at the end of such one hundred eighty
(180) day period InterMune has not entered into an agreement with a Third
Party to sell such Licensed Protein Product for such Outside Indication to
dermatologists in the United States, then the procedures set forth in
subsection (b) above shall again apply, provided that InterMune may proceed
alternatively under subsection (d) below.
(d) If InterMune itself desires to sell such Licensed
Protein Product to dermatologists in the United States for Outside
Indications, then upon written notice from InterMune, Connetics and InterMune
shall enter into good faith negotiations, for a period of ninety (90) days
from Connetics' receipt of such notice, for the reasonable commercial terms
upon which InterMune shall grant to Connetics the rights to co-promote such
Licensed Protein Product for such Outside Indication to dermatologists in the
United States. InterMune agrees that it shall not unreasonably withhold its
agreement to such commercially reasonable terms. In the event that, at the
end of such ninety (90) day period, the Parties have failed to enter into a
written agreement for such co-promotion rights, InterMune shall have no
further obligations to Connetics under this Section 4.6 with respect to such
Licensed Protein Product for such Outside Indication, PROVIDED THAT InterMune
may not enter into an agreement with a Third Party for the rights to
co-promote Licensed Protein Product for such Outside Indication to
dermatologists in the United States on economic terms that, taken as a whole,
are less favorable to InterMune than those last offered in writing by
Connetics for such rights. In the event that InterMune does not enter into
such a co-promotion agreement with a third party and instead solely promotes
and sells such Licensed Protein Product for such Outside Indication to
dermatologists in the United States itself, if at any time following such
sole promotion and sale InterMune determines in its sole discretion that it
desires to grant a license to the rights to promote and sell the rights to
co-promote such Licensed Protein Product for such Outside Indication to
dermatologists in the United States to another party (other than an
Affiliate), then the procedures set forth in subsection (b) above shall apply.
5. CONSIDERATION
5.1 ROYALTIES.
(a) Beginning on January 1, 2002, InterMune shall pay to
Connetics a royalty of [ * ] of InterMune Net Sales in the United States.
InterMune shall continue to pay such royalties to Connetics until such time
as the cumulative InterMune Net Sales in United States, beginning on January
1, 2000, are equal to [ * ]. Thereafter, InterMune shall pay to Connetics a
royalty of [ * ] of InterMune Net Sales in the United States for the
remainder of the term of the Agreement.
(b) All royalties due under this Section 5.1 shall be due
and payable quarterly within thirty (30) days following the last day of each
quarter in which royalties are incurred beginning with first calendar quarter
of 2002.
5.2 MILESTONE PAYMENT. InterMune shall pay to Connetics a milestone
payment of one million five hundred thousand dollars ($1,500,000), as follows
(the "Milestone Payment"), payable in a lump sum or in installments based on
the level of InterMune Net Sales as follows:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
9.
<PAGE>
(a) If annualized InterMune Net Sales in the United States
for 2001, based on InterMune Net Sales in the United States for the third and
fourth calendar quarters of 2001, ("2001 Net Sales") are equal to or greater
than [ * ], then on March 31, 2002, InterMune shall, at its election, either
(i) pay the full Milestone Payment to Connetics, or (ii) pay to Connetics
[ * ] of the Milestone Payment and furnish to Connetics a promissory note for
the balance of the Milestone Payment, which promissory note shall provide for
three (3) principal payments to Connetics of [ * ] each due upon June 30,
2002, September 30, 2002 and December 31, 2002, respectively.
(b) If 2001 Net Sales are equal to or greater than [ * ]
but less than [ * ], then on March 31, 2002, InterMune shall pay to Connetics
[ * ] of the Milestone Payment, and furnish to Connetics a promissory note for
the balance of the Milestone Payment (the "Remaining Payment"), which
promissory note shall provide for full payment of the balance of such note to
Connetics on the earlier to occur of (i) March 31, 2004, or (ii) the last day
of the month following the consecutive twelve (12) month period that
InterMune Net Sales in the United States are equal to or greater than [ * ],
subject to subsection (d) below.
(c) If 2001 Net Sales are less than [ * ], then on March
31, 2002, InterMune shall pay to Connetics a portion of the Milestone Payment
equal to [ * ] multiplied by a fraction, the numerator of which is 2001 Net
Sales and the denominator of which is [ * ]. InterMune shall furnish to
Connetics a promissory note for the balance of the Milestone Payment (the
"Remaining Payment"), which promissory note shall provide for full payment of
the balance of such note to Connetics on the earlier to occur of (i) March
31, 2004, or (ii) the last day of the month following the consecutive twelve
(12) month period that InterMune Net Sales in the United States are equal to
or greater than [ * ], subject to subsection (d) below.
(d) With respect to the promissory note for the Remaining
Payment described in subsection (b) or (c) above, if InterMune is to pay the
balance of such note on March 31, 2004, and InterMune Net Sales in the United
States for the twelve (12) month period preceding March 31, 2004 are equal to
or greater than [ * ] but less than [ * ], then:
(i) InterMune may, at its election, pay [ * ] of the
Remaining Payment either in cash or in Preferred Shares of InterMune stock at
the fair market value of such shares, determined as the average closing price
of such shares over the previous thirty (30) day period; and
(ii) With respect to the other [ * ] of the
Remaining Payment, Connetics may, at its election, receive such fifty percent
either in cash or in Preferred Shares of InterMune stock at the fair market
value of such shares, determined as the average closing price of such shares
over the previous thirty (30) day period, provided that Connetics shall
notify InterMune of its election in writing at least thirty (30) days prior
to the date that such payment is due; and
(e) With respect to the Remaining Payment described in
subsection (b) or (c) above, if InterMune is to pay the balance of such note
on March 31, 2004, and InterMune Net Sales in the United States for the
twelve (12) month period preceding March 31, 2004 are less than [ * ], then
InterMune may, at its election, either:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
10.
<PAGE>
(1) Pay such Remaining Payment in cash or in
Preferred Shares of InterMune stock at the fair market value of such shares,
determined as the average closing price of such shares over the previous
thirty (30) day period; or
(2) Grant to Connetics the license to the Accounting
and Revenue Rights to CGD Units (as defined below), on commercially
reasonable terms to be agreed upon by the Parties, in which event InterMune
shall thereafter have no further obligation to Connetics with respect to such
Remaining Payment. Such license shall be [ * ] with respect to InterMune but
not with respect to Genentech or any other Third Party, and shall expire upon
the date of expiration of the last to expire Genentech Patent covering the
manufacture, use or sale of Licensed Products for the treatment of CGD in the
United States and its territories and possessions. As used herein,
"Accounting and Revenue Rights to CGD Units" means the right to book net
revenues, expenses and net profits for the sales of Licensed Product for the
treatment of chronic granulomatous disease by InterMune and its sublicensees
in the United States.
(f) All promissory notes referred to in this Section 5.2 shall
bear interest at the rate of the prime rate plus [ * ].
5.3 REPORTS; AUDIT RIGHTS. InterMune shall provide to Connetics a
copy of all reports submitted to Genentech by InterMune pursuant to Section
8.8 of the Genentech License when InterMune submits such report to Genentech.
Connetics shall furthermore have the same audit rights as Genentech pursuant
to Section 8.8.
5.4 PAYMENTS UNDER GENENTECH LICENSE. InterMune shall make, on
behalf of Connetics, all payments owed by Connetics to Genentech under
Sections 8.2 and 8.3 of the Genentech License with respect to InterMune's
activities hereunder, except as set forth in Section 4.2 above. Each Party
shall be responsible for paying all royalties due to Third Parties other than
Genentech under Section 8.4 of the Genentech License with respect to such
Party's and/or sublicensee thereof activities hereunder.
6. INTELLECTUAL PROPERTY
6.1 OWNERSHIP OF INVENTIONS. Each Party shall remain the sole owner
of its respective technology and other intellectual property that it owned as
of the Effective Date. A Party shall not have or acquire any rights in any
inventions, Know-How or intellectual property rights of the other Party,
except as specifically granted herein.
6.2 PATENT PROSECUTION. InterMune shall have all the rights of
Connetics under the Genentech License to participate in the prosecution of
the Genentech Patents, and shall pay all patent costs due under the Genentech
License, except as set forth in Section 4.4 above.
6.3 INFRINGEMENT OF THIRD PARTY PATENTS. In the event that a Third
Party files an action against a Party alleging that such Party's activities
under this Agreement infringe such Third Party's patent rights, such Party
shall give written notice to the other Party, and the Parties will consult
and cooperate on the best course of action. The Party that was sued shall
have the right to defend itself against such action, and the other Party
shall provide all reasonable assistance in such defense.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
11.
<PAGE>
6.4 INFRINGEMENT OF LICENSED PATENTS. In the event that either Party
becomes aware that a Third Party is infringing any rights in the Genentech
Patents, such Party shall promptly notify the other. InterMune shall have the
right, in Connetics' stead, to enforce the Genentech Patents to the full
extent Connetics has such rights under the Genentech License, and Connetics
will reasonably cooperate with InterMune in such enforcement actions and take
all reasonably necessary steps to facilitate InterMune's enforcement of the
Genentech Patents.
6.5 COOPERATION. Each Party agrees to cooperate with the other and
take all reasonable additional actions as may be reasonably required to
achieve the intent of this Article 5, including, without limitation, the
execution of all necessary and appropriate instruments and documents.
7. REPRESENTATIONS AND WARRANTIES
7.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party hereby
represents and warrants to the other Party as follows:
(a) Such Party (i) is duly organized, validly existing and
in good standing under the laws of the state in which it is organized; (ii)
has the power and authority and the legal right to own and operate its
property and assets, to lease the property and assets it operates under
lease, and to carry on its business as it is now being conducted; and (iii)
is in compliance with all requirements of applicable law, except to the
extent that any noncompliance would not materially adversely affect such
Party's ability to perform its obligations under the Agreement.
(b) Such Party (i) has the power and authority and the
legal right to enter into the Agreement and to perform its obligations
hereunder, and (ii) has taken all necessary action on its part to authorize
the execution and delivery of the Agreement and the performance of its
obligations hereunder. The Agreement has been duly executed and delivered on
behalf of such Party, and constitutes a legal, valid, binding obligation,
enforceable against such Party in accordance with its terms.
(c) All necessary consents, approvals and authorizations of
all governmental authorities and other persons required to be obtained by
such Party in connection with the Agreement have been obtained.
(d) The execution and delivery of the Agreement and the
performance of such Party's obligations hereunder (i) do not conflict with or
violate any requirement of applicable laws or regulations or any material
contractual obligation of such Party, and (ii) do not materially conflict
with, or constitute a material default or require any consent under any
material contractual obligation of such Party.
7.2 CONNETICS REPRESENTATIONS AND WARRANTIES. Connetics hereby
represents and warrants that:
(a) To Connetics' knowledge as of the Effective Date, the
Licensed Technology practiced as permitted herein does not infringe on any
intellectual property rights owned by any Third Party.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
12.
<PAGE>
(b) Connetics possesses the necessary interest, title and
right to the Licensed Technology to grant the licenses and to make the
assignments to InterMune hereunder.
8. INDEMNIFICATION
8.1 INDEMNIFICATION BY CONNETICS. Connetics agrees to indemnify,
hold harmless and defend InterMune and InterMune's directors, officers,
employees and agents, and the directors, officers, employees and agents of
any InterMune Affiliate from and against any and all claims, suits, losses,
damages, costs, fees and expenses resulting from or arising out of any
negligent or wrongful act or omission by Connetics or its Affiliates, or any
breach by Connetics of its obligations under this Agreement or under the
Genentech License, except to the extent that such claims, suits, losses,
damages, costs, fees or expenses arises or results from any negligent or
wrongful act or omission of InterMune or its Affiliates.
8.2 INDEMNIFICATION BY INTERMUNE. InterMune agrees to indemnify,
hold harmless and defend Connetics and its directors, officers, employees and
agents, and the directors, officers, employees and agents of any Connetics
Affiliates from and against any and all claims, suits, losses, damages,
costs, fees and expenses resulting from or arising out of damage or injury
caused by a negligent or wrongful act or omission of InterMune or its
Affiliates, or any breach by InterMune of its obligations under this
Agreement, except to the extent that such claims, suits, losses, damages,
costs, fees or expenses arises or results from any negligent or wrongful act
or omission of Connetics or its Affiliates.
8.3 INDEMNIFICATION PROCEDURE. In all cases where one Party seeks
indemnification by the other under this Article 8, the Party seeking
indemnification shall promptly notify the indemnifying Party of receipt of
any claim or lawsuit covered by such indemnification obligation and shall
cooperate fully with the indemnifying Party in connection with the
investigation and defense of such claim or lawsuit. The indemnifying Party
shall have the right to control the defense, with counsel of its choice,
provided that the non-indemnifying Party shall have the right to be
represented by advisory counsel at its own expense. The indemnifying Party
shall not settle or dispose of the matter in any manner which could
negatively and materially affect the rights or liability of the
non-indemnifying Party without the non-indemnifying Party's prior written
consent, which shall not be unreasonably withheld.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
13.
