<PAGE>
As filed with the Securities and Exchange Commission on March 14, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CURIS, INC.
(Exact name of registrant as specified in its Charter)
---------------
<TABLE>
<S> <C>
Delaware 2836 04-35051136
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number Identification Number)
Incorporation or
Organization
</TABLE>
45 Moulton Street
Cambridge, Massachusetts 02138
(617) 876-0086
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
Doros Platika
President and Chief Executive Officer
Curis, Inc.
45 Moulton Street
Cambridge, Massachusetts 02138
(617) 876-0086
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
Copies to:
<TABLE>
<S> <C> <C>
Cheryl K. Lawton, Esq. Jeffrey M. Wiesen, Esq. Bruce A. Leicher, Esq.
Creative BioMolecules, Inc. Lewis J. Geffen, Esq. Ontogeny, Inc.
101 Huntington Avenue, Suite 2400 Mintz, Levin, Cohn, Ferris, 45 Moulton Street
Boston, MA 02199 Glovsky and Popeo, P.C. Cambridge, MA 02138
(617) 912-2900 One Financial Center (617) 876-0086
Boston, MA 02111
(617) 542-6000
Jonathan H. Hulbert, Esq. Steven D. Singer, Esq. Walter J. Smith, Esq.
Foley, Hoag & Eliot LLP Philip Rossetti, Esq. Baker Botts L.L.P.
One Post Office Square Jorge L. Contreras, Esq. 910 Louisiana
Boston, MA 02109 Hale and Dorr LLP One Shell Plaza
(617) 832-7000 60 State Street Houston, TX 77002
Boston, MA 02109 (713) 229-1234
(617) 526-6000
</TABLE>
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the proposed merger described herein have
been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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(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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Title of each Class of Proposed Maximum Aggregate Amount of
Securities to be Amount to be Offering Price Offering Registration
Registered Registered(1) Per Share(2) Price(2) Fee(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $0.01 par
value per share....... 29,111,654 shares Not applicable $794,255,598.63 $209,683.48
</TABLE>
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- --------------------------------------------------------------------------------
(1) Based upon the maximum number of shares of common stock expected to be
issued in connection with the transactions described herein.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f). The registration fee was calculated as
follows: the sum of (a) 38,231,502 representing the number of shares of
Creative BioMolecules, Inc. common stock outstanding on March 10, 2000,
multiplied by $20.5625 (the average of the high and low sale prices for
shares of Creative BioMolecules common stock on the Nasdaq National Market
on March 10, 2000), plus (b) the book value at December 31, 1999 of the
outstanding shares of capital stock of Reprogenesis, Inc. plus (c) one-
third of the aggregate par value of the outstanding shares of capital stock
of Ontogeny, Inc.
(3) Pursuant to Section 6(b) of the Securities Act, the registration fee
payable hereunder is equal to 0.0264 of one percent of $794,255,598.63,
for a total registration fee of $209,683.48.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[LOGO OF CURIS]
[LOGO OF CREATIVE] [LOGO OF ONTOGENY] [LOGO OF REPROGENESIS]
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
The boards of directors of each of Creative BioMolecules, Inc., Ontogeny,
Inc. and Reprogenesis, Inc. have approved the merger of Creative, Ontogeny and
Reprogenesis into a new corporation named Curis, Inc. The merger cannot be
completed without the approval of the stockholders of each of Creative,
Ontogeny and Reprogenesis. Upon completion of the merger, we believe the
combined strengths of our three companies will enable us to create a leader in
the emerging field of regenerative medicine. We believe that the merger will
benefit the stockholders of each of the companies, and we ask for your support
in voting for the merger proposals at our special meetings. When the merger is
completed:
. Creative common stockholders will receive 0.3 of a share of Curis common
stock for each share of Creative common stock they own.
. Ontogeny stockholders will receive 0.2564 of a share of Curis common stock
for each share of Ontogeny common stock and preferred stock they own.
. Holders of the capital stock of Reprogenesis or options or warrants to
acquire the capital stock of Reprogenesis will be entitled to receive an
aggregate number of shares of Curis common stock equal to 0.1956 multiplied
by the total number of shares of Reprogenesis capital stock outstanding or
subject to options or warrants at the time of the merger. Because the
Reprogenesis series A preferred stock is a participating preferred stock,
holders of the series A preferred stock are entitled to receive, before any
distribution to any other Reprogenesis stockholders, $6 million of the
consideration received by the Reprogenesis stockholders in the merger. Once
this preference has been paid, the remaining consideration to the
Reprogenesis stockholders is shared pro rata by the holders of the
Reprogenesis common and preferred stock. The exact number of shares of Curis
common stock received by the holders of the Reprogenesis common and preferred
stock will be determined based on the formula described on page 54.
Curis intends to apply to have its common stock quoted on the Nasdaq National
Market under the symbol "CRIS." The boards of directors of each of Creative,
Ontogeny and Reprogenesis each recommend that their respective stockholders
vote FOR adoption of the merger agreement, as described in the attached
materials.
We have scheduled separate meetings to be held on June , 2000 for the
stockholders of each of Creative, Ontogeny and Reprogenesis to vote on the
merger agreement. The times and places of these meetings are contained in the
attached notices. Information about the merger is contained in this joint proxy
statement-prospectus. You can also obtain financial and other information about
Creative from documents filed with the Securities and Exchange Commission. We
encourage you to read carefully the entire document and the documents
incorporated by reference.
<TABLE>
<S> <C> <C>
Michael Tarnow Doros Platika Daniel R. Omstead
President & Chief Executive Officer President & Chief Executive Officer President & Chief Executive Officer
Creative BioMolecules, Inc. Ontogeny, Inc. Reprogenesis, Inc.
</TABLE>
See "Risk Factors" beginning on page 17 for a
discussion of the risks that should be considered by
the stockholders of each of Creative, Ontogeny and
Reprogenesis before voting at their respective
meetings.
Neither the Securities and Exchange Commission nor
any state securities commission has approved or
disapproved of the securities to be issued in
connection with the merger or determined if this
joint proxy statement-prospectus is accurate or
complete. Any representation to the contrary is a
criminal offense.
This joint proxy statement-prospectus is dated , 2000, and is first
being mailed to stockholders of Creative, Ontogeny and Reprogenesis on or about
, 2000.
<PAGE>
CREATIVE BIOMOLECULES, INC.
45 South Street
Hopkinton, MA 01748
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
June , 2000
at 11:00 A.M.
To the stockholders of Creative BioMolecules, Inc.:
Notice is hereby given that a special meeting of stockholders of Creative
BioMolecules, Inc. will be held on June , 2000 at 11:00 a.m., local time, at
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center,
Boston, Massachusetts 02111 for the following purposes:
1. To consider and vote upon a proposal to adopt a merger agreement among
Curis, Inc., Creative BioMolecules, Inc., Ontogeny, Inc. and
Reprogenesis, Inc. pursuant to which Creative, Ontogeny and Reprogenesis
will each merge into a new company named Curis, Inc. and each share of
Creative common stock will be automatically converted into 0.3 of a
share of Curis common stock.
2. To transact any other business as may properly come before the meeting,
or any adjournment or postponement of the special meeting.
These items of business are described in the attached joint proxy statement-
prospectus. Only holders of record of Creative common stock at the close of
business on , 2000, the record date, are entitled to notice of, and to
vote at, the special meeting and any adjournments or postponements of the
special meeting.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented
at the meeting. To grant your proxy to vote your shares, you may complete and
return the enclosed proxy card. If your shares are held in an account at a
brokerage firm or bank, you must instruct them how to vote your shares. If you
do not vote or do not instruct your broker or bank how to vote, it will have
the same effect as voting against the merger.
By order of the board of directors
of
CREATIVE BIOMOLECULES, INC.
Cheryl K. Lawton
Secretary
Hopkinton, MA
, 2000
<PAGE>
ONTOGENY, INC.
45 Moulton Street
Cambridge, MA 02138
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
June , 2000
at 10:00 A.M.
To the stockholders of Ontogeny, Inc.:
Notice is hereby given that a special meeting of stockholders of Ontogeny,
Inc. will be held on June , 2000 at 10:00 a.m., local time, at Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts 02109 for the following purposes:
1. To consider and vote upon a proposal to adopt a merger agreement among
Curis, Inc., Creative BioMolecules, Inc., Ontogeny, Inc. and
Reprogenesis, Inc. pursuant to which Creative, Ontogeny and Reprogenesis
will each merge into a new company named Curis, Inc. and each share of
Ontogeny common stock and preferred stock will be automatically
converted into 0.2564 of a share of Curis common stock.
2. To transact any other business as may properly come before the meeting,
or any adjournment or postponement of the special meeting.
These items of business are described in the attached joint proxy statement-
prospectus. Only holders of record of Ontogeny capital stock at the close of
business on , 2000, the record date, are entitled to notice of, and to
vote at, the special meeting and any adjournments or postponements of the
special meeting.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented
at the meeting. To grant your proxy to vote your shares, you may complete and
return the enclosed proxy card. If your shares are held in an account at a
brokerage firm or bank, you must instruct them how to vote your shares. If you
do not vote or do not instruct your broker or bank how to vote, it will have
the same effect as voting against the merger.
You will be entitled to have your shares purchased by Curis for cash at
their fair market value if you file written notice with Ontogeny of your
intention to exercise your appraisal rights prior to the special meeting, you
do not vote in favor of the merger, and you follow the procedures of Section
262 of the Delaware General Corporation Law.
By order of the board of directors
of
ONTOGENY, INC.
George A. Eldridge
Secretary
Cambridge, MA
, 2000
<PAGE>
REPROGENESIS, INC.
21 Erie Street
Cambridge, MA 02139
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
June , 2000
at 10:00 A.M.
To the stockholders of Reprogenesis, Inc.:
Notice is hereby given that a special meeting of stockholders of
Reprogenesis, Inc. will be held on June , 2000 at 10:00 a.m., local time, at
21 Erie Street, Suite 22, Cambridge, MA 02139 for the following purposes:
1. To consider and vote upon a proposal to adopt a merger agreement among
Curis, Inc., Creative BioMolecules, Inc., Ontogeny, Inc. and
Reprogenesis, Inc. pursuant to which Creative, Ontogeny and
Reprogenesis will each merge into a new company named Curis, Inc. and
each share of Reprogenesis capital stock will be automatically
converted into shares of Curis common stock using the conversion ratios
set forth in the merger agreement.
2. To transact any other business as may properly come before the meeting,
or any adjournment or postponement of the special meeting.
These items of business are described in the attached joint proxy statement-
prospectus. Only holders of record of Reprogenesis capital stock at the close
of business on , 2000, the record date, are entitled to notice of, and to
vote at, the special meeting and any adjournments or postponements of the
special meeting.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented
at the meeting. To grant your proxy to vote your shares, you may complete and
return the enclosed proxy card. If your shares are held in an account at a
brokerage firm or bank, you must instruct them how to vote your shares. If you
do not vote or do not instruct your broker or bank how to vote, it will have
the same effect as voting against the merger.
You will be entitled to have your shares purchased by Curis for cash at
their fair market value if you file written notice with Reprogenesis of your
intention to exercise dissenters' rights prior to the special meeting, you do
not vote in favor of the merger, and you follow the procedures of Articles
5.11, 5.12 and 5.13 of the Texas Business Corporation Act.
By order of the board of directors
of
REPROGENESIS, INC.