<PAGE>
9. CONFIDENTIALITY
9.1 CONFIDENTIAL INFORMATION OBLIGATIONS. As used herein,
"Confidential Information" means all information that a Party discloses to
the other Party under this Agreement or had disclosed to the other Party
under the Original Agreement, provided that Confidential Information shall
not include such information excluded under Section 9.2. Except to the extent
expressly authorized by this Agreement or otherwise agreed in writing by the
Parties, each Party agrees that, during the term of this Agreement and for
five (5) years after the expiration or termination of this Agreement, it
shall keep confidential and shall not publish or otherwise disclose and shall
not use for any purpose other than as provided for in this Agreement any
Confidential Information furnished to it by the other Party pursuant to this
Agreement.
9.2 EXCEPTIONS. The obligations set forth in Section 9.1 shall not
apply to any Information that the receiving Party can demonstrate by
competent evidence:
(a) was already known to the receiving Party, other than
under an obligation of confidentiality, at the time of disclosure by the
other Party;
(b) was generally available to the public or otherwise part
of the public domain at the time of its disclosure to the receiving Party by
the other Party;
(c) became generally available to the public or otherwise
part of the public domain after its disclosure and other than through any act
or omission of the receiving Party in breach of this Agreement;
(d) was disclosed to the receiving Party, other than under
an obligation of confidentiality to a third Party, by a third Party who had
no obligation to the disclosing Party not to disclose such information to
others; or
(e) is independently developed by the receiving Party
without using any of the other Party's Confidential Information.
9.3 TERMS OF THE AGREEMENT. The Parties agree that the terms of the
Agreement will be considered Confidential Information of both Parties.
Notwithstanding the foregoing, a Party shall have the right to disclose the
material financial terms of the Agreement to any bona fide potential
investor, investment banker, acquiror, merger partner or other potential
financial partner, subject to such Party obtaining the agreement of such
party receiving such Confidential Information to keep such information
confidential.
9.4 PERMITTED DISCLOSURE. Notwithstanding the limitations in this
Article 9, each Party may disclose Confidential Information belonging to the
other Party (or otherwise subject to this Article 9), to the extent such
disclosure is reasonably necessary in the following instances, but solely for
the limited purpose of such necessity:
(a) filing or prosecuting Patents;
(b) regulatory and tax filings;
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
14.
<PAGE>
(c) prosecuting or defending litigation;
(d) complying with applicable governmental laws or
regulations or valid court orders;
(e) conducting preclinical or clinical trials of Licensed
Products; and
(f) disclosure to Affiliates, licensees, sublicensees,
employees, consultants or agents who agree to be bound by similar terms of
confidentiality and non-use at least equivalent in scope to those set forth
in this Article 9.
Notwithstanding the foregoing, in the event a Party is required to
make a disclosure of the other Party's Confidential Information pursuant to
Section 9.4, it will give reasonable advance notice to the other Party of
such disclosure and endeavor in good faith to secure confidential treatment
of such information. In any event, the Parties agree to take all reasonable
action to avoid disclosure of Confidential Information hereunder. Further,
the Parties agree to consult with one another on the provisions of this
Agreement to be redacted in any filings made by a Party with the United
States Securities and Exchange Commission or as otherwise required by law.
10. TERMINATION
10.1 TERM OF AGREEMENT. The term of this Agreement shall expire,
unless earlier terminated as provided by Section 10.2 below, upon expiration
or termination of the Genentech License.
10.2 TERMINATION FOR MATERIAL BREACH. If either Party shall default
in a material manner with respect to any material provision of this Agreement
and the other Party shall have given the defaulting Party written notice of
such default, the defaulting Party shall have thirty (30) days to cure such
default. If such default is not cured within such thirty (30) day period, the
non-defaulting Party shall have the right, upon notice to the defaulting
Party and without prejudice to any other rights the non-defaulting Party may
have, to terminate this Agreement unless the defaulting Party is in the
process of attempting in good faith to remedy such default, in which case,
the thirty (30) day cure period shall be extended by an additional thirty
(30) days. Any material default by InterMune in the performance of any
material obligation under the Genentech License assumed by InterMune pursuant
to Section 3.7 of this Agreement shall be deemed a material default of this
Agreement and shall entitle Connetics to terminate this Agreement in
accordance with this Section 10.2.
10.3 EFFECT OF TERMINATION. Upon termination or expiration of the
Agreement, (a) all licenses granted by Connetics to InterMune under Article 2
will terminate; (b) any and all claims and payment obligations that accrued
prior to the date of such termination or expiration shall survive such
termination; (c) each Party shall return all of the other Party's
Confidential Information; and (d) all right, title and interest of InterMune
under the Genentech Supply Agreement shall revert to Connetics, and Connetics
shall be deemed to be the successor in interest of InterMune under the
Genentech Supply Agreement and shall assume all obligations and be entitled
to all rights of InterMune under such agreement.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
15.
<PAGE>
10.4 SURVIVING RIGHTS. The obligations and rights of the Parties
under Section 5.3, 6.1, and Articles 8, 9, 10 and 11 shall survive
termination or expiration of the Agreement.
10.5 ACCRUED RIGHTS AND SURVIVING OBLIGATIONS. The termination or
expiration of the Agreement for any reason shall be without prejudice to any
rights, which shall have accrued to the benefit of either Party prior to such
termination or expiration, including any damages arising from any breach
hereunder. Such termination or expiration shall not relieve either Party from
obligations which are expressly indicated to survive termination or
expiration of the Agreement.
10.6 BANKRUPTCY RIGHTS. In the event that this Agreement is
terminated or rejected by a Party or its receiver or trustee under applicable
bankruptcy laws due to such Party's bankruptcy, then all rights and licenses
granted under or pursuant to this Agreement by such Party to the other Party
are, and shall otherwise be deemed to be, for purposes of Section 365(n) of
the Bankruptcy Code and any similar law or regulation in any other country,
licenses of rights to "intellectual property" as defined under Section
101(52) of the Bankruptcy Code. The Parties agree that all intellectual
property rights licensed hereunder, including without limitation any patents
or patent applications in any country of a Party covered by the license
grants under this Agreement, are part of the "intellectual property" as
defined under Section 101(52) of the Bankruptcy Code subject to the
protections afforded the non-terminating Party under Section 365(n) of the
Bankruptcy Code, and any similar law or regulation in any other country.
11. MISCELLANEOUS
11.1 WAIVER. No waiver by either Party hereto of any breach or
default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent or similar breach or default.
11.2 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the Parties hereto and their permitted successors and assigns;
provided, however, that neither Party shall assign any of its rights and
obligations hereunder without the prior written consent of the other Party,
except as incident to the merger, consolidation, reorganization or
acquisition of stock or assets affecting substantially all of the assets or
actual voting control of the assigning Party. Any assignment or attempted
assignment by either Party in violation of the terms of this Section 10.2
shall be null and void and of no legal effect.
11.3 NOTICES. Any notice or other communication required or
permitted to be given to either Party hereto shall be in writing and shall be
deemed to have been properly given and to be effective on the date of
delivery if delivered in person or by facsimile or five (5) days after
mailing by registered or certified mail, postage paid, to the other Party at
the following address:
In the case of InterMune: InterMune, Inc.
3294 West Bayshore Road
Palo Alto, CA 94303
Fax: (650) 858-2937
Attention: President
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
16.
<PAGE>
with a copy to: Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306
Fax: (650) 857-0663
Attention: Barclay James Kamb, Esq.
In the case of Connetics: Connetics Corporation
3400 West Bayshore Road
Palo Alto, CA 94303
Fax: (650) 843-2899
Attention: Chief Executive Officer
Either Party may change its address for communications by a notice to the
other Party in accordance with this Section.
11.4 HEADINGS. 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.
11.5 AMENDMENT. No amendment or modification hereof shall be valid
or binding upon the Parties unless made in writing and signed by both Parties.
11.6 GOVERNING LAW. This Agreement shall be governed exclusively by
the laws of the State of California, U.S.A., as such law applies to contracts
entered into between and to be performed by California residents entirely in
the State of California.
11.7 DISPUTE RESOLUTION.
(a) In the event of any controversy or claim arising out
of, relating to or in connection with any provision of this Agreement, or the
rights or obligations of the Parties hereunder, the Parties shall try to
settle their differences amicably between themselves by referring the
disputed matter to the President of InterMune and the Chief Executive Officer
of Connetics for discussion and resolution. Either Party may initiate such
informal dispute resolution by sending written notice of the dispute to the
other Party, and within ten (10) days after such notice such representatives
of the Parties shall meet for attempted resolution by good faith
negotiations. If such personnel are unable to resolve such dispute within
thirty (30) days of initiating such negotiations, either Party may seek to
have such dispute resolved by binding arbitration under this Section 11.7.
The arbitration shall be held in Palo Alto, California according to the
Commercial Arbitration Rules of the American Arbitration Association (the
"Rules"). The arbitration will be conducted by a panel of three (3)
arbitrators who are knowledgeable in the subject matter that is at issue in
the dispute, are not affiliated directly or indirectly with either Party, and
are selected by mutual agreement of the Parties. Failing such agreement, the
arbitrators shall be selected appointed as provided in the Rules. During the
arbitration, the Parties shall have such discovery rights as the arbitrators
may allow, consistent with the discovery permitted by the Federal Code of
Civil Procedure. In conducting the arbitration, the arbitrators shall apply
the rules of evidence applicable in California, and shall be
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
17.
<PAGE>
able to decree any and all relief of an equitable nature, including but not
limited to such relief as a temporary restraining order, a preliminary
injunction, a permanent injunction, or replevin of property, as well as
specific performance. The arbitrators shall also be able to award direct and
indirect damages, but shall not award any other form of damage (e.g.,
punitive or exemplary damages). The reasonable fees and expenses, of the
arbitrators, along with the reasonable legal fees and expenses of the
prevailing Party (including all expert witness fees and expenses), the fees
and expenses of a court reporter, and any expenses for a hearing room, shall
be paid as follows: If the arbitrators rule in favor of one Party on all
disputed issues in the arbitration, the losing Party shall pay one hundred
percent (100%) of such fees and expenses; if the arbitrators rule in favor of
one Party on some issues and the other Party on other issues, the arbitrators
shall issue with the rulings a written determination as to how such fees and
expenses shall be allocated between the Parties. The arbitrators shall
allocate fees and expenses in a way that bears a reasonable relationship to
the outcome of the arbitration, with the Party prevailing on more issues, or
on issues of greater value or gravity, recovering a relatively larger share
of its legal fees and expenses. The decision of the arbitrators shall be
final and may be entered, sued on or enforced by the Party in whose favor it
runs in any court of competent jurisdiction at the option of such Party.
Whether a claim, dispute or other matter in question would be barred by the
applicable statute of limitations, which statute of limitations also shall
apply to any claim or disputes subject to arbitration under this Section,
shall be determined by binding arbitration pursuant to this Section.
(b) Notwithstanding anything to the contrary in this
Agreement, either Party may seek immediate injunctive or other interim relief
without resort to arbitration from any court of competent jurisdiction with
respect to any breach of Article 9 hereof, or as necessary to enforce and
prevent infringement of the patent rights, copyright rights, trademarks,
trade secrets, or other intellectual property rights owned or controlled by a
Party or its Affiliates.
11.8 FORCE MAJEURE. Any delays in performance by any Party under
this Agreement shall not be considered a breach of this Agreement if and to
the extent caused by occurrences beyond the reasonable control of the Party
affected, including but not limited to acts of God, embargoes, governmental
restrictions, fire, flood, explosion, riots, wars, civil disorder, rebellion
or sabotage. The Party suffering such occurrence shall immediately notify the
other Party as soon as practicable, and any time for performance hereunder
shall be extended by the actual time of delay caused by the occurrence.
11.9 INDEPENDENT CONTRACTORS. In making and performing this
Agreement, InterMune and Connetics act and shall act at all times as
independent contractors and nothing contained in this Agreement shall be
construed or implied to create an agency, partnership or employer and
employee relationship between InterMune and Connetics. At no time shall one
Party make commitments or incur any charges or expenses for or in the name of
the other Party.
11.10 SEVERABILITY. If any part of this Agreement is declared
invalid by any legally governing authority having jurisdiction over either
Party, then such declaration shall not affect the remainder of the Agreement
and the Parties shall revise the invalidated part in a manner that will
render such provision valid without impairing the Parties' original interest.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
18.
<PAGE>
11.11 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder
shall be in addition to, and not in limitation of, all rights, powers and
remedies provided at law or in equity, or under any other agreement between
the Parties. All of such rights, powers and remedies shall be cumulative, and
may be exercised successively or cumulatively.
11.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
11.13 ENTIRE AGREEMENT. This Agreement and any and all Exhibits
referred to herein, in conjunction with the other "Intercompany Agreements"
(as that term is described in the Collaboration Agreement), embodies the
entire understanding of the Parties with respect to the subject matter of the
Intercompany Agreements, and supersedes and terminates all previous
communications, representations or understandings, either oral or written,
between the Parties relating to the subject matter of the Intercompany
Agreements.
THIS SPACE INTENTIONALLY LEFT BLANK
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
19.
<PAGE>
IN WITNESS WHEREOF, both InterMune and Connetics have executed this
Agreement, as of the day and year first written above.
INTERMUNE PHARMACEUTICALS, INC. CONNETICS CORPORATION
By: /s/ W. Scott Harkonen By: /s/ T. Wiggans
------------------------------- ----------------------------------
Name: W. Scott Harkonen Name: Thomas Wiggans
----------------------------- --------------------------------
Title: President Title: President
---------------------------- -------------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
20.
<PAGE>
EXHIBIT 1.13
GENENTECH LICENSE (AS AMENDED)
The Genentech License (as amended) was filed with the SEC by
Connetics Corporation as Exhibits 10.3 (Second Amendment) and 10.4 (Third
Amendment) to its Quarterly Report on Form 10-Q for the Period Ended March
31, 1999, as filed May 13, 1999; Exhibit 10.63 (First Amendment) to its
Quarterly Report on Form 10K-405 for the Period Ended December 31, 1998 as
filed March 30, 1999; and Exhibit 10.2 (the original License) to its
Quarterly Report on Form 10-Q for the Period Ended June 30, 1998 as filed
August 13, 1998, and is hereby incorporated by reference.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
1.
<PAGE>
EXHIBIT 1.16
GENENTECH SUPPLY AGREEMENT
The Genentech Supply Agreement was filed with the SEC by Connetics
Corporation as Exhibit 10.3 to its Quarterly Report on Form 10-Q for the
Period Ended June 30, 1998, as filed August 13, 1998, and is hereby
incorporated by reference.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
1.
<PAGE>
<TABLE>
<S> <C> <C> <C>
1. DEFINITIONS..............................................................................................2
1.1 "Affiliate".....................................................................................2
1.2 "Amendment No. 3"...............................................................................2
1.3 "Best Efforts"..................................................................................2
1.4 "BLA"...........................................................................................2
1.5 "Connetics Know-How"............................................................................2
1.6 "Controlled"....................................................................................2
1.7 "Dermatology Field".............................................................................2
1.9 "FDA"...........................................................................................3
1.10 "Gene Therapy"..................................................................................3
1.11 "Gene Therapy Field"............................................................................3
1.12 "Genentech".....................................................................................3
1.13 "Genentech License".............................................................................3
1.14 "Genentech License Rights"......................................................................3
1.15 "Genentech Patents".............................................................................3
1.16 "Genentech Supply Agreement"....................................................................3
1.17 "IG Field"......................................................................................3
1.18 "Interferon Gamma" or "IG"......................................................................3
1.19 "InterMune Net Sales"...........................................................................4
1.20 "Know-How"......................................................................................4
1.21 "Licensed Product," "Licensed Gene Product" and "Licensed Protein Product"......................4
1.22 "Licensed Technology"...........................................................................4
1.23 "Net Sales".....................................................................................4
1.24 "Patents".......................................................................................4
1.25 "Territory".....................................................................................4
1.26 "Third Party"...................................................................................4
1.27 "Third Party Product Rights"....................................................................4
1.28 "United States".................................................................................4
2. ORIGINAL AGREEMENT SUPERSEDED............................................................................4
3. LICENSES AND COVENANTS...................................................................................4
3.1 Genentech License Rights........................................................................4
3.2 Third Party Product Rights......................................................................5
</TABLE>
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
1.
<PAGE>
<TABLE>
<S> <C> <C> <C>
3.3 Connetics Know-How..............................................................................5
3.4 Genentech Supply Agreement......................................................................5
3.5 Transfer of Data and Materials..................................................................5
3.6 Connetics Covenant..............................................................................6
3.7 InterMune Performance under Genentech License...................................................6
4. OPTION TO DERMATOLOGY RIGHTS.............................................................................6
4.1 Option Grant....................................................................................6
4.2 Payments and Other Obligations under Genentech License..........................................6
4.3 Off-Label Sales.................................................................................7
4.4 Patent Costs....................................................................................7
4.5 Milestone Payments..............................................................................8
4.6 Dermatological Indications Outside of the Dermatology Field.....................................8
5. CONSIDERATION............................................................................................9
5.1 Royalties.......................................................................................9
5.2 Milestone Payment...............................................................................9
5.3 Reports; Audit Rights..........................................................................11
5.4 Payments under Genentech License...............................................................11
6. INTELLECTUAL PROPERTY...................................................................................11
6.1 Ownership of Inventions........................................................................11
6.2 Patent Prosecution.............................................................................12
6.3 Infringement of Third Party Patents............................................................12
6.4 Infringement of Licensed Patents...............................................................12
6.5 Cooperation....................................................................................12
7. REPRESENTATIONS AND WARRANTIES..........................................................................12
7.1 Mutual Representations and Warranties..........................................................12
7.2 Connetics Representations and Warranties.......................................................13
8. INDEMNIFICATION.........................................................................................13
8.1 Indemnification by Connetics...................................................................13
8.2 Indemnification by InterMune...................................................................13
8.3 Indemnification Procedure......................................................................13
9. CONFIDENTIALITY.........................................................................................14
9.1 Confidential Information Obligations...........................................................14
9.2 Exceptions.....................................................................................14
</TABLE>
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
2.
<PAGE>
<TABLE>
<S> <C> <C> <C>
9.3 Terms of the Agreement.........................................................................14
9.4 Permitted Disclosure...........................................................................14
10. TERMINATION.............................................................................................15
10.1 Term of Agreement..............................................................................15
10.2 Termination for Material Breach................................................................15
10.3 Effect of Termination..........................................................................15
10.4 Surviving Rights...............................................................................16
10.5 Accrued Rights and Surviving Obligations.......................................................16
10.6 Bankruptcy Rights..............................................................................16
11. MISCELLANEOUS...........................................................................................16
11.1 Waiver.........................................................................................16
11.2 Assignment.....................................................................................16
11.3 Notices........................................................................................16
11.4 Headings.......................................................................................17
11.5 Amendment......................................................................................17
11.6 Governing Law..................................................................................17
11.7 Dispute Resolution.............................................................................17
11.8 Force Majeure..................................................................................18
11.9 Independent Contractors........................................................................18
11.10 Severability...................................................................................18
11.11 Cumulative Rights..............................................................................19
11.12 Counterparts...................................................................................19
11.13 Entire Agreement...............................................................................19
</TABLE>
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
3.
<PAGE>
CONFIDENTIAL
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
EXHIBIT 10.17
SPONSORED RESEARCH AND LICENSE AGREEMENT
THIS SPONSORED RESEARCH AND LICENSE AGREEMENT (the "Agreement") is
entered into and made effective as of January 1, 2000, between INTERMUNE
PHARMACEUTICALS, INC., a California corporation located at 3924 West
Bayshore, Palo Alto, CA 94303 ("InterMune"), and PANORAMA RESEARCH, INC., a
California corporation having its principal place of business at 2462
Wyandotte St., Mountain View, CA 94043 ("PRI"). InterMune and PRI may be
referred to herein each individually as a "Party" and jointly as the
"Parties."
RECITALS
WHEREAS, InterMune is involved in the research, development and
commercialization of products potentially useful in the prevention,
mitigation and treatment of infectious and other diseases;
WHEREAS, PRI has research facilities and expertise related to
infectious diseases caused by STAPHYLOCOCCUS AUREUS;
WHEREAS, InterMune and PRI are parties to that certain research
agreement dated September 1, 1998, pursuant to which InterMune sponsored and
PRI performed certain research related to S. AUREUS (the "Prior Research
Agreement");
WHEREAS, InterMune and PRI now desire to undertake further research
based on certain discoveries made by PRI pursuant to the Prior Research
Agreement (the "Research Programs," as further described below) in accordance
with the terms and conditions set forth herein; and
WHEREAS, InterMune desires to obtain from PRI, and PRI desires to grant
to InterMune, an exclusive world-wide license to develop and commercialize
products from the technology arising under the Prior Research Agreement and
the Research Programs conducted hereunder;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the Parties hereby agree as
follows:
1. DEFINITIONS
1.1 "AFFILIATE" means any company or entity controlled by, controlling
or under common control with a Party. As used in this Section 1.1, "control"
means (a) that an entity or company owns, directly or indirectly, more than
fifty percent (50%) of the voting stock of another entity, or (b) that an
entity, person or group has the actual ability to control and direct the
management of the entity, whether by contract or otherwise.
1.2 "BUDGET" means the annual aggregate budget for the Research
Programs, which shall equal [ * ], as may be adjusted pursuant to Section
5.1(a).
1.
<PAGE>
CONFIDENTIAL
1.3 "INFORMATION" means information, results and data of any type
whatsoever, in any tangible or intangible form, including without limitation
inventions, practices, methods, techniques, specifications, formulations,
formulae, knowledge, know-how, skill, experience, trade secrets, test data
(including pharmacological, biological, chemical, biochemical, toxicological
and clinical test data), analytical and quality control data, stability data,
studies and procedures, and patent and other legal information or
descriptions, and all intellectual property rights therein.
1.4 "LEAD COMPOUND" means a compound that utilizes or incorporates the
Research Technology and that InterMune publicly announces to its investors
and potential investors as having significant potential as a therapeutic,
prophylactic or diagnostic product, subject to Section 4.2(a)(ii).
1.5 "LICENSED PRODUCT" means a product that utilizes or incorporates
the Research Technology.
1.6 "NDA" means a New Drug Application filed with the United States
Food and Drug Administration, or any other equivalent regulatory filing in a
major country.
1.7 "NET SALES" means, with respect to any Licensed Product, the gross
invoiced sales of such Licensed Product by InterMune, its Affiliates and its
sublicensees to Third Party purchasers, less the following deductions:
(a) discounts, credits, rebates, allowances, adjustments,
rejections and recalls for which the customer has been credited the original
sales price and returns;
(b) trade, quantity, or cash discounts or rebates customary to
the industry and actually allowed, given or accrued (including, but not
limited to, cash, governmental and managed care rebates, and hospitals or
other buying group chargebacks);
(c) sales, excise, turnover, inventory, value-added, and
similar taxes assessed on the sale of such Licensed Product;
(d) an allowance equal to two percent (2.0%) of gross invoiced
sales for transportation, importation, insurance and other handling expenses;
(e) the portion of any management fees paid during the relevant
time period to group purchasing organizations that relate specifically to the
sale of such Licensed Product to such organizations.
A sale of a Licensed Product shall be deemed to occur upon the receipt
of payment by InterMune for such Licensed Product from a Third Party
purchaser.
In the event that a Licensed Product includes one or more active
ingredients that do not utilize or incorporate any Research Technology (a
"Combination Product"), Net Sales shall be calculated on the basis of the
invoice price of such Licensed Product sold without such other active
ingredients. If such Licensed Product is not sold separately from such other
active ingredients, then Net Sales shall be calculated on the basis of the
invoice price of the
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
2
<PAGE>
CONFIDENTIAL
Combination Product multiplied by a fraction, the numerator of which shall be
the inventory cost of such Licensed Product and the denominator of which
shall be the inventory cost of all of the active ingredients in the
Combination Product. Inventory cost shall be determined in good faith by
InterMune in accordance with InterMune's regular accounting methods.
1.8 "PRINCIPAL INVESTIGATOR" means Dr. James Larrick.
1.9 "PRIOR RESEARCH TECHNOLOGY" means all Information conceived of or
reduced to practice by PRI in the course of any work conducted pursuant to
the Prior Research Agreement.
1.10 [ * ].
1.11 "[ * ] RESEARCH PLAN" means the research plan covering the [ * ]
Research Program to be determined by the Research Committee pursuant to
Section 2.5 hereof.
1.12 "[ * ] RESEARCH PROGRAM" means the research program related to
[ * ] to be performed by PRI hereunder.
1.13 "RESEARCH COMMITTEE" means the committee described in Section 2.3.
1.14 "RESEARCH PATENT" means any Patent that claims or otherwise covers
an invention in the Research Technology.
1.15 "RESEARCH PLANS" means the [ * ] Research Plan and the [ * ]
Research Plan, each of which may be referred to individually as a "Research
Plan."