Lynn G. Baird
Secretary
Cambridge, MA
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY OF THE JOINT PROXY STATEMENT-PROSPECTUS........................... 3
The Companies............................................................ 3
The Structure of the Merger.............................................. 4
Recommendation of the Boards of Directors................................ 4
Fairness Opinions of Financial Advisors.................................. 4
Stockholder Approvals.................................................... 4
The Special Meetings..................................................... 6
Ownership of Curis Following the Merger.................................. 6
Board of Directors and Management Following the Merger................... 6
Interests of Directors and Officers of Creative, Ontogeny and
Reprogenesis in the Merger.............................................. 7
Treatment of Creative, Ontogeny and Reprogenesis Stock Options and
Warrants................................................................ 7
Tax Consequences......................................................... 7
Overview of the Merger Agreement......................................... 8
Stockholder Agreements................................................... 9
Comparison of Stockholder Rights......................................... 9
Market Value Information................................................. 9
Trademarks............................................................... 9
Creative Selected Consolidated Financial Data............................ 10
Ontogeny Selected Financial Data......................................... 11
Reprogenesis Selected Consolidated Financial Data........................ 12
Curis Selected Pro Forma Financial Data.................................. 13
Unaudited Comparative Per Share Data..................................... 14
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS........................... 15
RISK FACTORS.............................................................. 17
Risks Related to the Merger.............................................. 17
Risks Related to Our Business, Industry, Strategy and Operations......... 18
Risks Relating to Clinical and Regulatory Matters........................ 21
Risks Relating to Financing.............................................. 23
Risks Relating to Intellectual Property.................................. 24
Risks Relating to Product Manufacturing, Marketing and Sales............. 26
THE SPECIAL MEETING OF CREATIVE BIOMOLECULES, INC. STOCKHOLDERS........... 27
Joint Proxy Statement-Prospectus......................................... 27
Date, Time and Place of the Special Meeting.............................. 27
Purpose of the Special Meeting........................................... 27
Stockholder Record Date for the Special Meeting.......................... 27
Vote of Creative Stockholders Required for Adoption of the Merger
Agreement............................................................... 27
Proxies.................................................................. 27
Solicitation of Proxies and Expenses..................................... 28
THE SPECIAL MEETING OF ONTOGENY, INC. STOCKHOLDERS........................ 29
Joint Proxy Statement-Prospectus......................................... 29
Date, Time and Place of the Special Meeting.............................. 29
Purpose of the Special Meeting........................................... 29
Stockholder Record Date for the Special Meeting.......................... 29
Vote of Ontogeny Stockholders Required for Adoption of the Merger
Agreement............................................................... 30
Proxies.................................................................. 30
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Expenses................................................................. 31
THE SPECIAL MEETING OF REPROGENESIS STOCKHOLDERS.......................... 32
Joint Proxy Statement-Prospectus......................................... 32
Date, Time and Place of the Special Meeting.............................. 32
Purpose of the Special Meeting........................................... 32
Stockholder Record Date for the Special Meeting.......................... 32
Vote of Reprogenesis Stockholders Required for Adoption of the Merger
Agreement............................................................... 33
Proxies.................................................................. 33
Expenses................................................................. 34
THE MERGER................................................................ 35
Background of the Merger................................................. 35
Joint Reasons for the Merger............................................. 37
Creative's Reasons for the Merger........................................ 37
Ontogeny's Reasons for the Merger........................................ 39
Reprogenesis' Reasons for the Merger..................................... 41
Recommendation of Creative's Board of Directors.......................... 42
Opinion of Creative's Financial Advisor.................................. 42
Recommendation of Ontogeny's Board Of Directors.......................... 46
Opinion of Ontogeny's Financial Advisor.................................. 46
Recommendation of Reprogenesis' Board of Directors....................... 51
Interests of Creative Directors and Executive Officers in the Merger..... 51
Interests of Ontogeny Directors and Executive Officers in the Merger..... 52
Interests of Reprogenesis Directors and Executive Officers in the
Merger.................................................................. 53
Completion and Effectiveness of the Merger............................... 54
Structure of the Merger and Conversion of Creative, Ontogeny and
Reprogenesis Stock...................................................... 54
Book-Entry Accounts...................................................... 55
Treatment of Creative, Ontogeny and Reprogenesis Stock Options........... 55
Treatment of Outstanding Warrants........................................ 55
Material United States Federal Income Tax Consequences of the Merger..... 56
Accounting Treatment of the Merger....................................... 58
Restrictions on Sales of Shares by Affiliates of Creative, Ontogeny and
Reprogenesis............................................................ 58
Nasdaq National Market Listing of Curis Common Stock to be Issued in the
Merger.................................................................. 58
Appraisal/Dissenters' Rights............................................. 58
Delisting and Deregistration of Creative Common Stock after the Merger... 61
The Merger Agreement..................................................... 61
Curis Charter and By-laws................................................ 71
Stockholder Agreements................................................... 72
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION........................ 73
CURIS BUSINESS ........................................................... 79
Overview of Curis........................................................ 79
Regenerative Medicine Background......................................... 79
Functional Genomics/Developmental Biology................................ 79
Regenerative Medicine Technologies....................................... 80
Curis Product Opportunities Portfolio.................................... 80
Curis Product and Product Candidate Chart................................ 81
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Research and Development Portfolio Review................................ 83
Competition.............................................................. 83
Regulatory Matters....................................................... 83
Sales and Marketing...................................................... 84
Corporate and Academic Alliances......................................... 84
Patents.................................................................. 84
Employees................................................................ 85
Manufacturing............................................................ 85
CREATIVE BUSINESS, SELECTED CONSOLIDATED FINANCIAL DATA AND MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 86
Business of Creative..................................................... 86
Selected Consolidated Financial Data..................................... 99
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 100
ONTOGENY BUSINESS, SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 106
Business of Ontogeny..................................................... 106
Ontogeny Selected Financial Data......................................... 117
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 118
REPROGENESIS BUSINESS, SELECTED CONSOLIDATED FINANCIAL DATA AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................ 121
Business of Reprogenesis................................................. 121
Reprogenesis Selected Consolidated Financial Data........................ 133
Management's Discussion and Analysis Of Financial Condition and Results
Of Operations........................................................... 134
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
REGULATORY MATTERS AFFECTING CURIS, CREATIVE, ONTOGENY AND REPROGENESIS.. 139
DESCRIPTION OF CURIS CAPITAL STOCK....................................... 144
Authorized Capital Stock................................................ 144
Common Stock............................................................ 144
Undesignated Preferred Stock............................................ 144
Anti-Takeover Measures.................................................. 144
Transfer Agent and Registrar............................................ 145
Nasdaq National Market Quotation........................................ 145
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CURIS, CREATIVE, ONTOGENY AND
REPROGENESIS............................................................ 146
Creative v. Curis....................................................... 146
Ontogeny v. Curis....................................................... 150
Reprogenesis v. Curis................................................... 154
MANAGEMENT OF CURIS AFTER THE MERGER..................................... 161
Curis' Board of Directors and Executive Officers........................ 161
Board Committees........................................................ 165
Compensation of Directors............................................... 165
Compensation of Executive Officers...................................... 166
Employee Benefit Plans.................................................. 168
2000 Director Stock Option Plan......................................... 169
PRINCIPAL STOCKHOLDERS................................................... 171
LEGAL MATTERS............................................................ 173
STOCKHOLDER PROPOSALS.................................................... 173
EXPERTS.................................................................. 173
OTHER MATTERS............................................................ 173
WHERE YOU CAN FIND MORE INFORMATION...................................... 174
INDEX TO FINANCIAL PAGES................................................. F-1
</TABLE>
ANNEX A--Agreement and Plan of Merger
ANNEX B--Form of Stockholder Agreement
ANNEX C--Opinion of Chase Securities Inc.
ANNEX D--Opinion of SG Cowen Securities Corporation
ANNEX E--Certificate of Incorporation of Curis, Inc.
ANNEX F--Section 262 of the Delaware General Corporation Law
ANNEX G--Article 5.11, 5.12 and 5.13 of the Texas Business Corporations Act
This joint proxy statement-prospectus incorporates important business and
financial information about Creative by reference. See "Where You Can Find More
Information" on page 174 for a listing of documents incorporated by reference.
Creative documents are available to any person, including any beneficial owner,
upon request directed to Investor Relations, at Creative BioMolecules, 101
Huntington Avenue, Suite 2400, Boston, Massachusetts 02199, telephone 617-912-
2955. To ensure timely delivery of these documents, any request should be made
by , 2000. The exhibits to these documents will generally not be made
available unless they are specifically incorporated by reference in this joint
proxy statement-prospectus.
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are Creative, Ontogeny and Reprogenesis proposing the merger?
A: We are proposing the merger because we believe the combined strengths of
our three companies will enable us to build a leading company in the
emerging field of regenerative medicine. The merger will combine insight
gained through the study of developmental biology by Ontogeny, the protein
therapy expertise of Creative and the cell therapy and biomaterials
expertise of Reprogenesis to facilitate the development of new regenerative
medicine therapies.
Q: What will I receive in the merger?
A: Stockholders of Creative, Ontogeny and Reprogenesis will receive the
following in the merger:
Creative Stockholders:
0.3 of a share of Curis common stock for each share of Creative common stock
you own. This ratio is referred to in this joint proxy statement-prospectus
as the Creative exchange ratio.
Ontogeny Stockholders:
0.2564 of a share of Curis common stock for each share of Ontogeny common
stock or preferred stock you own. This ratio is referred to in this joint
proxy statement-prospectus as the Ontogeny exchange ratio.
Reprogenesis Stockholders:
Holders of the capital stock of Reprogenesis or options or warrants to
acquire the capital stock of Reprogenesis will be entitled to receive an
aggregate number of shares of Curis common stock equal to 0.1956 multiplied
by the total number of shares of Reprogenesis capital stock outstanding or
subject to options or warrants at the time of the merger. Because the
Reprogenesis series A preferred stock is a participating preferred stock,
holders of the series A preferred stock are entitled to receive, before any
distribution to any other Reprogenesis stockholders, $6 million of the
consideration received by the Reprogenesis stockholders in the merger. Once
this preference has been paid, the remaining consideration due to the
Reprogenesis stockholders is shared pro rata by the holders of the
Reprogenesis common and preferred stock. The exact number of shares of Curis
common stock received by the holders of the Reprogenesis common and
preferred stock will be determined based on the formula described on page
54.
Stockholders of Creative, Ontogeny and Reprogenesis will receive cash for
any fractional share that they would otherwise receive in the merger.
Q: Will the number of shares of Curis common stock that I receive in the
merger change between now and the time the merger is completed?
A: If you are a Creative or Ontogeny stockholder, the number of shares of
Curis stock you will receive in the merger is not expected to change. If
you are a Reprogenesis stockholder, in all likelihood it will. Although the
total number of shares to be issued to all Reprogenesis stockholders is not
likely to change, the number of shares of Curis common stock to be
allocated to the holders of the Reprogenesis series A preferred stock to
satisfy their $6 million preference will vary based on the average closing
price of Creative common stock during the 20 consecutive business days
ending upon the fifth day prior to the effective time of the merger.
Increases in the value of shares of Creative common stock will decrease the
number of shares of Curis common stock necessary to satisfy this
preference. Decreases in the value of shares of Creative common stock will
increase the number of shares of Curis common stock necessary to satisfy
this preference.
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
joint proxy statement-prospectus, please complete, sign and date your proxy
card and return it in the enclosed postage paid envelope as soon as
possible so that your shares may be represented at the special meeting.
Q: What if I don't vote?
A: If you respond and do not indicate how you want to vote, your proxy will be
counted as a vote in favor of the merger. If you respond and abstain from
voting, your proxy will have the same effect as a vote against the merger.
If you fail to respond, it will have the same effect as a vote against the
merger.
1
<PAGE>
Q: If my shares are held in street name by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares. Without instructions, your
shares will not be voted, which will have the same effect as a vote against
the merger.
Q: Can I change my vote after I have delivered my proxy?
A: You can change your vote before your proxy is voted at the special meeting.