1.16 "RESEARCH PROGRAMS" means the [ * ] Research Program and the [ * ]
Research Program, each of which may be referred to individually as a
"Research Program."
1.17 "RESEARCH TECHNOLOGY" means (a) all Information conceived of or
reduced to practice by PRI in the course of any work conducted pursuant to
this Agreement, and (b) all Prior Research Technology.
1.18 "RESEARCH TERM" means the period commencing on the Effective Date
and terminating on the earlier of (a) the third anniversary of the Effective
Date, or (b) the termination of both Research Programs pursuant to Section
2.10.
1.19 "PATENT" means (a) all patent applications heretofore or hereafter
filed or having legal force in any country including without limitation
divisionals, continuations, continuation-in-part and provisional
applications; (b) all issued, unexpired patents in any country, including
utility, model and design patents and certificates of invention; and (c) all
substitutions, extensions, reissues, renewals and supplementary protection
certificates with respect to any such issued patent.
1.20 "THIRD PARTY" means any party other than InterMune and PRI and
their respective Affiliates.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
3
<PAGE>
CONFIDENTIAL
1.21 "VALID CLAIM" means a claim in an issued Research Patent that has
not expired or been canceled, been declared invalid by an unreversed and
unappealable decision of a court or other appropriate body of competent
jurisdiction, been admitted to be invalid or unenforceable through reissue,
disclaimer or otherwise, and/or been abandoned.
1.22 [ * ].
1.23 [ * ] RESEARCH PLAN" means the research plan covering the [ * ]
Research Program to be determined by the Research Committee pursuant to
Section 2.5 hereof.
1.24 "[ * ] RESEARCH PROGRAM" means the research program related to
[ * ] to be performed by PRI hereunder pursuant to the [ * ] Research Plan.
2. CONDUCT OF RESEARCH PROGRAMS
2.1 RESEARCH PROGRAMS. PRI agrees to conduct each of the Research
Programs during the Research Term in accordance with the applicable Research
Plan, as such Research Plan may be amended from time to time by the Research
Committee. PRI shall use its best efforts in carrying out the Research
Programs and will furnish the research staff, technical know-how, equipment,
instruments, supplies and facilities necessary to carry out the Research
Programs at its own expense. InterMune shall provide funding to support PRI's
conduct of the Research Programs, as described in Section 5.1. Title in any
equipment purchased or manufactured in the performance of the Research
Programs shall vest in PRI.
2.2 PRINCIPAL INVESTIGATOR. All the work performed in conducting the
Research Programs shall be under the direct supervision of the Principal
Investigator. If for any reason the Principal Investigator is unable or
ceases to continue to directly supervise the conduct of the Research
Programs, then InterMune may terminate the Agreement on thirty (30) days
written notice. In such event, PRI automatically shall be deemed to have
granted to InterMune an exclusive, world-wide, fully paid-up, royalty-free,
perpetual, irrevocable, sublicenseable license under the Research Technology
for all internal research purposes and to develop, use, make, have made,
import, offer for sale and sell Licensed Products.
2.3 RESEARCH COMMITTEE.
(a) Promptly after the Effective Date, the Parties shall form
the Research Committee, which shall be comprised of a total of four (4)
members, two (2) appointed by each Party. Each member of the Research
Committee shall have the appropriate level of skill, experience and
familiarity with the Research Programs. The Principal Investigator shall
serve as one of PRI's Research Committee members. Each Party shall have the
right to substitute different representatives as members on the Research
Committee as needed from time to time, and each Party may bring additional
representatives to attend meetings of the Research Committee in a non-voting,
AD HOC capacity. One of InterMune's members shall serve as the chairperson
of the Research Committee.
(b) The Research Committee shall meet at least once every other
month at such times and at such meeting places as shall be mutually agreed
upon by the Parties. The
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
4
<PAGE>
CONFIDENTIAL
Research Committee meetings may be held by telephone or videoconference, if
agreed by the Research Committee members. Each Party will designate an
individual to serve as the liaison between the Parties to undertake and
coordinate any day-to-day communications as may be required between the
Parties relating to the Research Programs. The Research Committee shall
operate by majority decision of its members, and the Research Committee
members shall use good faith efforts to reach agreement on all matters to be
decided. In the event the Research Committee is unable to reach agreement on
any matter before it within thirty (30) days of undertaking consideration of
such matter, then InterMune shall have the deciding vote on such matter.
(c) Minutes of the Research Committee meetings shall be
prepared by the chairperson. Such minutes shall be promptly reviewed and
shall be deemed approved when mutually accepted in writing by both Parties
through their respective Research Committee representatives; provided,
however, that if the Research Committee representatives of a Party fail to
comment on, or otherwise indicate disagreement with, the minutes provided by
the other Party in writing within fifteen (15) days of receipt, then the
receiving Party shall be deemed to have approved such minutes.
2.4 DUTIES AND AUTHORITY OF THE RESEARCH COMMITTEE.
(a) The Research Committee shall have the following duties and
responsibilities during the Research Term: (i) to prepare the Research Plans;
(ii) to coordinate and monitor the progress of PRI's efforts in conducting
the Research Programs; (iii) to review the results of the Research Programs;
(iv) to allocate the Budget between the Research Programs; and (v) to amend
or modify the Research Plans as appropriate or necessary.
(b) The powers of the Research Committee are limited to those
expressly set forth in this Agreement. Without limiting the generality of
the foregoing, the Research Committee shall not have the right to amend this
Agreement. The actions of the Research Committee shall not substitute for
either Party's ability to exercise any right set forth herein, nor excuse the
performance of any obligation set forth herein.
2.5 RESEARCH PLANS. As soon as possible following the Effective Date,
the Research Committee shall define the specific tasks of each Party under
each of the [ * ] Research Program and the [ * ] Research Program, which
tasks shall be set forth in the "[ * ] Research Plan" and the "[ * ] Research
Program" respectively, and attached and incorporated herein as Schedule 2.5
hereto. Each Research Plan may be amended or modified by the Research
Committee as necessary.
2.6 RECORDS; INSPECTION.
(a) PRI shall maintain records of all work conducted under the
Research Programs and all results (including without limitation any
inventions, discoveries and developments) made pursuant to its efforts under
the Research Programs, in laboratory notebooks (or similar records) separate
from all other work conducted by PRI. Such records shall be complete and
accurate and shall fully and properly reflect all work done and results
achieved in the performance of the Research Program in sufficient detail and
in good scientific
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
5
<PAGE>
CONFIDENTIAL
manner appropriate for patent and for regulatory purposes. InterMune shall
have the right, during normal business hours and upon reasonable notice to
inspect and copy such records.
(b) InterMune shall have the right to arrange for a reasonable
number of its employees, agents and outside consultants to visit PRI at its
offices and laboratories during normal business hours and upon reasonable
notice, and to discuss the Research Programs and its results in detail with
the technical personnel and consultants of PRI.
(c) All inspections, copying and visits hereunder shall be
conducted in a manner so as not to disrupt PRI's business nor cause any
disclosure of any other PRI confidential information.
2.7 DISCLOSURE OF INVENTIONS AND RESEARCH RESULTS. PRI shall provide
to InterMune a complete written disclosure for each and every invention or
other discovery, whether or not patentable, first conceived or reduced to
practice in the performance of the Research Programs (an "Invention"),
promptly after each such Invention is made. All such inventions and
discoveries, and any other Information disclosed under this Section 2.7,
shall be deemed "Confidential Information," and shall be subject to the
provisions of Article 7. PRI shall regularly inform InterMune of the results
of the Research Programs, and shall provide InterMune copies of the results
and raw data from the Research Programs as requested by InterMune. As used
herein, "raw data" means all Information generated by the Principal
Investigator and the persons working at his direction on the Research,
whether in written, graphic or electronic form, and including without
limitation all materials such as films, printouts, and photographs that
record such Information, all to the extent concerning work conducted pursuant
to the Research Programs. Panorama shall also provide quarterly written
summaries of the Research Programs as set forth in Section 2.8. InterMune
shall be free to use all such Information for any and all purposes.
2.8 QUARTERLY REPORTS. PRI shall provide InterMune and the Research
Committee with a written progress report biannually during the Research Term.
Each such report shall summarize the work performed by PRI in relation to the
goals of the Research Programs during such period, and shall provide any
other information required by the Research Plans or reasonably requested by
InterMune or the Research Committee.
2.9 PRI COVENANTS.
(a) INVENTION ASSIGNMENT AGREEMENTS. PRI hereby covenants that
each of its employees, consultants and agents performing any work under the
[ * ] Research Program and/or the [ * ] Research Program will have entered
into a written invention assignment agreement requiring that each such
individual assign to PRI all right, title and interest in any Information
conceived of or reduced to practice by such individual pursuant to such
Research Program.
(b) NO MISAPPROPRIATION. PRI hereby covenants that it shall
not knowingly misappropriate or otherwise misuse, nor shall it knowingly
permit any of its employees, consultants or agents to misappropriate or
otherwise misuse, any intellectual property of any Third Party in its conduct
of the Research Programs hereunder.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
6
<PAGE>
CONFIDENTIAL
2.10 TERMINATION OF RESEARCH PROGRAMS.
(a) InterMune may terminate either or both of the Research
Programs, without cause, at any time during the Research Term upon six (6)
months written notice; provided that InterMune shall remain liable for all
payments due within the Budget and in accordance with the Research Plan for
such Research Program through the date of termination of such Research
Program.
(b) In the event that InterMune terminates only one of the
Research Programs, InterMune shall provide PRI written notice of any
adjustment InterMune desires to make to the Budget with respect to the
remaining Research Program, if any; provided that the Budget shall not be
reduced by more than fifty percent (50%) without the written consent of both
Parties. The Research Committee shall amend the Research Plan for such
remaining Research Program appropriately to reflect the resources to be
dedicated to such remaining Research Program in light of such adjusted Budget.
3. ASSIGNMENT OF RIGHTS; LICENSE GRANT
3.1 ASSIGNMENT TO PRI. InterMune hereby assigns to PRI all of its
right, title and interest in and to the Prior Research Technology. InterMune
shall take all actions reasonably requested by PRI to effect such assignment.
3.2 GRANT TO INTERMUNE. PRI hereby grants to InterMune an exclusive,
world-wide, royalty-bearing, sublicenseable license under the Research
Technology for all internal research purposes and to develop, use, make, have
made, import, offer for sale and sell Licensed Products.
3.3 EXCLUSIVITY. PRI and the Principal Investigator each hereby
covenant that it shall not perform any work for any Third Party relating to
[ * ] during the Research Term without InterMune's prior written consent.
3.4 GOVERNMENT FUNDING. PRI and the Principal Investigator each
hereby covenant that no government funding will be used to conduct any of the
work under either Research Program without InterMune's prior written consent.
In the event the PRI receives government funding as permitted in the
preceding sentence: (a) InterMune's payment obligation under Section 4.1(a)
shall continue at its then-current level, and (b) PRI shall not use such
funding other than for the conduct of the Research Programs without
InterMune's prior written consent.
4. DILIGENCE
4.1 GENERALLY. Following the Research Term and during the term of
this Agreement, InterMune shall use commercially reasonable efforts
consistent with its usual practice in developing and commercializing
pharmaceutical products of similar market potential, at its own expense, to
develop and commercialize Licensed Products in such countries throughout the
world where in InterMune's opinion it is commercially viable to do so.
4.2 FUNDING REQUIREMENTS.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
7
<PAGE>
CONFIDENTIAL
(a) InterMune shall be deemed to have met its diligence
obligations under this Article 4 provided that the total aggregate annualized
development costs incurred by InterMune, its Affiliates and its sublicensees
in connection with the Licensed Products equals or exceeds the amount
indicated below (the "Diligence Amount") for the corresponding period
indicated below (the "Diligence Period"), until such time as the first NDA is
approved for the first Licensed Product.
<TABLE>
<CAPTION>
DILIGENCE PERIOD DILIGENCE AMOUNT
<S> <C>
From the end of the Research Term [ * ]
until designation of a Lead Compound
From the designation of a Lead [ * ]
Compound, and for so long as InterMune
is conducting preclinical development
on a Lead Compound, until initiation
by InterMune of Phase I trials for a
Lead Compound
From the initiation by InterMune of [ * ]
Phase I trials for a Lead Compound,
and for so long as InterMune is
conducting Phase I trials, until
initiation by InterMune of Phase II
trials for a Lead Compound
From the initiation by InterMune of [ * ]
Phase II trials for a Lead Compound,
and for so long as InterMune is
conducting Phase II or Phase III
trials, until receipt of NDA approval
for a Licensed Product
</TABLE>
(i) Only one Diligence Amount shall apply at any given
time. In the event that there are multiple Lead Compounds being
preclinically and/or clinically developed by InterMune at any given time, the
Diligence Amount corresponding to the most advanced level of preclinical or
clinical development of such Lead Compounds then being conducted by InterMune
shall apply.
(ii) In the event that InterMune ceases preclinical or
clinical development of a Lead Compound, InterMune shall provide PRI written
notice thereof and such compound thereafter shall no longer be deemed a Lead
Compound. For all periods following the Research Term and prior to receipt
of the first NDA approval for the first Licensed Product for which there are
no then-existing Lead Compounds, the Diligence Amount shall be deemed to be
[ * ] per year.
(b) In the event that InterMune fails during any Diligence
Period to expend the corresponding Diligence Amount, and such failure is not
excused as described in Section 4.3
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
8
<PAGE>
CONFIDENTIAL
below, InterMune shall not be deemed to have breached its diligence
obligations under this Article 4 if within thirty (30) days of its receipt
from PRI of written notice of such failure, InterMune pays to PRI an amount
equal to the differential between such Diligence Amount and InterMune's and
its Affiliates' and sublicensees' actual development costs for Licensed
Products during such Diligence Period.
4.3 LIMITATION. Notwithstanding anything in this Article 4 to the
contrary, InterMune shall not be deemed to have breached its obligations
under this Article 4 if (a) the Parties agree in writing on a different
standard of diligence, or (b) any clinical trial, IND, NDA or other aspect of
the development or commercialization of any Licensed Product is suspended or
delayed due to problems or issues with the safety or efficacy of such
Licensed Product.
5. CONSIDERATION
5.1 RESEARCH SUPPORT PAYMENTS.
(a) InterMune shall reimburse PRI for costs incurred in
connection with performing the Research Programs in accordance with the
Budget. While it is estimated that the amounts in the Budget will be
sufficient to conduct the Research Programs, Panorama may submit to InterMune
a revised budget requesting additional funds to conduct the Research
Programs. However, InterMune is not liable for any cost in excess of the
Budget unless InterMune agrees in writing to such increase the Budget.
(b) InterMune shall make payments to PRI for the amounts owed
under the Budget for each calendar year during the Research Term in four (4)
equal quarterly installments, each of which shall be due within thirty (30)
days of the first day of the relevant calendar quarter.
5.2 EQUITY.
(a) InterMune shall grant non-statutory stock options to
purchase shares of InterMune Common Stock to the below-designated PRI
employees during the Research Term in consideration for their work on the
Research Programs, which options shall vest as follows up to the total amount
indicated:
<TABLE>
<CAPTION>
OPTIONS VESTING OPTIONS VESTING ON THE FIRST OF EACH
ON THE EFFECTIVE MONTH DURING THE RESEARCH TERM TOTAL
EMPLOYEE DATE FOLLOWING THE EFFECTIVE DATE
<S> <C> <C> <C>
James Larrick [ * ] [ * ] [ * ]
Susan Wright [ * ] [ * ] [ * ]
Yuguiang Wang [ * ] [ * ] [ * ]
</TABLE>
Each such grant of options shall be pursuant to InterMune's equity
incentive plan, and shall have an exercise price per share equal to the fair
market value of InterMune's Common
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
9
<PAGE>
CONFIDENTIAL
Stock on the date of such grant as determined by InterMune's Board of
Directors at the Board meeting of November 17, 1999.
(b) In the event that any employee of PRI described in
subsection (a) above is no longer conducting work on any Research Program,
then such employee's right to be granted options under subsection (a) shall
terminate.
5.3 MILESTONE PAYMENT. Within thirty (30) days of its receipt of the
first approval of an NDA for the first Licensed Product, InterMune shall pay
to PRI [ * ].
5.4 ROYALTIES.
(a) InterMune shall pay PRI a royalty of [ * ] on all Net Sales
of Licensed Products; provided that if the manufacture, use or sale of a
Licensed Product is not covered by a Valid Claim in the country of sale at
the time of sale, then the foregoing royalty rate shall be reduced by fifty
percent (50%) with respect to such sale of such Licensed Product.
(b) InterMune's obligation to pay royalties under subsection
(a) above shall commence, on a country-by-country and Licensed
Product-by-Licensed Product basis, with the first commercial sale of such
Licensed Product in such country (the "First Sale"), and shall expire upon
the later of (i) expiration of the last issued Research Patent containing a
Valid Claim covering the manufacture, use or sale of such Licensed Product in
such country, or (ii) ten (10) years from the First Sale. Upon such
expiration of InterMune's royalty obligation under this Section 5.4, PRI
automatically shall be deemed to have granted to InterMune an exclusive,
fully paid-up, royalty-free, perpetual, irrevocable, sublicenseable license
under the Research Technology to use, make, have made, import, offer for sale
and sell such Licensed Product in such country.
5.5 PAYMENT OF ROYALTIES. Following the First Sale of a Licensed
Product and during the term of the Agreement, InterMune shall furnish to PRI
a quarterly written report for each calendar quarter showing the sales of all
Licensed Products subject to royalty payments hereunder during the reporting
period and the royalties payable under this Agreement. Reports shall be due
within sixty (60) days following the close of each calendar quarter.
Royalties that have accrued in a particular calendar quarter shall be due and
payable on the date such royalty report is due. InterMune shall keep complete
and accurate records in sufficient detail to enable the royalties payable
hereunder to be determined. All payments to be made by InterMune to PRI under
this Agreement shall be made in United States dollars and may be paid by
check made to the order of PRI or bank wire transfer to such bank account in
the United States designated in writing by PRI from time to time.
5.6 PAYMENT EXCHANGE RATE. The rate of exchange to be used in
computing Net Sales and the amount of currency equivalent in United States
dollars due PRI shall be made at the rate of exchange quoted on the last
business day of the applicable royalty period in the Wall Street Journal.
5.7 INCOME TAX WITHHOLDING. If laws, rules or regulations require
withholding of income taxes or other taxes imposed upon payments set forth in
this Article 5, InterMune shall
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
10
<PAGE>
CONFIDENTIAL
make such withholding payments as required and subtract such withholding
payments from the payments set forth in this Article 5. InterMune shall
submit appropriate proof of payment of the withholding taxes to PRI within a
reasonable period of time.
5.8 AUDITS.
(a) Upon the written request of PRI and not more than once in
each calendar year, InterMune shall permit an independent certified public
accounting firm of nationally recognized standing selected by PRI and
reasonably acceptable to InterMune, at PRI's expense, to have access during
normal business hours to such records of InterMune as may be reasonably
necessary to verify the accuracy of the royalty reports hereunder for any
calendar year ending not more than twenty-four (24) months prior to the date
of such request. The accounting firm shall disclose to PRI only whether the
royalty reports are correct or incorrect and the specific details concerning
any discrepancies. No other information shall be provided to PRI.
(b) If such accounting firm correctly concludes that additional
royalties were owed during such period, InterMune shall pay the additional
royalties within thirty (30) days of the date PRI delivers to InterMune such
accounting firm's written report so correctly concluding.
(c) PRI shall treat all information subject to review under
this Section 5.6 as Confidential Information in accordance with the
confidentiality provisions of Article 7 of this Agreement, and shall cause
its accounting firm to enter into an acceptable confidentiality agreement
with InterMune obligating such firm to retain all such financial information
in confidence pursuant to such confidentiality agreement.
6. INTELLECTUAL PROPERTY MATTERS; PATENTS
6.1 OWNERSHIP. Each Party shall solely own any Information solely
invented or developed by such Party pursuant to this Agreement and all
intellectual property rights therein, including without limitation any
Patents claiming such Information. The Parties shall each own an undivided
one-half interest in any Information jointly invented or developed by the
Parties pursuant to this Agreement and all intellectual property rights
therein, including, without limitation, any Patents claiming such Information
("Joint Patents"). Inventorship shall be determined in accordance with the
U.S. laws.
6.2 PATENT FILING, PROSECUTION AND MAINTENANCE.
(a) InterMune shall have the first right, but not the
obligation, to file applications for the Research Patents and to prosecute
and maintain such Research Patents in such countries as selected by
InterMune, at its expense. InterMune shall reasonably consider any
recommendations provided by PRI regarding the filing and/or prosecution of
such Research Patents, but the final decision as to the filing and/or
prosecution matters shall rest with InterMune.
(b) In the event that PRI desires that InterMune file and
prosecute a patent application claiming a particular invention in the
Research Technology, and InterMune does not file such a patent application
within one hundred twenty (120) days of such request, or decides to
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
11
<PAGE>
CONFIDENTIAL
abandon prosecution of such a filed application, then PRI may thereafter
file, prosecute and/or maintain the Patent(s) claiming such particular
inventions, at PRI's expense. In such event, InterMune shall cooperate
reasonably with PRI in such efforts, and such Patent shall thereafter be
excluded from the Research Technology.
6.3 COOPERATION. Each Party agrees to cooperate with the other and
take all reasonable additional actions as may be reasonably required to
achieve the intent of this Article 6, including, without limitation, the
execution of necessary and appropriate instruments and documents.
6.4 INFRINGEMENT OF THIRD PARTY PATENTS. In the event that a Third
Party files an action against a Party alleging that such Party's activities
under this Agreement infringe such Third Party's patent rights, such Party
shall give written notice to the other Party, and the Parties will consult
and cooperate on the best course of action. The Party that was sued shall
have the right to defend itself against such action, and the other Party
shall provide all reasonable assistance in such defense.
6.5 INFRINGEMENT OF RESEARCH PATENTS. If either Party becomes aware
that a Third Party is infringing any rights in the Research Patents, such
Party shall give written notice to the other Party describing in detail the
nature of such infringement. InterMune shall have the initial right to
enforce the Research Patents against such Third Party infringer. PRI agrees
to provide InterMune all reasonable assistance, at InterMune' expense, in
such enforcement, including without limitation being joined as a party to the
suit where appropriate. In the event that InterMune fails to institute an
infringement suit or take other reasonable action in response to such
infringement within one hundred twenty (120) days after its receipt of notice
of such infringement, PRI shall have the right, but not the obligation, to
institute such suit or take other appropriate action in its own name to
enforce the Research Patents. Regardless of which Party brings an
enforcement action under this Section 6.5, the Party not bringing the action
shall have the right to participate in such action at its own expense with
its own counsel. Any damages or other recovery, whether by settlement or
otherwise, from an action hereunder to enforce the Research Patents shall
first be applied pro rata to each Party to pay the costs and expenses of
participating in such action, and any remaining amount shall be paid to the
Party conducting the action.
7. CONFIDENTIALITY
7.1 CONFIDENTIAL INFORMATION. As used herein, "Confidential
Information" means all Information that InterMune discloses to PRI under this
Agreement, all Research Technology and all other Information deemed
"Confidential Information" under this Agreement, provided that Confidential
Information shall not include any Information excluded under Section 7.2.
Except to the extent expressly authorized by this Agreement or otherwise
agreed in writing by the Parties, PRI agrees that it shall keep confidential
and shall not publish or otherwise disclose any Confidential Information, and
shall not use such Information for any purpose other than as provided for in
this Article 7.
7.2 EXCEPTIONS. Notwithstanding Section 7.1 above, "Confidential
Information" shall not include any Information that PRI can demonstrate by
competent written evidence:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
12
<PAGE>
CONFIDENTIAL
(a) was already known to PRI, other than under an obligation of
confidentiality, at the time of disclosure by InterMune or, in the case of
Research Technology, prior to its creation or discovery hereunder;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to PRI by InterMune;
(c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than through any act or
omission of PRI in breach of this Agreement;
(d) was disclosed to PRI, other than under an obligation of
confidentiality to a Third Party, by a Third Party who had no obligation to
InterMune not to disclose such information to others; or
(e) is independently developed by PRI without using any
Confidential Information.
7.3 PERMITTED DISCLOSURE. Notwithstanding the limitations in this
Article 7, PRI may disclose Confidential Information, to the extent such
disclosure is reasonably necessary in the following instances, but solely for
the limited purpose of such necessity:
(a) prosecuting or defending litigation;
(b) complying with applicable governmental laws or regulations
or valid court orders; and
(c) disclosure to employees, consultants or agents, solely in
furtherance of this Agreement, and provided that such individuals agree in
writing to be bound by similar terms of confidentiality and non-use at least
equivalent in scope to those set forth in this Article 7.
Notwithstanding the foregoing, in the event that PRI is required
to make a disclosure of the Confidential Information pursuant to subsections
(a) and (b) above, it will give reasonable advance notice to InterMune of
such disclosure and shall use its best efforts to assist InterMune in
securing confidential treatment of such information. In any event, PRI
agrees to use its best efforts to avoid disclosure of Confidential
Information hereunder.