You can do this in one of three ways. First, you can notify us that you
would like to revoke your proxy. Second, you can submit a new proxy. If you
choose either of these two methods, you must submit your notice of
revocation or your new proxy at any time before the special meeting to the
secretary of Creative, Ontogeny, or Reprogenesis, as applicable, at the
address set forth in the answer to the last question below. Third, you can
attend the special meeting and vote in person. Certain stockholders of each
of Creative, Ontogeny and Reprogenesis have agreed to vote their shares in
favor of the merger. See "The Merger--Stockholder Agreements."
Q: Am I entitled to appraisal/dissenters' rights?
A: Creative stockholders do not have appraisal rights. If you are an Ontogeny
stockholder, you are entitled to appraisal rights under Delaware law, which
governs your rights as an Ontogeny stockholder. If you are a Reprogenesis
stockholder, you are entitled to dissenters' rights under Texas law, which
governs your rights as a Reprogenesis stockholder. To review your appraisal
rights under Delaware law and dissenters' rights under Texas law, as it
applies to you, in greater detail. See "The Merger--Appraisal/Dissenters'
Rights."
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, you will receive written instructions
for sending in your stock certificates. Please do not send in your stock
certificates with your proxy.
Q: Where will my shares of Curis common stock be listed?
A: Curis intends to apply to list the Curis common stock to be issued in
connection with the merger on the Nasdaq National Market under the symbol
"CRIS."
Q: When do you expect the merger to be completed?
A: We expect to complete the merger in June 2000.
Q: Who can help answer my questions?
A: If you have any questions about the merger or how to submit your proxy, or
if you need additional copies of this joint proxy statement-prospectus or
the enclosed proxy card, you should contact:
if you are a Creative stockholder: if you are an Ontogeny stockholder:
Creative BioMolecules, Inc. Ontogeny, Inc.
101 Huntington Avenue, Suite 2400 45 Moulton Street
Boston, MA 02199 Cambridge, MA 02138
Telephone: (617) 912-2900 Telephone: (617) 876-0086
E-mail: [email protected] E-mail: [email protected]
Attention: Investor Relations Attention: Investor Relations
if you are a Reprogenesis stockholder:
Reprogenesis, Inc.
21 Erie Street
Cambridge, MA 02139
Telephone: (617) 499-2928
E-mail: [email protected]
Attention: Investor Relations
2
<PAGE>
SUMMARY OF THE JOINT PROXY STATEMENT-PROSPECTUS
This summary highlights selected information in the joint proxy statement-
prospectus and may not contain all of the information that is important to you.
You should carefully read this entire joint proxy statement-prospectus and the
other documents we refer to for a more complete understanding of the merger. In
particular, you should read the documents attached to this joint proxy
statement-prospectus, including the merger agreement and the form of
stockholder agreement, which are attached as Annexes A and B, respectively. In
addition, we incorporate by reference important business and financial
information about Creative into this joint proxy statement-prospectus. You may
obtain the information incorporated by reference into this joint proxy
statement-prospectus without charge by following the instructions in the
section entitled "Where You Can Find More Information" that begins on page 174
of this joint proxy statement-prospectus.
The Companies
Curis, Inc.
45 Moulton Street
Cambridge, MA 02138-1118
(617) 876-0086
Curis is a newly formed corporation that has not, to date, conducted any
activities other than those incident to its formation, the matters contemplated
by the merger agreement and the preparation of this joint proxy statement-
prospectus. Upon completion of the merger, Creative, Ontogeny and Reprogenesis
will cease to exist as independent entities. The business of Curis will be the
combined businesses currently conducted by Creative, Ontogeny and Reprogenesis.
Creative BioMolecules, Inc.
45 South Street
Hopkinton, MA 01748
(508) 782-1100
Creative is a biopharmaceutical company focused on the development of
products for human tissue regeneration and repair. Its core technologies are
based on an understanding of the role that morphogenic proteins play in human
biology. These proteins are involved in the initiation and regulation of the
cellular events responsible for the formation of human tissues and organs.
Morphogenic proteins are involved in the formation and repair of several types
of tissues. Creative was organized as a Delaware corporation in 1986.
Ontogeny, Inc.
45 Moulton Street
Cambridge, MA 02138-1118
(617) 876-0086
Ontogeny focuses on translating developmental biology insights into
regenerative medicine therapies that will significantly improve the quality of
life by activating the body's ability to repair and regenerate, or to
specifically control abnormal and malignant growth. Ontogeny is developing
therapeutics for neurological diseases including Parkinson's and Alzheimer's
diseases, diabetes and dermatological disorders including skin cancer and hair
growth. Ontogeny was organized as a Delaware corporation in 1994.
Reprogenesis, Inc.
21 Erie Street
Cambridge, MA 02139
(617) 499-2928
Reprogenesis develops tissue engineered therapies to treat unmet medical
needs. Reprogenesis has proprietary technology utilizing combinations of cells
and biomaterials to restore, repair or replace lost tissue or
3
<PAGE>
physiological function. Reprogenesis is developing a broad preclinical and
clinical pipeline of products in the areas of urology, cardiovascular biology
and plastic and reconstructive surgery. Reprogenesis was organized as a Texas
limited partnership in 1993 and converted to a Texas corporation in 1996.
The Structure of the Merger (see page 54)
The merger agreement is attached as Annex A to this joint proxy statement-
prospectus. You are encouraged to read the merger agreement as it is the legal
document that governs the merger.
To accomplish the combination of their businesses, Creative, Ontogeny and
Reprogenesis jointly formed a new company, Curis. At the time the merger is
completed, each of Creative, Ontogeny and Reprogenesis will be merged into
Curis, leaving Curis as the surviving corporation. The business of Curis will
be the combined businesses currently conducted by Creative, Ontogeny and
Reprogenesis. Following the merger, stockholders of Creative, Ontogeny and
Reprogenesis will be stockholders of Curis.
Recommendation of the Boards of Directors (see pages 42, 46 and 51)
To Creative Stockholders: The Creative board of directors believes that the
merger is fair to Creative's stockholders and in their best interest and
unanimously recommends that Creative's stockholders vote FOR the approval of
the merger and the merger agreement.
To Ontogeny Stockholders: The Ontogeny board of directors believes that the
merger is fair to Ontogeny's stockholders and in their best interest and
recommends that Ontogeny's stockholders vote FOR the approval of the merger and
the merger agreement.
To Reprogenesis Stockholders: The Reprogenesis board of directors believes
that the merger is fair to Reprogenesis stockholders and in their best interest
and unanimously recommends that Reprogenesis' stockholders vote FOR the
approval of the merger and the merger agreement.
Fairness Opinions of Financial Advisors (see pages 42 and 46)
Opinion of Creative's Financial Advisor. In deciding to approve the merger,
the Creative board of directors considered the opinion of its financial
advisor, Chase H&Q, a division of Chase Securities Inc. ("Chase Securities"),
to the effect that, as of February 14, 2000, and based on and subject to the
factors and assumptions set forth in its opinion, the Creative exchange ratio
under the merger agreement was fair from a financial point of view to the
holders of Creative common stock. The full text of this opinion is attached as
Annex C to this joint proxy statement-prospectus. Creative urges its
stockholders to read the opinion of Chase Securities in its entirety.
Opinion of Ontogeny's Financial Advisor. In deciding to approve the merger,
the Ontogeny board of directors considered the opinion of its financial
advisor, SG Cowen Securities Corporation ("SG Cowen"), to the effect that, as
of the date of its opinion, and based on and subject to the factors and
assumptions set forth in its opinion, the Ontogeny exchange ratio under the
merger agreement is fair from a financial point of view to the holders of
Ontogeny common stock and holders of Ontogeny preferred stock. The full text of
this opinion is attached as Annex D to this joint proxy statement-prospectus.
Ontogeny urges its stockholders to read the opinion of SG Cowen in its
entirety.
Stockholder Approvals (see pages 27, 30 and 33)
Approval of Creative's Stockholders. The affirmative vote of the holders of
a majority of the shares of Creative's common stock outstanding as of the
record date is required to adopt the merger agreement. As of the
4
<PAGE>
record date, Creative directors and executive officers and their affiliates
owned approximately 5.6% of the outstanding shares of common stock. These
individuals, as well as a holder of 9.0% of the voting power of Creative common
stock, have agreed to vote all their shares of common stock (which together
with Creative's directors, officers and their affiliates represent
approximately 14.6% of the outstanding shares of common stock) in favor of
adoption of the merger agreement.
Approval of Ontogeny's Stockholders. The affirmative vote of the holders of
a majority of the outstanding Ontogeny common stock and preferred stock, voting
together as one group, and 66 2/3% of the shares of Ontogeny senior preferred
stock (consisting of series A, B, E and F convertible preferred stock), voting
separately as a class, is required to adopt the merger agreement. As of the
record date, Ontogeny directors and executive officers and their affiliates
owned approximately 22.9% of the voting power of Ontogeny common stock and
32.4% of the voting power of Ontogeny preferred stock. These individuals, as
well as other holders of Ontogeny common stock and preferred stock, have agreed
to vote all their shares of Ontogeny common stock and preferred stock (which
represent approximately 74.4% of the voting power of the Ontogeny common stock
and preferred stock, voting together as one group, and 77.0% of the Ontogeny
senior preferred stock) in favor of adoption of the merger agreement, thus
assuring its adoption.
Approval of Reprogenesis' Stockholders. The affirmative vote of the holders
of 66 2/3% of the outstanding shares of Reprogenesis common stock and preferred
stock, voting together as one group; the holders of 66 2/3% of the outstanding
shares of the Reprogenesis series A preferred stock, voting separately as a
class; and the holders of 66 2/3% of the outstanding shares of the Reprogenesis
series B preferred stock, voting separately as a class, is required to adopt
the merger agreement. As of the record date, Reprogenesis directors and
executive officers and their affiliates owned approximately 59.3% of the voting
power of Reprogenesis common stock and preferred stock. These individuals, as
well as certain holders of 5% or more of the voting power of the Reprogenesis
common stock and preferred stock, have agreed to vote all their shares of
Reprogenesis common stock and preferred stock (which represent approximately
67.5% of the voting power of the Reprogenesis common stock and preferred stock,
voting together as one group; 91.6% of the Reprogenesis series A preferred
stock; and 82.0% of the Reprogenesis series B preferred stock) in favor of
adoption of the merger agreement, thus assuring its adoption.
Procedures for Voting Your Shares. Your vote is very important, regardless
of the number of shares you own. Please vote as soon as possible to make sure
that your shares are represented at the meeting. You may vote your shares by
signing your proxy card and mailing it in the enclosed return envelope or if
you are a stockholder of record you may vote in person at the special meeting.
If you return your properly executed proxy card but do not include instructions
on how to vote your shares, your shares will be voted FOR adoption of the
merger agreement. If your shares are held by your broker in street name, your
broker will vote your shares only if you provide instructions on how to vote by
following the information provided to you by your broker. If you do not vote,
it will have the same effect as voting against the merger.
Procedure for Changing Your Vote. You can change your vote before your proxy
is voted at the special meeting of your company's stockholders. You can do this
in one of three ways. First, you can send a written notice stating that you are
revoking your proxy. Second, you can complete and submit a new proxy card. If
you choose either of these two methods, you must submit your notice of
revocation or your new proxy at any time before the special meeting of your
company's stockholders, for Creative shares to the Corporate Secretary of
Creative at the address on page 28, for Ontogeny shares to the Corporate
Secretary of Ontogeny at the address on page 31 and for Reprogenesis shares to
the Corporate Secretary of Reprogenesis at the address on page 33. Third, if
you are a holder of record you can attend the special meeting of your company's
stockholders and vote in person. Certain stockholders of each of Creative,
Ontogeny and Reprogenesis have agreed to vote their shares in favor of the
merger. See "The Merger--Stockholder Agreements."