7.4 PUBLICITY. Neither Party shall use the name of the other Party in
connection with any product, promotional literature, or advertising material
without the prior written permission of the other party, which permission
shall not be unreasonably withheld. This restriction shall not apply to
materials used by InterMune solely for financing or corporate partnering
purposes or to documents available to the public that identify the existence
of the Agreement.
7.5 TERMS OF THE AGREEMENT. The material terms of this Agreement are
deemed to be Confidential Information, subject to Section 7.2 above.
8. REPRESENTATIONS AND WARRANTIES
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
13
<PAGE>
CONFIDENTIAL
8.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party hereby
represents and warrants to the other Party that:
(a) it has full corporate power and authority under the laws of
the state or country of its incorporation to enter into this Agreement and to
carry out the provisions hereunder;
(b) this Agreement is a legal and valid obligation binding upon
it and is enforceable in accordance with its terms; and
(c) the execution, delivery and performance of this Agreement
by it does not materially conflict with any agreement, oral or written, to
which it is a party or by which it may be bound, nor violate any law or
regulation of any court, governmental body or administrative or other agency
having authority over it.
8.2 PRI REPRESENTATIONS AND WARRANTIES. PRI hereby represents and
warrants to InterMune that:
(a) None of the Prior Research Technology has been
misappropriated from any Third Party nor is the result of any misuse of any
Third Party's intellectual property;
(b) All inventors of the Prior Research Technology existing as
of the Effective Date have irrevocably assigned all right, title and interest
in the Prior Research Technology to PRI;
(c) To PRI's knowledge as of the Effective Date, InterMune's
practice of the Research Technology as contemplated hereunder will not
infringe the rights of any Third Party; and
(d) To PRI's knowledge as of the Effective Date, no claim,
whether or not embodied in an action past or present, of any infringement, of
any conflict with, or of any violation of any patent, trade secret or other
intellectual property right or similar right of any Third Party, has been
made or is pending or threatened with respect to the Research Technology.
9. INDEMNIFICATION
9.1 BY INTERMUNE. Subject to PRI's compliance with Section 9.3,
InterMune hereby agrees to indemnify, defend and hold harmless PRI and its
officers, directors, agents and employees from and against any and all
liabilities, damages, judgments, awards or costs of defense (including
without limitation reasonable attorneys' fees, expenses to defend and amounts
paid in settlement of any action) (collectively, "Losses") arising from any
Third Party claim resulting directly or indirectly from InterMune's breach of
any of its covenants or representations and warranties hereunder, or
InterMune's negligence or wrongdoing, but only to the extent that such Losses
do not result from PRI's breach of any of its covenants or representations
and warranties hereunder or PRI's negligence or wrongdoing.
9.2 BY PRI. Subject to InterMune's compliance with Section 9.3, PRI
hereby agrees to indemnify, defend and hold harmless InterMune and its
officers, directors, agents and
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
14
<PAGE>
CONFIDENTIAL
employees from and against any and all Losses from any Third Party claim
resulting directly or indirectly from PRI's breach of any of its covenants or
representations and warranties hereunder, or PRI's negligence or wrongdoing,
but only to the extent that such Losses do not result from InterMune's breach
of any of its covenants or representations and warranties hereunder or
InterMune's negligence or wrongdoing.
9.3 NOTICE AND PROCEDURES. In all cases where one Party seeks
indemnification by the other under this Article 9, the Party seeking
indemnification shall promptly notify the indemnifying Party of receipt of
any claim or lawsuit covered by such indemnification obligation and shall
cooperate fully with the indemnifying Party in connection with the
investigation and defense of such claim or lawsuit. The indemnifying Party
shall have the right to control the defense, with counsel of its choice,
provided that the non-indemnifying Party shall have the right to be
represented by advisory counsel at its own expense. The indemnifying Party
shall not settle or dispose of the matter in any manner which could
negatively and materially affect the rights or liability of the
non-indemnifying Party without the non-indemnifying Party's prior written
consent, which shall not be unreasonably withheld or delayed.
10. TERM AND TERMINATION
10.1 TERM. The term of this Agreement shall commence upon the Effective
Date and shall expire, unless earlier terminated as provided under Sections
10.2 and 10.3, upon the expiration date of the last to expire royalty or
other payment obligation under this Agreement.
10.2 TERMINATION BY INTERMUNE. Following termination of the Research
Term, InterMune may terminate this Agreement upon thirty (30) days written
notice to PRI.
10.3 TERMINATION FOR MATERIAL BREACH. If a Party materially breaches
this Agreement, and within sixty (60) days of written notice of breach from
the non-breaching Party the breaching Party has not (i) cured the breach, or
(ii) initiated good faith efforts to cure such breach to the reasonable
satisfaction of the non-breaching Party, then the non-breaching Party may
terminate this Agreement in writing promptly after expiration of such sixty
(60) day period.
10.4 EFFECT OF TERMINATION.
(a) In the event that InterMune terminates this Agreement
pursuant to Section 10.2,or PRI terminates this Agreement pursuant to Section
10.3:
(i) all licenses granted to InterMune pursuant to
Section 3.2 shall immediately terminate;
(ii) InterMune shall provide PRI with an accounting of
the total amount expended by InterMune in the development and
commercialization of the Research Technology, [ * ]; and
(iii) PRI shall have the right to grant one or more Third
Parties the right to develop and commercialize Licensed Products, or to
develop and commercialize Licensed Products itself; provided that PRI shall
pay InterMune a royalty on all net sales of Licensed
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
15
<PAGE>
CONFIDENTIAL
Products by PRI, its Affiliates and its sublicensees on terms and conditions
equivalent to those set forth in Article 5 of this Agreement. Such royalty
obligation shall continue until [ * ].
(b) In the event that InterMune terminates this Agreement
pursuant to Section 10.3, (i) PRI automatically shall be deemed to have
granted to InterMune an exclusive, world-wide, fully paid-up, royalty-free,
perpetual, irrevocable, sublicenseable license under the Research Technology
for all internal research purposes and to develop, use, make, have made,
import, offer for sale and sell Licensed Products, and (ii) Article 6 shall
survive such termination.
10.5 BANKRUPTCY RIGHTS. In the event that this Agreement is terminated
or rejected by a Party or its receiver or trustee under applicable bankruptcy
laws due to such Party's bankruptcy, then all rights and licenses granted
under or pursuant to this Agreement by such Party to the other Party are, and
shall otherwise be deemed to be, for purposes of Section 365(n) of the
Bankruptcy Code and any similar law or regulation in any other country,
licenses of rights to "intellectual property" as defined under Section
101(52) of the Bankruptcy Code. The Parties agree that all intellectual
property rights licensed hereunder, including without limitation any patents
or patent applications of a Party in any country covered by the license
grants under this Agreement, are part of the "intellectual property" as
defined under Section 101(52) of the Bankruptcy Code subject to the
protections afforded the non-terminating Party under Section 365(n) of the
Bankruptcy Code, and any similar law or regulation in any other country.
10.6 SURVIVAL. The following provisions shall survive termination or
expiration of this Agreement: Sections 2.2, 5.4(b), 5.8, 6.1, 10.4 and 10.6
and Articles 7, 9 and 11. Termination or expiration of this Agreement shall
not relieve either Party of any liability which accrued hereunder prior to
the effective date of 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, nor prejudice either Party's
right to obtain performance of any obligation. The remedies provided under
this Agreement are cumulative, and are not exclusive of other remedies
available to a Party in law or equity.
11. MISCELLANEOUS
11.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth the
complete, final and exclusive agreement between the Parties with respect to
the subject matter hereof, and all of the covenants, promises, agreements,
warranties, representations, conditions and understandings between the
Parties hereto with respect to such subject matter, and supersedes and
terminates all prior agreements and understandings between the Parties with
respect to such subject matter. There are no covenants, promises,
agreements, warranties, representations, conditions or understandings, either
oral or written, between the Parties with respect to such subject matter
other than as are set forth herein and therein. No subsequent alteration,
amendment, change or addition to this Agreement shall be binding upon the
Parties unless reduced to writing and signed by an authorized officer of each
Party.
11.2 DISPUTE RESOLUTION. In the event of any controversy or claim
arising out of, relating to or in connection with any provision of this
Agreement, or the rights or obligations of the Parties hereunder, the Parties
shall try to settle their differences amicably between themselves by
referring the disputed matter to the Chief Executive Officer of InterMune and
the President
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
16
<PAGE>
CONFIDENTIAL
for PRI for discussion and resolution. Either Party may initiate such
informal dispute resolution by sending written notice of the dispute to the
other Party, and within ten (10) days of such notice the Chief Executive
Officer of InterMune and the President of PRI shall meet for attempted
resolution by good faith negotiations. If such personnel are unable to
resolve such dispute within thirty (30) days of initiating such negotiations,
each Party may thereafter pursue any and all rights and remedies it may have
at law or equity. If mutually agreeable, the Parties may explore alternative
forms of dispute resolution, such as mediation and/or arbitration.
Notwithstanding any other provision of this Section 11.2, either Party may
seek a temporary restraining order or injunction against the other Party in
the event of a breach of any confidentiality obligation hereunder, or to
prevent a Party's wrongful use of any intellectual property hereunder.
11.3 FORCE MAJEURE. Both Parties shall be excused from the performance
of their obligations under this Agreement to the extent that such performance
is prevented by force majeure and the non-performing Party promptly provides
notice of the prevention to the other Party. Such excuse shall be continued
so long as the condition constituting force majeure continues and the
non-performing Party takes reasonable efforts to remove the condition. For
purposes of this Agreement, "force majeure" shall include conditions beyond
the control of the Parties, including without limitation, an act of God,
voluntary or involuntary compliance with any regulation, law or order of any
government, war, civil commotion, labor strike or lock-out, epidemic, failure
or default of public utilities or common carriers, destruction of production
facilities or materials by fire, earthquake, storm or like catastrophe.
11.4 NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing, shall specifically refer to this Agreement and
shall be deemed to have been sufficiently given for all purposes if mailed by
first class certified or registered mail, postage prepaid, express delivery
service or personally delivered, or if sent by facsimile and confirmed
through one of the foregoing methods. Unless otherwise specified in writing,
the mailing addresses of the Parties shall be as described below.
For InterMune: InterMune Pharmaceuticals, Inc.
3924 West Bayshore
Palo Alto, CA 94303
Fax: (650) 858-2937
Attention: Senior Vice President of Scientific Affairs
For PRI: Panorama Research, Inc.
2462 Wyandotte St.
Mountain View, CA 94043
Fax: (650) 694-7717
Attention: President
11.5 LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE
TO THE OTHER PARTY FOR ANY INDIRECT, COLLATERAL, CONSEQUENTIAL, SPECIAL OR
PUNITIVE DAMAGES ARISING IN CONNECTION WITH THIS AGREEMENT.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
17
<PAGE>
CONFIDENTIAL
11.6 CONSENTS NOT UNREASONABLY WITHHELD OR DELAYED. Whenever provision
is made in this Agreement for either Party to secure the consent or approval
of the other, that consent or approval shall not unreasonably be withheld or
delayed, and whenever in this Agreement provisions are made for one Party to
object to or disapprove a matter, such objection or disapproval shall not
unreasonably be exercised, unless expressly stated that such consent is to be
given in such Party's sole discretion.
11.7 INDEPENDENT CONTRACTORS. The status of the Parties under this
Agreement shall be that of independent contractors. Neither Party shall have
the right to enter into any agreements on behalf of the other Party, nor
shall it represent to any person that it has any such right or authority.
Nothing in this Agreement shall be construed as establishing a partnership or
joint venture relationship between the Parties.
11.8 MAINTENANCE OF RECORDS. Each Party shall keep and maintain all
records required by law or regulation with respect to the Product and shall
make copies of such records available to the other Party upon request.
11.9 UNITED STATES DOLLARS. References in this Agreement to "Dollars"
or "$" shall mean the legal tender of the United States of America.
11.10 NO STRICT CONSTRUCTION. This Agreement has been prepared jointly
and shall not be strictly construed against either Party.
11.11 ASSIGNMENT. Neither Party may assign or transfer this Agreement
or any rights or obligations hereunder without the prior written consent of
the other, except a Party may make such an assignment without the other
Party's consent to a successor-in-interest to substantially all of the
business assets of such Party to which this Agreement relates, whether in a
merger, sale of stock, sale of assets or other transaction. Any permitted
successor or assignee of rights and/or obligations hereunder shall, in a
writing to the other Party, expressly assume performance of such rights
and/or obligations. This Agreement shall be binding upon and shall inure to
the benefit of each Party's successors-in-interest and permitted assigns.
Any assignment or attempted assignment by either Party in violation of the
terms of this Section 11.11 shall be null and void and of no legal effect.
11.12 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.
11.13 FURTHER ACTIONS. 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.
11.14 SEVERABILITY. If any one or more of the provisions of this
Agreement is held to be invalid or unenforceable, the provision shall be
considered severed from this Agreement and shall not serve to invalidate any
remaining provisions hereof. The Parties shall make a good faith effort to
replace any invalid or unenforceable provision with a valid and enforceable
one
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
18
<PAGE>
CONFIDENTIAL
such that the objectives contemplated by the Parties when entering this
Agreement may be realized.
11.15 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.
11.16 HEADINGS. The headings for each article and section in this
Agreement have been inserted for convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.
11.17 NO WAIVER. Any delay in enforcing a Party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such Party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and
signed waiver as to a particular matter for a particular period of time.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
19
<PAGE>
CONFIDENTIAL
IN WITNESS WHEREOF, the Parties have executed this Agreement in by their
proper officers as of the date and year first above written.
INTERMUNE PHARMACEUTICALS, INC. PANORAMA RESEARCH, INC.
By: /s/ W. Scott Harkonen By: /s/ J. W. Larrick
------------------------------- ----------------------------------
Name: W. Scott Harkonen Name: James W. Larrick
----------------------------- --------------------------------
Title: President / CEO Title: President
---------------------------- -------------------------------
PRINCIPAL INVESTIGATOR:
I hereby acknowledge and agree to be bound by the terms and conditions of
this Agreement.
/s/ J. W. Larrick
- -----------------------------------
James Larrick, Ph.D.
Date: Dec. 30, 1999
-----------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
20
<PAGE>
CONFIDENTIAL
SCHEDULE 2.5
RESEARCH PLANS
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
21
<PAGE>
CONFIDENTIAL
<TABLE>
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 "Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 "Budget". . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 "Information" . . . . . . . . . . . . . . . . . . . . . . . . .1
1.4 "Lead Compound" . . . . . . . . . . . . . . . . . . . . . . . .2
1.5 "Licensed Product". . . . . . . . . . . . . . . . . . . . . . .2
1.6 "NDA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.7 "Net Sales" . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.8 "Principal Investigator". . . . . . . . . . . . . . . . . . . .3
1.9 "Prior Research Technology" . . . . . . . . . . . . . . . . . .3
1.10 [ * ] . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.11 [ * ] Research Plan". . . . . . . . . . . . . . . . . . . . . .3
1.12 [ * ] Research Program" . . . . . . . . . . . . . . . . . . . .3
1.13 "Research Committee". . . . . . . . . . . . . . . . . . . . . .3
1.14 "Research Patent" . . . . . . . . . . . . . . . . . . . . . . .3
1.15 "Research Plans". . . . . . . . . . . . . . . . . . . . . . . .3
1.16 "Research Programs" . . . . . . . . . . . . . . . . . . . . . .3
1.17 "Research Technology" . . . . . . . . . . . . . . . . . . . . .3
1.18 "Research Term" . . . . . . . . . . . . . . . . . . . . . . . .3
1.19 "Patent". . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.20 "Third Party" . . . . . . . . . . . . . . . . . . . . . . . . .3
1.21 "Valid Claim" . . . . . . . . . . . . . . . . . . . . . . . . .3
1.22 [ * ] . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.23 [ * ] Research Plan". . . . . . . . . . . . . . . . . . . . . .4
1.24 [ * ] Research Program" . . . . . . . . . . . . . . . . . . . .4
2. CONDUCT OF RESEARCH PROGRAMS. . . . . . . . . . . . . . . . . . . . . . .4
2.1 Research Programs . . . . . . . . . . . . . . . . . . . . . . .4
2.2 Principal Investigator. . . . . . . . . . . . . . . . . . . . .4
2.3 Research Committee. . . . . . . . . . . . . . . . . . . . . . .4
2.4 Duties and Authority of the Research Committee. . . . . . . . .5
2.5 Research Plans. . . . . . . . . . . . . . . . . . . . . . . . .5
2.6 Records; Inspection . . . . . . . . . . . . . . . . . . . . . .5
</TABLE>
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
1
<PAGE>
CONFIDENTIAL
<TABLE>
<S> <C>
2.7 Disclosure of Inventions and Research Results . . . . . . . . .6
2.8 Quarterly Reports . . . . . . . . . . . . . . . . . . . . . . .6
2.9 PRI Covenants . . . . . . . . . . . . . . . . . . . . . . . . .6
2.10 Termination of Research Programs. . . . . . . . . . . . . . . .7
3. ASSIGNMENT OF RIGHTS; LICENSE GRANT . . . . . . . . . . . . . . . . . . .7
3.1 Assignment to PRI . . . . . . . . . . . . . . . . . . . . . . .7
3.2 Grant to InterMune. . . . . . . . . . . . . . . . . . . . . . .7
3.3 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.4 Government Funding. . . . . . . . . . . . . . . . . . . . . . .7
4. DILIGENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.2 Funding Requirements. . . . . . . . . . . . . . . . . . . . . .8
4.3 Limitation. . . . . . . . . . . . . . . . . . . . . . . . . . .9
5.1 Research Support Payments . . . . . . . . . . . . . . . . . . .9
5.2 Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
5.3 Milestone Payment . . . . . . . . . . . . . . . . . . . . . . 10
5.4 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 Payment of Royalties. . . . . . . . . . . . . . . . . . . . . 10
5.6 Payment Exchange Rate . . . . . . . . . . . . . . . . . . . . 10
5.7 Income Tax Withholding. . . . . . . . . . . . . . . . . . . . 11
5.8 Audits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.1 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Patent Filing, Prosecution and Maintenance. . . . . . . . . . 11
6.3 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.4 Infringement of Third Party Patents . . . . . . . . . . . . . 12
6.5 Infringement of Research Patents. . . . . . . . . . . . . . . 12
7. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.1 Confidential Information. . . . . . . . . . . . . . . . . . . 12
7.2 Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.3 Permitted Disclosure. . . . . . . . . . . . . . . . . . . . . 13
7.4 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.5 Terms of the Agreement. . . . . . . . . . . . . . . . . . . . 13
</TABLE>
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
2
<PAGE>
CONFIDENTIAL
<TABLE>
<S> <C>
8.1 Mutual Representations and Warranties . . . . . . . . . . . . 14
8.2 PRI Representations and Warranties. . . . . . . . . . . . . . 14
9. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.1 By InterMune. . . . . . . . . . . . . . . . . . . . . . . . . 14
9.2 By PRI. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.3 Notice and Procedures . . . . . . . . . . . . . . . . . . . . 15
10. TERM AND TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.2 Termination by InterMune. . . . . . . . . . . . . . . . . . . 15
10.3 Termination for Material Breach . . . . . . . . . . . . . . . 15
10.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . 15
10.5 Bankruptcy Rights . . . . . . . . . . . . . . . . . . . . . . 16
10.6 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.1 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . 16
11.2 Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . 16
11.3 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . 17
11.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.5 Limitation of Liability . . . . . . . . . . . . . . . . . . . 17
11.6 Consents Not Unreasonably Withheld or Delayed . . . . . . . . 18
11.7 Independent Contractors . . . . . . . . . . . . . . . . . . . 18
11.8 Maintenance of Records. . . . . . . . . . . . . . . . . . . . 18
11.9 United States Dollars . . . . . . . . . . . . . . . . . . . . 18
11.10 No Strict Construction. . . . . . . . . . . . . . . . . . . . 18
11.11 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.12 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 18
11.13 Further Actions . . . . . . . . . . . . . . . . . . . . . . . 18
11.14 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 18
11.15 Ambiguities . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.16 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.17 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SCHEDULE 2.5 RESEARCH PLANS . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
3
<PAGE>
CONFIDENTIAL
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
4
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.18
LICENSE AGREEMENT
Effective this Twenty-Fifth day of March, 1999, the MCW RESEARCH
FOUNDATION, INC. ("MCWRF"), a body having corporate powers under the laws of the
State of Wisconsin and the wholly owned subsidiary of the MEDICAL COLLEGE OF
WISCONSIN, INC. ("MCW"), and INTERMUNE PHARMACEUTICALS, INC. ("INTERMUNE") a
corporation, having a place of business at 2483 East Bayshore Road, Suite 103,
Palo Alto, CA, U.S.A., agree as follows:
1. DEFINITIONS:
(a) "PSEUDOMONAS V ANTIGEN" means [ * ] developed by [ * ] (the
"Inventors").
(b) "LICENSED RIGHTS" means any subject matter claimed in or covered by
U.S. Provisional Patent Serial No. [ * ], filed on behalf of the Inventors and
the Regents of the University of California ("THE REGENTS") by MCWRF on [ * ];
and any divisions, continuations, or continuations-in-part (but only to the
extent that such continuations-in-part have inventors from both institutions)
thereof; any corresponding foreign applications thereof, and any U.S. or joint
foreign patents issued thereon or reissues or extensions thereof assigned by
each inventor to his/her respective institution.
(c) "LICENSED PRODUCT(S)" means [ * ] manufacture, use or sale. For all
other fields of use, including but not limited to the field of [ * ].
2. BACKGROUND:
(a) MCWRF represents that it is the owner and sole administrator by
assignment, and by interinstitutional agreement with the Regents of the Licensed
Rights. MCWRF desires to grant a license for making the Licensed Product(s)
commercially available for public use and benefit.
(b) INTERMUNE wishes to acquire an exclusive LICENSE as herein specified.
3. LICENSE GRANT:
(a) MCWRF hereby grants and INTERMUNE hereby accepts an exclusive
world-wide license under the Licensed Rights to make, have made, use, and
sell Licensed Product(s).
(b) The license grant of Paragraph 3.a. shall include the right to grant
sublicenses to others during the term of this Agreement.
(c) The development of this invention was sponsored in part by the
National Institutes of Health, Department of Health and Human Services, and as a
consequence this license is subject to overriding obligations to the Federal
Government under 35 U.S.C. 200-212 and 37 C.F.R. 401.
1.
<PAGE>
(d) MCWRF and THE REGENTS reserve the Licensed Rights for educational and
research purposes.
4. FEES AND ROYALTIES:
(a) In consideration of the License granted herein, INTERMUNE shall pay to
MCWRF:
(i) a licensed issue fee in the sum of Fifty Thousand Dollars
($50,000.00) payable upon execution of this agreement;
(ii) the sum of [ * ] payable upon [ * ] Licensed Product;
(iii) the sum of [ * ] payable upon [ * ] Licensed Product.
(iv) the sum of [ * ] payable upon [ * ] Licensed Product;
(v) the sum of [ * ] payable upon [ * ] licensed product;
(b) These sums are not advances against earned royalties provided for in
Paragraph 4.c.
(c) In consideration of the license granted herein, INTERMUNE shall pay to
MCWRF [ * ] percent of net sales for each and every Licensed Product(s) which is
sold, irrespective of selling price, given as a promotional item or gift,
included with the sale of other equipment, or transferred or caused to be
transferred, to any other party by INTERMUNE. Net sales shall mean gross sales
lease:
(i) trade and/or quantity discounts as are customary in the trade;
(ii) taxes or other governmental charges on the production, sales,
transportation, delivery or use of licensed products;
(iii) transportation charges;
(iv) sales commissions paid to non-affiliated parties; and
(v) amounts repaid or credited by reasons of recall or return.
(d) Royalties pursuant to Paragraph 4.c. shall not be due by INTERMUNE to
MCWRF on Licensed Product(s) delivered to any third party solely for evaluation,
demonstration, or the like.
(e) All royalties due hereunder by INTERMUNE to MCWRF shall be paid to
MCWRF in United States Dollars. When Licensed Products are sold for monies
other than United States Dollars, INTERMUNE shall first determine the earned
royalty in the currency of the country in which the Licensed Products were sold
and then convert the amount into equivalent United States Dollars, using the
exchange rate quoted in the Wall Street Journal on the last business day of the
reporting period, as provided for in Article 5.
(f) INTERMUNE shall be responsible for all bank transfer charges.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
2.
<PAGE>
5. REPORTS, PAYMENTS AND ACCOUNTING:
(a) INTERMUNE agrees to make written progress reports to MCWRF within
sixty (60) days of each June 30 and each December 31 during the life of this
Agreement covering activities related to the development and testing of all
Licensed Products and the status of government approvals necessary for
marketing. Progress reports are required for each Licensed Product until the
first commercial sale of that Licensed Product occurs in the United States.
Progress reports submitted under Paragraph 5.a. shall include, but are not
limited to, the following topics:
(i) summary of work completed;
(ii) key scientific discoveries;
(iii) summary of work in progress;
(iv) schedule of anticipated events or milestones;
(v) marketing plans for introducing Licensed Products; and
(vi) summary of resources (dollar value) expended during the
reporting period.