5
<PAGE>
Appraisal/Dissenters' Rights. Under Delaware law, Creative stockholders are
not entitled to appraisal rights in connection with the merger. Holders of
Ontogeny capital stock who do not vote in favor of adoption of the merger
agreement and who otherwise comply with the applicable statutory procedures
under Delaware law will be entitled to appraisal rights and to receive payment
in cash for the fair market value of their shares as determined by the Delaware
Chancery Court. Holders of Reprogenesis capital stock who do not vote in favor
of adoption of the merger agreement and who otherwise comply with the
applicable statutory procedures under Texas law will be entitled to dissenters
rights and to receive payment in cash for the fair market value of their shares
as determined by a court of competent jurisdiction. See "The Merger--
Appraisal/Dissenters' Rights."
The Special Meetings (see pages 27, 29 and 32)
Special Meeting of Creative's Stockholders. The Creative special meeting
will be held at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One
Financial Center, Boston, Massachusetts 02111 on June , 2000, starting at
11:00 a.m., local time.
Special Meeting of Ontogeny's Stockholders. The Ontogeny special meeting
will be held at Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109
on June , 2000, starting at 10:00 a.m., local time.
Special Meeting of Reprogenesis' Stockholders. The Reprogenesis special
meeting will be held at its offices at 21 Erie Street, Suite 22, Cambridge,
Massachusetts 02139 on June , 2000, starting at 10:00 a.m., local time.
Ownership of Curis Following the Merger (see page 54)
After the merger, Curis initially will be owned approximately 43% by the
stockholders of Creative, approximately 38% by the stockholders of Ontogeny and
approximately 19% by the stockholders of Reprogenesis.
Board of Directors and Management Following the Merger (see page 161)
The initial Board of Directors of Curis will be divided into three classes
consisting of the following persons:
Class I (whose term expires 2003): James R. McNab, Jr., James A. Tobin and
Doros Platika;
Class II (whose term expires 2001): Douglas A. Melton and Michael
Rosenblatt; and
Class III (whose term expires 2002): Ruth B. Kunath and Martyn D.
Greenacre.
Doros Platika, President and Chief Executive Officer of Ontogeny, is the
President and Chief Executive Officer of Curis. The other executive officers of
Curis are as follows:
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Lynn G. Baird, Ph.D....... Vice President of Regulatory Affairs, QA/QC
and Preclinical Development
George A. Eldridge........ Vice President, Chief Financial Officer and Treasurer
Bruce A. Leicher.......... Vice President, General Counsel and Secretary
Lee L. Rubin, Ph.D........ Vice President of Research
James S. Sigler........... Vice President of Manufacturing
</TABLE>
6
<PAGE>
Interests of Directors and Officers of Creative, Ontogeny and Reprogenesis in
the Merger (see pages 51, 52 and 53)
Some of the directors and executive officers of Creative, Ontogeny and
Reprogenesis have interests in the merger that are different from, or are in
addition to, the interests of Creative, Ontogeny and Reprogenesis stockholders.
Treatment of Creative, Ontogeny and Reprogenesis Stock Options and Warrants
(see page 55)
Treatment of Options.
When the merger is completed, each outstanding Creative stock option,
Ontogeny stock option and Reprogenesis stock option will automatically and
without any action by the option holder be converted into an option to purchase
a number of shares of Curis common stock equal to the number of shares that
would have been obtained before the merger upon exercise of the option,
multiplied by the relevant exchange ratio or formula. The exercise price per
share of Curis common stock will be equal to the exercise price per share
before the conversion divided by the relevant exchange ratio or formula. The
other terms and conditions of each Creative, Ontogeny and Reprogenesis option
will continue to apply.
Treatment of Reprogenesis Warrants. When the merger is completed, pursuant
to the terms of each outstanding warrant to purchase Reprogenesis common stock
(except for the warrant to purchase 21,667 shares of Reprogenesis common stock
held by TBCC Funding Trust II), if the value of the Curis common stock that is
issuable as a result of the merger with respect to shares of the Reprogenesis
common stock exceeds the stock purchase price (as defined in the warrant), the
warrant will expire unless exercised prior to the completion of the merger. To
the extent there are any outstanding warrants to purchase Reprogenesis common
stock at the completion of the merger that have not expired, each of these
warrants will automatically and without any action by the warrant holder be
converted into a warrant to acquire a number of shares of Curis common stock
equal to the number of shares that would have been obtained before the merger
upon exercise of the warrant multiplied by the number obtained from the
Reprogenesis formula described on page 54. The exercise price per share of
Curis common stock will be equal to the exercise price per share before the
conversion divided by the number obtained from the Reprogenesis formula
described on page 54. The other terms and conditions of the Reprogenesis
warrants will continue to apply.
Treatment of Ontogeny Warrants. When the merger is completed, each
outstanding warrant to purchase Ontogeny common stock will automatically and
without any action by the warrant holder be converted into a warrant to
acquire, a number of shares of Curis common stock equal to the number of shares
that would have been obtained before the merger upon exercise of the warrant
multiplied by the Ontogeny exchange ratio. The exercise price per share of
Curis common stock will be equal to the exercise price per share before the
conversion divided by the Ontogeny exchange ratio. The other terms and
conditions of the Ontogeny warrants will continue to apply.
Tax Consequences (see page 56)
We expect the merger to be treated as a tax-free reorganization pursuant to
Section 368(a) of the Internal Revenue Code. If the merger is treated as a
reorganization, no gain or loss will generally be recognized by the
stockholders of Creative, Ontogeny and Reprogenesis for federal income tax
purposes (except with respect to cash received by the stockholders of Creative,
Ontogeny and Reprogenesis instead of a fractional share of Curis common stock).
Creative, Ontogeny and Reprogenesis will each receive an opinion that the
merger will qualify as a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your own
tax advisor for a full understanding of the tax consequences of the merger to
you.
7
<PAGE>
Overview of the Merger Agreement (see page 61)
Conditions to the Completion of the Merger. Each of Creative's, Ontogeny's
and Reprogenesis' obligation to complete the merger is subject to the
satisfaction or waiver of specified conditions, including those listed below:
. the registration statement on Form S-4, of which this joint proxy
statement-prospectus forms a part, must have become effective under the
Securities Act and must not have become the subject of any stop order or
proceeding seeking a stop order nor may any such proceeding have been
threatened;
. the merger agreement must be approved by the Creative, Ontogeny and
Reprogenesis stockholders;
. no law, injunction or order preventing the completion of the merger may
be in effect;
. the shares of Curis common stock to be issued in the merger must have
been approved for quotation on the Nasdaq National Market;
. the Ontogeny shares for which appraisal rights have been exercised will
not consist of more than 5% of the outstanding shares of Ontogeny common
stock and 5% of the outstanding shares of Ontogeny preferred stock and
the Reprogenesis shares for which dissenters' rights have been exercised
will not consist of more than 5% of the outstanding shares of
Reprogenesis common stock and 5% of the outstanding shares of
Reprogenesis preferred stock;
. Ontogeny and Reprogenesis will have amended their organizational
documents as required by the merger agreement;
. all parties must have complied with their respective covenants in the
merger agreement;
. the representations and warranties in the merger agreement must be true
and correct;
. certain third party consents shall have been obtained by each of
Creative, Ontogeny and Reprogenesis; and
. each party must receive an opinion of tax counsel to the effect that the
merger will qualify as a tax-free reorganization.
Termination of the Merger Agreement. Creative, Ontogeny and Reprogenesis can
jointly agree to terminate the merger agreement at any time. Any one of the
companies acting alone may terminate the merger agreement if:
. the merger is not completed on or before August 31, 2000, so long as the
failure to complete the merger is not the result of the failure by that
company to fulfill any of its obligations under the merger agreement;
. legal or government actions do not permit the completion of the merger;
. any company's stockholders do not vote to adopt the merger agreement at a
duly held meeting of that company's stockholders;
. the board of directors or officers of either of the other companies takes
certain proscribed actions; or
. either of the other companies breaches any of its representations and
warranties or willfully breaches any of its covenants in the merger
agreement in a material way, provided that this right to terminate is not
available to any company that is itself in material breach of its
obligations or representations and warranties.
Termination Fees. The merger agreement provides that in several
circumstances, Creative, Ontogeny or Reprogenesis may be required to pay
termination fees to the other companies.
"No Solicitation" Provisions. The merger agreement contains detailed
provisions prohibiting Creative, Ontogeny and Reprogenesis from seeking an
alternative transaction. These "no solicitation" provisions prohibit
8
<PAGE>
Creative, Ontogeny and Reprogenesis, as well as their officers, directors,
subsidiaries and representatives, from taking any action to solicit an
acquisition proposal. The merger agreement does not, however, prohibit any
party or its respective board of directors from considering an unsolicited bona
fide written superior proposal under certain circumstances.
Accounting Treatment. The merger will be accounted for under the purchase
method of accounting for business combinations.
Completion and Effectiveness of the Merger. We will complete the merger when
all of the conditions to completion of the merger are satisfied or waived. The
merger will become effective when we file a certificate of merger with the
Secretary of State of the State of Delaware and articles of merger with the
Secretary of State of the State of Texas. We expect to complete the merger in
June 2000.
Stockholder Agreements (see page 72)
Each of Creative, Ontogeny and Reprogenesis has entered into a stockholder
agreement with the officers and directors of such company, the respective
affiliates of those officers and directors, and certain other holders of the
capital stock of such company. The parties to these stockholder agreements have
agreed to vote all of the shares of capital stock owned by them in favor of the
merger. As of the record date, Creative stockholders owning shares representing
approximately 14.6% of the Creative common stock entitled to vote at the
Creative special meeting were parties to such an agreement. As of the record
date, Ontogeny stockholders owning shares representing approximately 74.4% of
the voting power of Ontogeny common stock and Ontogeny preferred stock, voting
together as one group, and 77.0% of the Ontogeny senior preferred stock were
party to such an agreement. As of the record date, Reprogenesis stockholders
owning shares representing approximately 67.5% of the voting power of
Reprogenesis common stock and Reprogenesis preferred stock, voting together as
one class, 91.6% of the voting power of Reprogenesis series A preferred stock
and 82.0% of the voting power of Reprogenesis series B preferred stock, in each
case entitled to vote at the Reprogenesis special meeting, were party to such
an agreement.
Comparison of Stockholder Rights (see page 146)
After the merger, Creative, Ontogeny and Reprogenesis stockholders will
become stockholders of Curis. Your rights as stockholders of Curis will differ
from their rights as stockholders of Creative, Ontogeny or Reprogenesis. As
stockholders of Curis, your rights will be governed by the certificate of
incorporation and bylaws of Curis, rather than the Creative, Ontogeny or
Reprogenesis charter documents, as applicable.
Market Value Information
The Curis common stock is not currently traded on an established public
market. Shares of Creative are quoted on the Nasdaq National Market. On
February 14, 2000, the last trading day before the public announcement of the
merger, Creative common stock closed at $7 1/32 per share. On March 9, 2000,
Creative common stock closed at $22.00. Neither Ontogeny's nor Reprogenesis'
capital stock is traded on an established public market.
Trademarks
Chondrogel(TM) and Vascugel(TM) are trademarks of Reprogenesis. BABS(TM) is
a trademark of Creative. All other trademarks, service marks or tradenames
referred to in this joint proxy statement-prospectus are the property of their
respective owners.
9
<PAGE>
CREATIVE SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below have been derived
with respect to the consolidated statement of operations for the years ended
December 31, 1999, 1998 and 1997, and with respect to the consolidated balance
sheets as of December 31, 1999 and 1998, from the consolidated financial
statements that have been audited by Deloitte & Touche LLP, independent
auditors. The consolidated financial statements are included elsewhere in this
joint proxy statement-prospectus. The consolidated statements of operations
data for the year ended December 31, 1996, for the three months ended December
31, 1995 and the year ended September 30, 1995, and the consolidated balance
sheet data as of December 31, 1997, 1996 and 1995 are derived from audited
consolidated financial statements not included in this joint proxy statement-
prospectus. You should read the data set forth below in conjunction with
"Creative Business, Selected Consolidated Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Creative Consolidated Financial Statements and related Notes included in
this joint proxy statement-prospectus.
<TABLE>
<CAPTION>
Three
Months Year
Years Ended December 31, Ended Ended
---------------------------------------- December 31, September 30,
1999 1998 1997 1996 1995(1) 1995(1)
--------- --------- -------- -------- ------------ -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
Research and
development
contracts............. $ 3,160 $ 10,419 $ 12,693 $ 5,548 $ 971 $ 5,824
Manufacturing
contracts............. -- -- 394 4,486 770 6,159
License fees and
royalties............. 52 10 -- 11,122 2 544
Interest............... 1,924 2,184 2,331 1,174 261 649
Other.................. 2 12 15 22 -- 53
--------- --------- -------- -------- -------- -------
Total revenues......... 5,138 12,625 15,433 22,352 2,004 13,229
--------- --------- -------- -------- -------- -------
Costs and expenses:
Research and
development........... 10,435 24,856 25,122 15,651 3,194 11,688
Cost of manufacturing
contracts............. -- -- 274 3,823 715 5,330
General and
administrative........ 6,396 7,475 6,473 4,901 1,254 3,604
1999 reorganization and
1998 sale of
manufacturing
operations............ 256 1,362 -- -- -- --
Interest............... 161 327 216 217 61 229
--------- --------- -------- -------- -------- -------
Total costs and
expenses.............. 17,248 34,020 32,085 24,592 5,224 20,851
--------- --------- -------- -------- -------- -------
Net loss................ (12,110) (21,395) (16,652) (2,240) (3,220) (7,622)
Accretion and repurchase
costs on Series 1998/A
Preferred Stock........ (2,395) (987) -- -- -- --
--------- --------- -------- -------- -------- -------
Net loss applicable to
common stockholders.... $ (14,505) $ (22,382) $(16,652) $ (2,240) $ (3,220) $(7,622)
========= ========= ======== ======== ======== =======
Basic and diluted loss
per common share....... $ (0.40) $ (0.66) $ (0.50) $ (0.07) $ (0.11) $ (0.37)
========= ========= ======== ======== ======== =======
Common shares for basic
and diluted loss
computation............ 36,665 33,672 33,078 30,062 28,120 20,431
========= ========= ======== ======== ======== =======
<CAPTION>
December 31,
------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash, cash equivalents
and marketable
securities............. $ 21,371 $ 57,935 $ 30,598 $ 50,075 $ 20,002
Working capital......... 17,116 49,613 32,381 48,174 21,743
Total assets............ 28,892 66,164 59,038 73,819 41,341
Capital lease
obligations, less
current portion........ 1,009 713 2,005 1,651 1,711
Accumulated deficit..... (124,977) (110,472) (88,090) (71,438) (69,198)
Total stockholders'
equity................. 23,422 33,105 52,709 67,261 37,829
</TABLE>
- --------
(1) In January 1996, Creative changed its fiscal year end from September 30 to
December 31, effective with the three month period ended December 31,
1995.
10
<PAGE>
ONTOGENY SELECTED FINANCIAL DATA
The selected financial data set forth below have been derived from the
statements of operations for the years ended December 31, 1999, 1998 and 1997
and the balance sheets as of December 31, 1999 and 1998, included in financial
statements that have been audited by PricewaterhouseCoopers LLP. Those
financial statements appear elsewhere in this joint proxy statement-prospectus.
The statement of operations data for the years ended December 31, 1996 and
1995, and the balance sheet data as of December 31, 1997, 1996 and 1995 are
derived from financial statements not included in this joint proxy statement-
prospectus. You should read the data set forth below in conjunction with
"Ontogeny Business, Selected Financial Data and Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Ontogeny
Financial Statements and related Notes which appear elsewhere in this joint
proxy statement-prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue........................ $ 4,469 $ 4,708 $ 3,417 $ 1,533
-------- -------- ------- -------
Costs and expenses:
Research and development..... 13,686 11,573 6,228 3,777 $ 2,288
General and administrative... 4,052 3,020 2,427 1,601 776
-------- -------- ------- ------- -------
17,738 14,593 8,655 5,378 3,064
-------- -------- ------- ------- -------
Loss from operations........... (13,269) (9,884) (5,238) (3,845) (3,064)
-------- -------- ------- ------- -------
Other income (expense):
Interest income.............. 2,475 1,537 1,473 348 73
Interest expense............. (917) (427) (216) (55) (59)
-------- -------- ------- ------- -------
1,558 1,110 1,257 293 14
-------- -------- ------- ------- -------
Net loss....................... $(11,711) $ (8,774) $(3,981) $(3,552) $(3,050)
======== ======== ======= ======= =======
Accretion of preferred stock
issuance costs................ (194) (127) (93) -- (39)
-------- -------- ------- ------- -------
Net loss available to common
stockholders.................. $(11,905) $ (8,901) $(4,074) $(3,552) $(3,089)
======== ======== ======= ======= =======
Net loss available to common
stockholders per share (basic
and diluted).................. $ (4.59) $ (3.91) $ (2.15) $ (2.35) $ (2.81)
======== ======== ======= ======= =======
Weighted average shares
outstanding (basic and
diluted)...................... 2,592 2,279 1,896 1,510 1,099
======== ======== ======= ======= =======
<CAPTION>
December 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
marketable securities......... $ 43,301 $ 49,296 $26,535 $ 8,103 $ 8,425
Working capital................ 39,559 46,590 25,154 6,170 8,062
Total assets................... 49,611 54,136 30,833 11,175 9,011
Long-term obligations.......... 5,087 8,516 1,444 1,504 241
Redeemable convertible
preferred stock............... 62,396 60,201 36,890 12,578 12,528
Stockholders' deficit.......... (22,768) (17,920) (8,988) (5,972) (4,172)
</TABLE>
11
<PAGE>
REPROGENESIS SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below have been derived
with respect to the consolidated statements of operations for the years ended
December 31, 1999, 1998 and 1997, and with respect to the consolidated balance
sheets as of December 31, 1999 and 1998, from the consolidated financial
statements that have been audited by Arthur Andersen LLP, independent auditors.
The consolidated financial statements of Reprogenesis are included elsewhere in
this joint proxy statement-prospectus. The consolidated statements of
operations data for the years ended December 31, 1996 and 1995, and the
consolidated balance sheets data as of December 31, 1997, 1996 and 1995 are
derived from audited consolidated financial statements of Reprogenesis not
included in this joint proxy-statement prospectus. You should read the data set
forth below in conjunction with "Reprogenesis Business, Selected Consolidated
Financial Data, and Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Reprogenesis Consolidated Financial
Statements and related Notes included in this joint proxy statement-prospectus.
<TABLE>
<CAPTION>
For the Years Ending December 31,
------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues:
Research and development contracts
and government grants............ $ 518 $ 4,254 $ 5,957 $3,864 $3,489
Interest income................... 274 171 201 20 25
Other income...................... 1,556 -- -- -- --
-------- ------- ------- ------ ------
Total revenues...................... 2,348 4,425 6,158 3,884 3,514
-------- ------- ------- ------ ------
Costs and expenses:
Research and development.......... 6,973 6,339 5,697 4,397 1,581
General and administrative........ 1,221 1,694 637 430 641
Interest expense.................. 1,229 107 3 1 --
Other expense..................... 554 -- -- -- --
-------- ------- ------- ------ ------
Total costs and expenses: 9,977 8,140 6,337 4,828 2,222
-------- ------- ------- ------ ------
(Loss) income from operations....... (7,629) (3,715) (179) (944) 1,292
Minority interest in (income) losses
of CTDP............................ (375) 98 58 92 65
-------- ------- ------- ------ ------
Net (loss) income .................. $ (8,004) $(3,617) $ (121) $ (852) $1,357
======== ======= ======= ====== ======
Basic and diluted net loss per
common share....................... $ (0.74) $ (0.35) $ (0.01) * *
======== ======= ======= ====== ======
Weighted average shares outstanding
(basic and diluted)................ 10,762 10,398 10,398 * *
======== ======= ======= ====== ======
<CAPTION>
December 31,
------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and
marketable securities.............. $ 6,492 $ 1,692 $ 4,842 $ 18 $1,275
Working capital..................... 5,596 1,754 6,028 340 1,578
Total assets........................ 8,496 4,886 6,305 1,510 1,654
Note payable, net of current
portion............................ 886 1,239 -- -- --
Retained earnings (accumulated
deficit)........................... (12,217) (4,213) (596) (474) 587
Total shareholders' equity.......... 6,338 2,505 6,122 318 1,587
</TABLE>
- --------
* Reprogenesis was a partnership until it merged into Reprogenesis, Inc. on
July 1, 1996.
12
<PAGE>
CURIS SELECTED PRO FORMA FINANCIAL DATA
The selected pro forma combined financial data of Curis has been derived
from the pro forma combined condensed financial information included elsewhere
in this joint proxy statement-prospectus and should be read in conjunction with
the pro forma combined condensed financial information and related notes.
The following unaudited pro forma statement of operations data for the year
ended December 31, 1999 gives effect to the merger as if the transaction had
occurred at the beginning of the period presented. The following unaudited pro
forma balance sheet data as of December 31, 1999 gives effect to the merger as
if it had occurred on December 31, 1999.
Unaudited Pro Forma Combined Condensed Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended
December 31, 1999
-----------------
<S> <C>
Pro Forma Combined Condensed Statement of Operations Data:
Total revenue................................................ $ 14,430
Total costs and expenses..................................... 85,580
Loss from operations......................................... (71,150)
Net loss..................................................... (71,525)
Net loss per basic and diluted share......................... (3.17)
Shares used in computing basic and diluted loss per share.... 23,314
<CAPTION>
As of
December 31, 1999
-----------------
<S> <C>
Pro Forma Combined Condensed Balance Sheet Data:
Cash, cash equivalents and marketable securities............. $ 73,009
Working capital.............................................. 56,648
Total assets................................................. 287,445
Long term debt, less current portion......................... 6,982
Accumulated deficit.......................................... (341,177)
Stockholders' equity......................................... 262,363
</TABLE>
13
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of
Creative, Ontogeny and Reprogenesis and combined per share data on an unaudited
pro forma basis after giving effect to the business combination on a purchase
basis of accounting, assuming that one share of Ontogeny and Reprogenesis
common and preferred stock is exchanged for 0.2564 and 0.1956 (subject to
adjustment to account for the preference of the Reprogenesis series A preferred
stockholders) shares of Curis common stock, respectively, in the business
combination. This data should be read in conjunction with the selected
historical financial data, the unaudited pro forma combined condensed financial
information of Curis and the separate historical financial statements of
Creative, Ontogeny and Reprogenesis and notes, all of which are included
elsewhere in this joint proxy statement-prospectus. The pro forma combined
condensed financial data are not necessarily indicative of the operating
results that would have been achieved had the business combination been
consummated as of the beginning of the periods presented and should not be
construed as representative of results for any future period.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------------------
Pro Forma
Combined
Creative Ontogeny Reprogenesis Curis
-------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Historical:
Basic and diluted (loss) per
share.......................... $(0.40) $(4.59) $(0.74) *
Book value (deficit) per common
share(1)....................... $ 0.64 $(8.79) $ 0.58 *
Pro Forma Combined:
Basic and diluted (loss) per
share(2)....................... * * * $(3.17)
Book value per common share(2).. * * * $10.75
Equivalent basic and diluted
(loss) per share(3)............ $(0.95) $(0.81) $(0.62) *
Equivalent book value per common
share(3)....................... $ 3.23 $2.76 $ 2.10 *
</TABLE>
- --------
* not applicable.
(1) The historical book value per common share is computed by dividing
stockholders' equity by the number of shares of common stock outstanding as
of December 31, 1999.
(2) For purposes of Curis' pro forma combined data, Creative's financial data
for the fiscal year ended December 31, 1999 has been combined with
Ontogeny's and Reprogenesis' financial data for the same period, including
the effects of pro forma adjustments described elsewhere in this joint
proxy statement-prospectus.