(b) INTERMUNE agrees to make written reports to MCWRF within sixty (60)
days of each June 30 and each December 31 during the life of this Agreement
stating in each such report the number of Licensed Product(s) used, sold, given,
included in sales of other products or equipment, transferred or leased by
INTERMUNE, upon which royalties are payable pursuant to Article 4. hereof for
the prior six (6) month period.
(c) INTERMUNE also agrees to make a similar written report to MCWRF within
ninety (90) days after the date of the termination of this Agreement on Licensed
Product(s) sold, given, included in sales of other products or equipment,
transferred or leased by INTERMUNE and upon which royalties are payable
hereunder but which were not previously reported.
(d) Concurrently with the making of each report required under this
Article 5.b. and 5.c., INTERMUNE shall pay to MCWRF all royalties due hereunder
in connection with the transactions so reported.
(e) During the term of this Agreement, and for a period of seven (7) years
after the termination of this Agreement, INTERMUNE agrees to keep records
showing the manufacture, sales, use, leases, gifts, inclusions and transfers of
Licensed Product(s) in sufficient detail to enable the royalties due and payable
hereunder by INTERMUNE to be determined, and further agrees to permit its books
and records to be examined from time to time to the extent necessary, but not
more than once a year, to verify reports provided for in Paragraphs 5.b. and
5.c. hereof. Such examination is to be made by an independent certified
accountant appointed by MCWRF, with the fees and expenses to be borne by MCWRF.
6. PATENTS:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
3.
<PAGE>
(a) MCWRF agrees to pursue and maintain patent protection of the
Pseudomonas V Antigen technology commencing on the date of this License
Agreement, using counsel to be mutually agreed upon, with the costs of
preparing, filing, prosecuting and maintaining such protection to be paid by
INTERMUNE. The initial License fee ($50,000) shall be creditable against patent
expenses incurred prior to the date of this agreement. INTERMUNE will be billed
for additional patent expenses by MCWRF as the costs are incurred.
(b) INTERMUNE may request MCWRF to obtain patent protection in foreign
countries. INTERMUNE shall notify MCWRF of this request not less than ninety
(90) days prior to the deadline for any filing, action, or payment to be made in
connection therewith. The notice of request must be in writing, must identify
the countries desired, and must reaffirm INTERMUNE's obligation to underwrite
the costs thereof. The absence of such a notice from INTERMUNE will be
considered an election not to obtain or maintain foreign rights. MCWRF may
prosecute and maintain such rights at its sole discretion and expense in any
country in which INTERMUNE has not elected to file, prosecute, or maintain
patents in accordance with this Article, but INTERMUNE will have no rights or
licenses thereunder.
(c) INTERMUNE's obligation to underwrite and pay patent costs will
continue for so long as this Agreement is in effect. However, INTERMUNE may
terminate its obligations with respect to any given patent application or patent
upon ninety (90) days written notice to MCWRF. MCWRF may prosecute and maintain
such rights at its sole discretion and expense, but INTERMUNE will have no
further rights or licenses thereunder.
7. WARRANTIES AND INDEMNITIES:
(a) Nothing in this Agreement shall be construed as:
(i) A warranty or representation that anything made, used, sold,
rented or leased, under any license granted by this Agreement is or will be free
from infringement of patents of third parties;
(ii) Granting by implication, estoppel, or otherwise any licenses or
right under patents of MCWRF or THE REGENTS regardless of whether such patents
dominate or are subordinate to any Licensed Rights. The foregoing
notwithstanding, MCWRF hereby informs INTERMUNE that they know of no patents
which dominate the Licensed Rights and under which MCWRF has the right to grant
licenses.
(b) MCWRF AND THE REGENTS MAKE NO REPRESENTATIONS, EXTENDS NO WARRANTIES
OF ANY KIND, EITHER EXPRESSED OR IMPLIED. THERE ARE NO EXPRESSED OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE
USE OF THE LICENSED PRODUCT(S) WILL NOT INFRINGE ANY PATENT, COPYRIGHT,
TRADEMARK, OR OTHER RIGHTS.
(c) INTERMUNE shall indemnify, hold harmless, and defend MCWRF and MCW,
THE REGENTS, their officers, employees, and agents, and the inventors against
any and all claims, suits, losses, liabilities, damages, costs, fees, and
expenses resulting from or arising out of exercise of this license. This
indemnification includes, but is not limited to, any product liability.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED. 4.
<PAGE>
8. INFRINGEMENT BY OTHERS:
INTERMUNE shall promptly inform MCWRF of any suspected infringement of any
Licensed Rights by a third party, and MCWRF and INTERMUNE shall consult in good
faith to agree on a mutually beneficial course of action.
9. TERM AND TERMINATION:
(a) The word "termination" and cognate words, such as "term" and
"terminate" as used in this Agreement, are to be read, except where the contrary
is specifically indicated, as omitting from their effect the following rights
and obligations, all of which survive any termination to the degree necessary to
permit their complete fulfillment or discharge:
(i) INTERMUNE's obligation to supply a terminal report as specified
in Paragraph 5.c. hereof;
(ii) MCWRF's rights to receive or recover and INTERMUNE's obligation
to pay fees and royalties, pursuant to Article 4. hereof, and pay patent
expenses incurred, pursuant to Article 6. hereof, due or accruable for payment
at the time of any termination;
(iii) INTERMUNE's obligation to maintain records and MCWRF's right to
conduct audits as provided in Paragraph 5.e. hereof;
(iv) Releases running in favor of customers of INTERMUNE with respect
to Licensed Product(s) sold or transferred prior to any termination and on which
royalties have been paid or are payable by INTERMUNE to MCWRF as provided in
Article 4. hereof;
(v) Any cause of action or claim of either party hereto, accrued or
to accrue, because of any breach or default by the other party; and
(vi) The provisions of Article 7.
10. DUE DILIGENCE:
(a) INTERMUNE, on execution of this Agreement shall diligently proceed
with the development, manufacture and sale of Licensed Products and shall
earnestly and diligently endeavor to market same within a reasonable time after
execution of this Agreement and in quantities sufficient to meet market demands.
(b) INTERMUNE shall endeavor to obtain all necessary government approvals
for the manufacture, use and sale of Licensed Products.
(c) INTERMUNE SHALL:
(i) file an IND and begin Phase I Clinical Trials within [ * ] years
of executing this Agreement;
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
5.
<PAGE>
(ii) initiate Phase II and Phase III Clinical Trials within [ * ]
years of beginning Phase I Clinical Trials;
(iii) file an NDA within [ * ] years of beginning Phase III Clinical
Trials;
(iv) market a Licensed product within [ * ] years of filing an NDA.
(d) If INTERMUNE is unable to meet any of the above due diligence
provisions, MCWRF reserves the right to terminate this Agreement upon written
notice to INTERMUNE, which termination shall become effective sixty (60) days
after MCWRF's sending written notice of such termination unless such provision
has been met prior to the expiration of the sixty day period.
(e) From time to time, INTERMUNE may suggest modifications to the
diligence provisions above based on new information. Such modifications shall
be effective only as mutually agreed upon, in writing, by the Parties. MCWRF
shall consider such requested modifications in good faith and shall agree to
modifications that are reasonably necessary to achieve the overall objectives of
the development of the Licensed Product.
(f) In the event that INTERMUNE determines that it will be unable to meet
any of the diligence provisions, INTERMUNE shall notify MCWRF of such inability,
identifying the nature of the inability with reasonable specificity and may ask
MCWRF for a reasonable extension of time in which to complete such provision.
At MCWRF's sole discretion, MCWRF may grant InterMune such an extension to
complete the provision.
(g) If INTERMUNE shall at any time default in the payment of any earned
royalty or the making of any report hereunder, or shall commit any material
breach of any covenant herein contained, or shall make any materially false
report and shall fail to remedy any such default, breach, or report within
ninety (90) days after written notice thereof by MCWRF, MCWRF may, at its
option, terminate this Agreement and the licenses herein granted by notice in
writing to such effect.
(h) INTERMUNE shall have the right to terminate this Agreement in respect
to any or all Licensed Patent(s), upon giving at least ninety (90) days written
notice to MCWRF of its intention and desire to terminate.
11. USE OF NAMES AND TRADEMARKS:
Nothing contained in this Agreement confers any right to use in
advertising, publicity, or other promotional activities, any name, trade name,
trademark, or other designation of any party hereto or THE REGENTS.
12. ASSIGNMENT:
This Agreement may not be assigned.
13. APPLICABLE LAW:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
6.
<PAGE>
This Agreement shall be construed, interpreted, and applied in accordance
with the laws of the State of Wisconsin.
14. ARBITRATION:
(a) Any controversy arising under or related to this Agreement, and any
disputed claim by either party against the other under this Agreement,
including, without limitation, disputes relating to patent validity or
infringement, shall be settled by arbitration, upon the request of either party,
in accordance with the then-prevailing Patent Arbitration rules of the American
Arbitration Association (AAA). In the event of such controversy, the matter
shall be submitted to one arbitrator knowledgeable in the field, who has been
selected by mutual agreement of the parties hereto or by the AAA if the parties
cannot agree.
(b) Any arbitration under Paragraph 14.a. hereof shall be held at
Milwaukee, Wisconsin, or such other place as may be mutually agreed upon in
writing between the parties, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
15. NOTICES:
All notices, demands, or other writings in this Agreement provided to be
given, made, or sent, or which may be given, made, or sent by either party
hereto to the other, shall be deemed to have been fully given, made, or sent
when done in writing and deposited in the United States mail, first class,
postage prepaid, and addressed as follows:
To MCWRF: MCW Research Foundation
8701 Watertown Plank Road
Milwaukee, WI 53226
Attn: William R. Hendee, Ph.D.
Executive Vice President
To INTERMUNE: Intermune Pharmaceuticals, Inc.
3294 West Bayshore Road
Palo Alto, CA 94303
Attn: Woodruff Emlen, M.D.
Vice President, Exploratory Medicine
The address to which any notice, demand, or other writing may be given or
made or sent to any party may be changed upon written notice given by such party
as above provided.
16. WAIVER:
The parties covenant and agree that, if either party hereunder fails or
neglects for any reason to take advantage of any of the terms hereof provided
for the termination of this Agreement, or if a party, having the right to
declare this Agreement terminated, shall fail to do so, any such failure or
neglect by such party shall not be or be deemed or be construed to be a waiver
of any of the terms, covenants, or conditions of this Agreement or of the
performance thereof. None of the terms, covenants, and conditions of this
Agreement can be waived except by the written consent of the party waiving
compliance.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
7.
<PAGE>
17. SCOPE OF AGREEMENT:
(a) The article headings herein are for convenience only and in no manner
affect the rights and obligations of the parties, nor shall they be used to
interpret the provisions hereof.
(b) This Agreement constitutes the entire agreement between the parties
pertaining to the Licensed Rights. No representative of MCWRF or INTERMUNE has
been authorized to make any representation, warranty, or promise not contained
herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their officers or representatives duly authorized as of the date first herein
above written. Execution of this agreement by INTERMUNE is subject to approval
by the INTERMUNE Board of Directors, within 30 days of the date first herein
above written.
MCW RESEARCH FOUNDATION, INC. INTERMUNE PHARMACEUTICALS, INC.
By: /s/ Joseph O. Hill By: /s/ W. Scott Harkonen
---------------------------------------- -----------------------------
Title: Joseph O. Hill, Ph.D. Vice President Title: President & CEO
------------------------------------- ----------------------------
Date: 3/25/99 Date: 3/25/99
-------------------------------------- -----------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
8.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 28,
2000, in the Registration Statement (Form S-1 No. 333-xxxxx) and related
Prospectus of InterMune Pharmaceuticals, Inc. for the registration of
5,500,000 shares of its common stock.
/S/ ERNST & YOUNG LLP
Palo Alto, California
January 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR ENDING DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,772,110
<SECURITIES> 442,184
<RECEIVABLES> 409,392
<ALLOWANCES> 0
<INVENTORY> 831,145
<CURRENT-ASSETS> 5,577,277
<PP&E> 30,465
<DEPRECIATION> (2,564)
<TOTAL-ASSETS> 5,855,178
<CURRENT-LIABILITIES> 4,354,899
<BONDS> 0
7,773,877
4,506,804
<COMMON> 3,049,664
<OTHER-SE> (15,454,409)
<TOTAL-LIABILITY-AND-EQUITY> 5,855,178
<SALES> 556,401
<TOTAL-REVENUES> 556,401
<CGS> 239,802
<TOTAL-COSTS> 239,802
<OTHER-EXPENSES> 6,580,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (185,942)
<INCOME-PRETAX> (6,866,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,866,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,866,568)
<EPS-BASIC> (8.94)
<EPS-DILUTED> (8.94)
</TABLE>