(3) The equivalent pro forma combined (loss) per common share and equivalent
pro forma combined book value per common share for Creative, Ontogeny and
Reprogenesis, are calculated by multiplying the Curis pro forma combined
amounts by an exchange ratio of 0.30, 0.2564 and 0.1956 (subject to
adjustment to account for the preference of the Reprogenesis series A
preferred stockholders) shares of Curis common stock for each share of
Creative, Ontogeny and Reprogenesis stock, respectively.
14
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement-prospectus and the documents incorporated by
reference in this joint proxy statement-prospectus contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning our business, operations and financial condition. All
statements, other than statements of historical facts, included in this joint
proxy statement-prospectus regarding our strategy, future operations,
timetables for product testing, financial position, costs, prospects, plans and
objectives of management are forward-looking statements. You should read these
statements carefully because they discuss our expectations about our future
performance, contain projections of our future operating results or our future
financial condition, or state other "forward-looking" information. Forward-
looking statements include statements about the following subjects, among
others:
. effect of merger on . treatment of disease
stockholders . discovery and development of
. fairness of merger and therapies
reasonableness of terms of . development of an integrated
merger agreement biopharmaceutical company
. tax consequences of merger . funding of research and
. accounting treatment of merger development of products and
. completion of merger technologies
. long-term operating and . scientific synergies
financial results . effective competition through
. competitive position of collective resources
combined entity . collaborative partnerships and
. position in field of strategic alliances
regenerative medicine and . protection of intellectual
developmental biology property
. industrialization and . product development and
systemization of scientific marketing
methods and practices of . retention and recruitment of
developmental biology key employees
. regulatory approval and
oversight of products
Forward-looking statements in this joint proxy statement-prospectus are
identifiable by use of the following words and other similar expressions, among
others (although not all forward-looking statements contain these identifying
words):
. "expect" . "forecast"
. "anticipate" . "may"
. "intend" . "might"
. "plan" . "predict"
. "believe" . "project"
. "seek" . "should"
. "estimate" . "will"
. "budget" . "would"
. "could"
Because these forward-looking statements involve risks and uncertainties,
actual results could differ materially from those expressed or implied by these
forward-looking statements for a number of important reasons, including those
discussed under "Risk Factors," "Creative Business, Selected Consolidated
Financial Data and Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Ontogeny Business, Selected Financial Data and
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Reprogenesis Business, Selected Consolidated Financial Data
and Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this joint proxy statement-prospectus.
15
<PAGE>
The following factors could affect the future results of operations of Curis
and could cause those results to differ materially from those expressed in the
forward-looking statements included in this joint proxy statement-prospectus:
. volatility of trading market . ability to achieve
price of Curis' stock profitability
. issues associated with . sources of revenue
integration of operations . future capital requirements
. impact of failure to complete . ability to obtain financing
the merger . protection and infringement of
. negative effect of anti- patent rights
takeover defenses . maintenance of trade secrets
. ability to attract and retain . patent and product liability
key personnel and consultants litigation expenses
. ability to develop and . exposure to patent and product
commercialize products liability and damages
. ability to achieve a . obligations under license
competitive position in the agreements
industry . manufacturing capability
. market receptiveness to . existence of commercially
products viable markets for products
. results of preclinical studies . ability to comply with newly
and clinical trials adopted regulatory schemes
. ability to obtain regulatory
approval
. effects of regulatory oversight
You should be aware that the occurrence of any of the events described in
the risk factors and elsewhere in this joint proxy statement-prospectus could
substantially harm our business, results of operations and financial condition
and that upon the occurrence of any of these events, the trading price of our
common stock could decline, and you could lose all or part of your investment.
We cannot guarantee any future results, levels of activity, performance or
achievements. You should not place undue reliance on forward-looking
statements. Each forward-looking statement speaks only as of the date of the
particular statement and, except as required by law, we undertake no obligation
to update any of the forward-looking statements in this joint proxy statement-
prospectus after the date of this joint proxy statement-prospectus.
16
<PAGE>
RISK FACTORS
You should consider carefully the risks and uncertainties described below
before you decide whether to vote to approve and adopt the merger agreement.
You should also consider the other information contained or incorporated by
reference in this joint proxy statement-prospectus.
Risks Related to the Merger
Our stock price may be volatile and may lead to losses by investors and
result in securities litigation.
There has previously not been a public market for Curis' common stock. We
cannot predict the extent to which investor interest will lead to the
development of a trading market for our common stock or how liquid that market
might become. The number of shares of our common stock to be exchanged for the
shares of common stock of Creative and common and preferred stock of Ontogeny
and Reprogenesis was determined by negotiations among Creative, Ontogeny and
Reprogenesis and may not be indicative of prices that will prevail in the
trading market. The trading price of our common stock could be subject to wide
fluctuations.
During the period preceding the merger, the trading price of Creative
common stock may be, and historically has been, subject to wide fluctuation.
Such historic volatility of the stock price of Creative common stock may
indicate similar fluctuation in the future trading price of Curis common
stock.
The market price of our common stock, like that of the shares of Creative
and many other biotechnology companies, may be volatile and fluctuate
significantly in response to various factors, including:
. change in business or results of operations for Curis;
. quarterly variations in operating results or growth rates;
. changes in estimates or recommendations by securities analysts;
. market conditions related to investor interest in biotechnology stocks;
. general conditions in the industry;
. announcements of mergers and acquisitions and other actions by
competitors;
. regulatory and judicial actions;
. general economic conditions; and
. announcements of product developments and other events by our
collaborative partners.
If we are unable to address these risks or any other problems that we
encounter in connection with the combinations of these three businesses, our
business may be disrupted, we could incur costs that are higher than expected
and we may suffer increased losses.
We will face challenges in integrating Creative, Ontogeny and Reprogenesis
and, as a result, may not realize the expected benefits of the merger.
Integrating the operations and personnel of Creative, Ontogeny and
Reprogenesis will be a complex process, and we are uncertain that the
integration will be completed rapidly or will achieve the anticipated benefits
of the merger. The successful integration of Creative, Ontogeny and
Reprogenesis will require, among other things, the integration of our finance,
legal, project management and human resources groups and, in particular, the
coordination of our research and development efforts. The diversion of the
attention of our management and any difficulties encountered in the process of
combining the companies could cause the disruption of, or a loss of momentum
in, the activities of our business. Further, the process of combining
Creative, Ontogeny and Reprogenesis could negatively affect employee morale
and our ability to retain some of our key employees after the merger.
17
<PAGE>
If we do not successfully integrate Creative, Ontogeny and Reprogenesis, or
the benefits of the merger do not meet the expectations of financial or
industry analysts, the market price of our common stock may decline.
Failure to complete the merger could negatively impact the market price of
Creative's common stock and the operating results of Creative, Ontogeny and
Reprogenesis.
If the merger is not completed as a result of the failure of Creative's
stockholders to approve the merger, Creative may be required to pay a
termination fee of $1.5 million to Reprogenesis, and the market price of
Creative's common stock may decline to the extent that the current market price
of Creative's common stock reflects a market assumption that the merger will be
completed.
If the merger is terminated and the board of directors of Creative, Ontogeny
or Reprogenesis seeks another merger, business combination or financing, you
cannot be certain that any of these companies will be able to find a partner
willing to pay an equivalent or more attractive price than the price to be
received by the stockholders in this merger.
Prior to the closing of the merger, subject to specified exceptions,
Creative, Ontogeny and Reprogenesis are prohibited from entering into or
soliciting, initiating or encouraging any inquiries or proposals that may lead
to a proposal or offer for merger, consolidation, business combination, sale of
substantial assets, tender offer, financing, sale of shares of capital stock or
other similar transactions with any other person. As a result of this
prohibition, Creative, Ontogeny and Reprogenesis may not be able to enter into
an alternative transaction at a favorable price and may, prior to the closing
of the merger, be constrained from engaging in significant licensing
transactions with third parties if such transactions could reasonably be
interpreted to lead to a proposal. This prohibition could impair each of the
companies from financing its future operations if the merger is not
consummated.
Uncertainties associated with the merger may affect the ability of Creative,
Ontogeny and Reprogenesis to attract and maintain key personnel.
Current and prospective employees of Creative, Ontogeny and Reprogenesis may
experience uncertainty about their future roles with us. This uncertainty may
adversely affect each of Creative's, Ontogeny's and Reprogenesis' ability to
attract and retain key management, sales, marketing and technical personnel
prior to the merger and Curis' ability to attract and retain key management,
sales, marketing and technical personnel following the merger.
Risks Related to Our Business, Industry, Strategy and Operations
None of Creative, Ontogeny or Reprogenesis has commercialized any products
to date, and if we do not commercialize any products we may not be profitable.
None of Creative, Ontogeny or Reprogenesis has yet developed or received
regulatory approval to market the types of products that we or our
collaborative partners are and will be developing. The products that we or our
collaborative partners are and will be developing may require additional
research and development, clinical trials and/or regulatory resources and/or
expertise prior to any commercial sale.
We currently have no products for sale by us or our collaborative partners.
If we or our collaborative partners are not successful in developing and
commercializing any products, we may not become profitable.
We are dependent on collaborative partners for the development and
commercialization of many of our products.
Our strategy for development and commercialization of many of our products
based upon developmental biology depends upon the formation of various
collaborations and strategic alliances. Ontogeny has entered into strategic
alliances including those with Biogen, Inc., Becton-Dickinson Corporation and
Genzyme Corporation and Creative has entered into a strategic alliance with
Stryker Corporation. There can be no assurance that we will be able to
establish additional collaborations and strategic alliances necessary to
develop and commercialize products based upon our research engine, that any
such arrangements will be on terms favorable
18
<PAGE>
to us or that the current or future strategic alliances ultimately will be
successful. We do not fully control the amount of resources or the schedule of
product development in our collaborations with strategic partners and may not
be able to control the efforts that any future strategic partners may devote to
their respective programs with us. The timing and amount of any future
royalties and manufacturing revenues with respect to product sales and product
development pursuant to such collaborative arrangements will therefore depend
on the level of commitment, timing and success of such collaborative partners'
efforts.
We face substantial competition, which may result in others discovering,
developing or commercializing products before or more successfully than we do.
The products that Creative, Ontogeny and Reprogenesis have been developing
and that we will be developing compete with existing and new products being
created by pharmaceutical, biopharmaceutical and biotechnology companies, as
well as universities and other research institutions. Many of our competitors
are substantially larger than we are and have substantially greater capital
resources, research and development staffs and facilities than we have. Efforts
by other biotechnology or pharmaceutical companies could render our programs or
products uneconomical or result in therapies superior to any therapy we
develop. Furthermore, many of our competitors are more experienced in product
development and commercialization, obtaining regulatory approvals and product
manufacturing. As a result, they may develop competing products more rapidly
and at a lower cost. These competitors may discover, develop and commercialize
products which render non-competitive or obsolete the products that we or our
collaborative partners are seeking to develop and commercialize.
Other companies are engaged in the research and development of morphogenic
proteins for various applications. We believe that other biopharmaceutical
companies also are developing recombinant human proteins, primarily growth
factors, for use in the local repair of orthopaedic and skeletal defects and in
other indications. A number of other companies are pursuing traditional
therapies that may compete with our products, including autografts, allografts
and electrical stimulation devices for the repair of orthopaedic and other
skeletal defects.
In the field of tissue engineering and the treatment of damaged or diseased
tissue, we compete with several companies that are developing various tissue
replacement products. In addition, a number of biotechnology, pharmaceutical
and medical device companies are developing other types of products as
alternatives to tissue replacement/augmentation for a variety of indications.
Vesicoureteral reflux is currently treated in the United States either by
surgery or with antibiotics; however, a number of other bulking agents, such as
bovine dermal collagen, synthetic materials and other biomaterials, are being
evaluated for use in the treatment of vesicoureteral reflux.
In the area of cardiovascular medicine, several approaches are currently
being developed by major medical device, pharmaceutical and biotechnology
companies to reduce restenosis associated with current revascularization
therapies. These approaches include, among others, local and systemic drug
therapy, endovascular brachytherapy, gene therapy, and improved stenting
techniques.
In addition, research in the field of developmental biology and genomics is
highly competitive. Our competitors in the field of developmental biology
include, among others, Amgen, Inc., Chiron Corporation, Exelixis, Inc.,
Genentech, Inc. and Geron Corporation, as well as other private companies and
major pharmaceutical companies. Competitors in the genomics area include, among
others, public companies such as Axys Pharmaceuticals, Inc., Genome
Therapeutics Corporation, Human Genome Sciences, Inc., Incyte Pharmaceuticals,
Inc., Millennium Pharmaceuticals, Inc. and Myriad Genetics, Inc., as well as
private companies and major pharmaceutical companies. Universities and other
research institutions, including those receiving funding from the federally
funded Human Genome Project, also compete with us. A number of entities are
attempting to identify and patent rapidly randomly sequenced genes and gene
fragments, typically without specific knowledge of the function of such genes
or gene fragments. In addition, we believe that
19
<PAGE>
certain entities are pursuing a gene identification and characterization and
product development strategy based on positional cloning. Our competitors may
discover, characterize and develop important inducing molecules or genes in
advance of us, which could have a material adverse effect on any of our related
research program. We also face competition from these and other entities in
gaining access to DNA samples used in its research and development projects. We
expect competition to intensify in genomics research and developmental biology
as technical advances in the field are made and become more widely known.
The market may not be receptive to our products upon their introduction.
The commercial success of our products that are approved for marketing will
depend upon their acceptance by patients, the medical community and third-party
payors. The OP-1 device being developed by our strategic partner Stryker is a
new form of treatment for orthopaedic reconstruction, and will require a change
from the current standard of care. Chondrogel, currently being developed by
Reprogenesis for the vesicoureteral reflux indication, is based on the new
technology of tissue engineering. We cannot assure you that these products will
gain commercial acceptance among physicians, patients and third-party payors,
even if necessary marketing approval is obtained. We believe that
recommendations and endorsements by physicians will be essential for market
acceptance of our products, and we cannot assure you that any such
recommendations and endorsements will be obtained. In addition, Chondrogel is
an autologous cell-based product and, as such, may be more costly than
competitive bulking products. Because autologous tissue-based products are
manufactured using a patient's own cells, each cell batch must be handled
individually. Therefore, traditional scale-up technologies are not applicable
in our manufacturing process. We cannot assure you that we will be able to
manufacture products that will be cost effective or, if we can, that our
products will receive commercial and market acceptance.
Our growth could be limited if we are unable to attract and retain key
personnel and consultants.
Our success is substantially dependent on our ability to attract and retain
qualified scientific and technical personnel for the research and development
activities we conduct or sponsor. If we lose one or more of the members of our
senior management or other key employees or consultants, our business and
operating results could be seriously harmed. None of the members of our senior
management or other key employees is bound by a long-term employment agreement
with us, other than Dr. Platika, our President and Chief Executive Officer.
Our anticipated growth and expansion into areas and activities requiring
additional resources or expertise, such as regulatory affairs, compliance,
manufacturing and marketing, will require the addition of new key personnel.
The pool of personnel with the skills that we require is limited. Competition
to hire from this limited pool is intense, and we may not be able to hire,
train, retain or motivate such additional personnel.
If we fail to obtain an adequate level of reimbursement for our future
products or services by third-party payors, there may be no commercially viable
markets for our products.
The availability of reimbursement by governmental and other third-party
payors affects the market for any pharmaceutical product. These third-party
payors continually attempt to contain or reduce the costs of healthcare by
challenging the prices charged for medical products. In some foreign countries,
particularly the countries of the European Union, the pricing of prescription
pharmaceuticals is subject to governmental control. We may not be able to sell
our products profitably if reimbursement is unavailable or limited in scope or
amount.
In both the United States and some foreign jurisdictions, there have been a
number of legislative and regulatory proposals to change the healthcare system.
Further proposals are likely. The potential for adoption of some or all of
these proposals affects or will affect our ability to raise capital, obtain
additional collaborative partners and market our products.
If we or our collaborative partners obtain marketing approval for our
products, we expect to experience pricing pressure due to the trend toward
managed health care, the increasing influence of health maintenance
organizations and additional legislative proposals.
20
<PAGE>
We could be exposed to significant risk from liability claims if we are
unable to obtain insurance at acceptable costs or otherwise to protect us
against potential product liability claims.
We may be subjected to product liability claims that are inherent in the
testing, manufacturing, marketing and sale of human health care products. These
claims could expose us to significant liabilities that could prevent or
interfere with the development or commercialization of our products. Product
liability claims could require us to spend significant time and money in
litigation or to pay significant damages. Product liability insurance is
generally expensive for biopharmaceutical companies such as ours. Although we
maintain limited product liability insurance coverage for the clinical trials
of our products, it is possible that we will not be able to obtain further
product liability insurance on acceptable terms, if at all, and that our
present insurance levels and insurance subsequently obtained will not provide
adequate coverage against all potential claims.
Risks Relating to Clinical and Regulatory Matters
If our clinical trials are not successful, we will not be able to complete
development and market or commercialize our products.
In order to obtain regulatory approvals for the commercial sale of our
product candidates, we will be required to complete extensive preclinical
studies as well as clinical trials in humans to demonstrate the safety and
efficacy of our products. We have limited experience in conducting clinical
trials and rely at times on contract research organizations and collaborative
partners for their performance and management.
We cannot assure you that clinical trials of OP-1, Chondrogel or other
product candidates under development will be sufficient to obtain regulatory
approvals for the indications being studied. Furthermore, the timing and
completion of the current and planned clinical trials for Chondrogel, Stryker's
current and planned clinical trials of the OP-1 device, as well as clinical
trials of other products, depend on, among other factors, the numbers of
patients required for approval and the rate at which those patients are
enrolled. We cannot assure you that no more than the anticipated number of
patients will be required or that enrollment will proceed at the predicted
rate. Any increase in the number of patients or decrease in recruitment rates
may result in increased costs, program delays or both, which could have a
material adverse effect on the program. Also, these products may not be
effective in treating any of our targeted disorders or may prove to have
undesirable or unintended side effects, toxicities or other characteristics
that may prevent or limit their commercial use.
Most of Creative's research and development resources are dedicated to its
programs based on its proprietary recombinant morphogenic protein, OP-1.
Progress in the area of orthopaedic reconstruction is within the sole control
of Stryker. Development of OP-1 in the areas of stroke and renal disease is
within the sole control of Creative. Significant delays in Stryker's efforts to
obtain regulatory approval for the commercialization of OP-1 or Creative's
preclinical trials of OP-1, unfavorable results in these development programs,
failure to obtain regulatory approval for the commercialization of OP-1
products or failure to achieve market acceptance of OP-1 would have a material
adverse effect upon us.
The development process necessary to obtain regulatory approval is complex,
costly and lengthy and we may not obtain regulatory approvals.
We and our collaborative partners must obtain regulatory approval for
ongoing development activities and before marketing or selling any of our
products. We may not receive regulatory approvals to conduct clinical trials of
our products or to manufacture or market our products. In addition, regulatory
agencies may not grant approvals on a timely basis or may revoke or
significantly modify previously granted approvals. Any delay in obtaining, or
failure to obtain, approvals could adversely affect the marketing of our
products and our ability to generate product revenue.
The process of obtaining FDA and other required regulatory approvals is
lengthy and expensive. The time required for FDA and other clearances or
approvals is uncertain and typically takes a number of years, depending on the
complexity and novelty of the product. The process of obtaining FDA and other
required
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regulatory approvals for many of our products is further complicated because
some of these products use non-traditional or novel materials in non-
traditional or novel ways, and the regulatory officials have little precedent
to follow. We have only limited experience in filing and prosecuting
applications for the conduct of clinical studies and for obtaining marketing
approval. Any delay in obtaining or failure to obtain required clearance or
approvals could materially adversely affect our ability to generate revenues
from the affected product. We also plan to rely significantly on contract
research organizations and collaborative partners as we build internal
capabilities.
Our analysis of data obtained from preclinical and clinical activities is
subject to confirmation and interpretation by regulatory authorities, which
could delay, limit or prevent regulatory approval. Any regulatory approval to
market a product may be subject to limitations on the indicated uses for which
we may market the product. These limitations may restrict the size of the
market for the product and affect reimbursement by third party payors.
We also are subject to numerous foreign regulatory requirements governing
the design and conduct of the clinical trials and the manufacturing and
marketing of our future products outside of the United States. The approval
procedure varies among countries. The time required to obtain foreign approvals
often differs from that required to obtain FDA approvals. Moreover, approval by
the FDA does not ensure approval by regulatory authorities in other countries,
and vice versa.
Our ability to conduct preclinical research is also subject to new and
evolving regulations governing the use of human and embryonic tissues for
isolating new growth factors and genes which may be useful in identifying and
developing new therapeutic product candidates. Our ability to conduct critical
research on which our future development activities are based could be
restricted or delayed depending on the outcome of pending rulemaking
proceedings governing the use of these tissues and the collection of related
genetic information.
Even if we obtain marketing approval, our products will be subject to
ongoing regulatory oversight which may affect our ability to successfully
commercialize any products we develop.
Even if we receive regulatory approval of a product, the approval may be
subject to limitations on the indicated uses for which the product is marketed
or contain requirements for costly post-marketing follow-up studies. After we
obtain marketing approval for any product, the manufacturer and the
manufacturing facilities for that product will be subject to continual review
and periodic inspections by the FDA and other regulatory authorities. The
subsequent discovery of previously unknown problems with the product, or with
the manufacturer or facility, may result in restrictions on the product or
manufacturer, including withdrawal of the product from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions, and criminal prosecution.
There is no assurance that we will be able to comply with governmental
regulatory requirements which may be applicable to our businesses.
In addition to comprehensive regulation by the FDA, we are subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Research Conservation and
Recovery Act, regulations administered by the Nuclear Regulatory Commission,
national restrictions on technology transfer, import, export and customs
regulations and certain other local, state or federal regulation. From time to
time, other federal agencies and congressional committees have indicated an
interest in implementing further regulation of biotechnology applications. We
are not able to predict whether any such regulations will be adopted or
whether, if adopted, such regulations will adversely affect our business.
Our research and development activities involve the controlled use of
hazardous materials and chemicals. Although we believe that our safety
procedures for handling and dispersing of such materials comply with all
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applicable laws and regulations, we cannot completely eliminate the risk of
accidental contamination or injury from these materials.
Risks Relating to Financing
We have incurred substantial losses, we expect to continue to incur losses
and we may never achieve profitability.
We expect to incur substantial operating losses for the foreseeable future.
We currently have no material sources of revenue from product sales or license
fees. It is uncertain when, if ever, we will develop significant revenue
sources or become profitable, even if we are able to commercialize products. In
addition, because certain of our product candidates consist of living cells,
they may be more expensive to manufacture than conventional therapeutic
products.
We expect to increase our spending significantly as we continue to expand
our research and development programs, expand our clinical trials, apply for
regulatory approvals and begin commercialization activities. As a result, we
will need to generate significant revenues in order to achieve profitability.
We cannot be certain whether or when this will occur because of the significant
uncertainties that affect our business.
We may require additional financing, which may be difficult to obtain and
may dilute your ownership interest in us.
We will require substantial funds to conduct research and development,
including clinical trials of our product candidates, and to manufacture and
market any products that are approved for commercial sale. Our future capital
requirements will depend on many factors, including the following:
. continued progress in our research and development programs, as well as
the magnitude of these programs;
. the resources required to initiate and then successfully complete our
clinical trials;
. the time and costs involved in obtaining regulatory approvals;
. the cost of manufacturing and commercialization activities;
. the cost of any additional facilities requirements;
. the timing, receipt and amount of milestone and other payments from
collaborative partners;
. the timing, payment and amount of milestone payments, research funding
and royalties due to licensors of patent rights and technology used to
make, use and sell our product candidates;
. the timing, receipt and amount of sales and royalties from our potential
products in the market; and
. the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and other patent-related costs, including
litigation costs and the costs of obtaining any required licenses to
technologies.
We may seek additional funding through collaborative arrangements and public
or private financings. Additional financing may not be available to us on
acceptable terms or at all.
If we raise additional funds by issuing equity securities, further dilution
to our then existing stockholders will result. In addition, the terms of the
financing may adversely affect the holdings or the rights of our stockholders.
If we are unable to obtain funding on a timely basis, we may be required to
significantly curtail one or more of our research or development programs. We
also could be required to seek funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates or products which we would otherwise pursue
independently.
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We have antitakeover defenses that could delay or prevent an acquisition and
could adversely affect the price of our common stock.
Provisions of our certificate of incorporation, our bylaws and Delaware law
may have the effect of deterring unsolicited takeovers or delaying or
preventing changes in control of our management, including transactions in
which our stockholders might otherwise receive a premium for their shares over
then current market prices. In addition, these provisions may limit the ability
of stockholders to approve transactions that they may deem to be in their best
interest. For example, our bylaws limit the manner in which stockholders may
call a special meeting. Our certificate of incorporation permits our board of
directors to issue preferred stock without stockholder approval. In addition to
delaying or preventing an acquisition, the issuance of a substantial number of
preferred shares could adversely affect the price of our common stock.
Risks Relating to Intellectual Property
We may not be able to obtain patent protection for our discoveries and we
may infringe patent rights of third parties.
The patent positions of pharmaceutical and biotechnology companies,
including us, are generally uncertain and involve complex legal, scientific and
factual questions.
Our success depends in significant part on our ability to:
. obtain patents;
. protect trade secrets;
. operate without infringing upon the proprietary rights of others; and
. prevent others from infringing on our proprietary rights.
Patents may not issue from any of the patent applications that we own or
license. If patents do issue, the allowed claims may not be sufficiently broad
to protect our technology. In addition, issued patents that we own or license
may be challenged, invalidated or circumvented. Our patents also may not afford
us protection against competitors with similar technology. Because patent
applications in the United States are maintained in secrecy until patents
issue, third parties may have filed or maintained patent applications for
technology used by us or covered by our pending patent applications without our
being aware of these applications.
We may not hold proprietary rights to some patents related to our proposed
products. In some cases, these patents may be owned or controlled by third
parties. As a result, we or our collaborative partners may be required to
obtain licenses under third-party patents to develop and commercialize some of
our proposed products or services. If licenses are not available to us on
acceptable terms, we or our collaborative partners will not be able to develop
and commercialize these products or services.
If we are not able to keep our trade secrets confidential, our technology
and information may be used by others to compete against us.
We also rely significantly upon unpatented proprietary technology,
information, processes and know-how. We seek to protect this information
through confidentiality agreements with our employees, consultants and other
third-party contractors as well as through other security measures. These
confidentiality agreements may be breached, and we may not have adequate
remedies for any such breach. In addition, our trade secrets may otherwise
become known or be independently developed by competitors.
We may become involved in expensive patent litigation or other intellectual
property proceedings which could result in liability for damages or stop our
development and commercialization efforts.
There has been substantial litigation and other proceedings regarding the
complex patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. We may become a party to patent litigation or other
proceedings regarding intellectual property rights.
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Other types of situations in which we may become involved in patent
litigation or other intellectual property proceedings include:
. initiation of litigation or other proceedings against third parties to
enforce our patent rights;
. initiation of litigation or other proceedings against third parties to
seek to invalidate the patents held by these third parties or to obtain a
judgment that our products or services do not infringe the third parties'
patents;
. participation in interference or opposition proceedings to determine the
priority of invention if our competitors file patent applications that
claim technology also claimed by us;
. initiation of litigation by third parties claiming that our processes or
products or the intended use of our products infringe their patent or
other intellectual property rights; and
. initiation of litigation by us or third parties seeking to enforce
contract rights relating to intellectual property which may be important
to our business.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be
able to sustain the cost of such litigation or proceedings more effectively
than we can because of their substantially greater financial resources. If a
patent litigation or other intellectual property proceeding is resolved
unfavorably to us, we or our collaborative partners may be enjoined from
manufacturing or selling our products and services without a license from the
other party and be held liable for significant damages. We may not be able to
obtain required license on commercially acceptable terms or any terms at all,
and we could be liable for lost profits if we are found to infringe a valid
patent, and treble damages if we are found to have willfully infringed such
patent rights. Patent cases frequently involve highly complex scientific
matters, and each party has the right to seek a trial by jury. Accordingly,
litigation results are highly unpredictable and no assurance can be given that
we or our collaborative partners will prevail in any patent proceeding.
Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Patent litigation and other proceedings
may also absorb significant management time and expense.
If we breach any of the agreements under which we license or acquire
intellectual property from others, we could lose intellectual property rights
that are important to our business.
We are a party to intellectual property licenses and agreements that are
important to our business and expect to enter into similar licenses and
agreements in the future. These licenses and agreements impose various
research, development, commercialization, sublicensing, royalty,
indemnification, insurance and other obligations on us. If we fail to comply
with these requirements, we could lose intellectual property rights that are
important to our business.
If our licensors or assignees of our intellectual property rights breach any
of the agreements under which we have licensed or assigned to them our
intellectual property, we could be deprived of important intellectual property
rights and future revenue.
We are a party to intellectual property out-licenses, collaborations and
agreements that are important to our business and expect to enter into similar
agreements with third parties in the future. These agreements license or
transfer intellectual property to third parties and impose various research,
development, commercialization, sublicensing, royalty, indemnification,
insurance, and other obligations on such third parties. If a third party fails
to comply with these requirements, we generally retain the right to terminate
the agreement, and to bring a legal action in court or in arbitration. With
respect to the agreement with Stryker Corporation regarding OP-1, the
assignment of intellectual property is irrevocable in the event of a breach of
the agreement. Accordingly, it may be more difficult to enforce our rights in
the absence of litigation.
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Risks Relating to Product Manufacturing, Marketing and Sales
We have limited manufacturing capabilities.
We have limited experience or capabilities in large-scale commercial
manufacturing of any of our product candidates. Our current facilities and
staff are inadequate for commercial production and distribution of products.
Our marketing plan for Chondrogel involves in-house manufacturing of this
product. We cannot assure you that we will be able to attract, train and retain
the required personnel or to expand our manufacturing capability to manufacture
commercial quantities of Chondrogel or any of our other products in a timely
manner. We cannot assure you that our manufacturing scale-up efforts will be
successful or that reliable, high-volume manufacturing can be established or
maintained at commercially reasonable costs on a timely basis, or at all.
We have no sales and marketing experience or infrastructure.
We have no sales, marketing and distribution experience or infrastructure.
We plan to develop small specialty sales, marketing and distribution
capabilities for the sale, marketing and distribution of Chondrogel and other
specialty products. There can be no assurance that we will successfully develop
this sales, marketing and distribution capability. With respect to all of our
other products which address larger markets, we plan to rely significantly on
sales, marketing and distribution arrangements with third parties for the
products that we are developing until we are able to develop more significant
internal sales, marketing and distribution capability. We may have limited or
no control over the sales, marketing and distribution activities of our present
or future collaborative partners. Our future revenues may be materially
dependent upon the success of the efforts of these third parties.
In determining whether to perform sales, marketing and distribution
functions ourselves, we face a number of risks, including:
. not being able to attract and build a significant marketing staff or
sales force;
. the cost of establishing a marketing staff or sales force may not be
justifiable in light of any product revenues; and
. the failure of our direct sales and marketing efforts to be successful.
Delays in obtaining regulatory approval of our manufacturing facility and
disruptions in our manufacturing process may delay or disrupt our
commercialization efforts.
Before we can begin commercially manufacturing our product candidates, we
must obtain regulatory approval for our manufacturing facility and process.
Manufacturing of our product candidates must comply with the regulations of the
FDA and with foreign regulatory authorities, including without limitation
current good manufacturing practices ("cGMP"). The cGMP regulations provide a
framework that describe the minimum practices, facilities and controls to be
used for the manufacture, processing, packing and holding of a medicinal
product to assure that the product meets the established requirements for
safety and effectiveness and govern manufacturing methods, quality control and
documentation policies and procedures. In complying with cGMP and foreign
regulatory requirements, we will be obligated to expend time, money and effort
in production, recordkeeping and quality control to assure that the product
meets applicable specifications and other requirements. If we fail to comply
with these requirements, we would be subject to possible regulatory action and
may be limited in the jurisdictions in which we are permitted to sell our
product candidates.
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THE SPECIAL MEETING OF CREATIVE BIOMOLECULES, INC. STOCKHOLDERS
Joint Proxy Statement-Prospectus
This joint proxy statement-prospectus is being furnished to you in
connection with the solicitation of proxies by the Creative board of directors
in connection with the proposed merger.
This joint proxy statement-prospectus is first being furnished to
stockholders of Creative on or about , 2000.
Date, Time and Place of the Special Meeting
The special meeting of stockholders of Creative is scheduled to be held as
follows:
June , 2000
11:00 a.m., local time
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Purpose of the Special Meeting
The special meeting is being held so that stockholders of Creative may
consider and vote upon a proposal to adopt a merger agreement among Creative,
Ontogeny, Reprogenesis and Curis pursuant to which Creative, Ontogeny and
Reprogenesis will be merged into Curis, and to transact any other business that
properly comes before the Creative special meeting or any adjournment or
postponement of the Creative special meeting. Adoption of the merger agreement
will also constitute approval of the merger and the other transactions
contemplated by the merger agreement.
If the stockholders of Creative, Ontogeny and Reprogenesis adopt the merger
agreement, each share of Creative common stock will be automatically converted
into 0.3 of a share of Curis common stock.
Stockholder Record Date for the Special Meeting
Creative's board of directors has fixed the close of business on , 2000
as the record date for determination of Creative stockholders entitled to
notice of and to vote at the special meeting. On the record date, there were
shares of Creative common stock outstanding, held by approximately
holders of record.
Vote of Creative Stockholders Required for Adoption of the Merger Agreement
A majority of the outstanding shares of common stock of Creative must be
represented, either in person or by proxy, to constitute a quorum at the
Creative special meeting. The affirmative vote of the holders of a majority of
the shares of Creative's common stock outstanding as of the record date is
required to adopt the merger agreement. As of the record date, Creative
directors and executive officers and their affiliates owned approximately 5.6%
of the outstanding shares of common stock. These individuals, as well as a
holder of approximately 9.0% of the voting power of Creative common stock, have
agreed to vote all their shares of common stock (which together with Creative's
directors, officers and their affiliates represent approximately 14.6% of the
outstanding shares of common stock) in favor of adoption of the merger
agreement.
Proxies
All shares of Creative common stock represented by properly executed proxies
received before or at the Creative special meeting will, unless the proxies are
revoked, be voted in accordance with the instructions indicated on those
proxies. If no instructions are indicated on a properly executed proxy card,
the shares will be voted FOR adoption of the merger agreement. You are urged to
mark the box on the proxy card to indicate how to vote your shares.
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If a properly executed proxy card is returned and the stockholder has
abstained from voting on adoption of the merger agreement, the Creative common
stock represented by the proxy will be considered present at the special
meeting for purposes of determining a quorum and for purposes of calculating
the vote, but will not be considered to have been voted in favor of adoption of
the merger agreement. Similarly, if an executed proxy card is returned by a
broker holding shares of Creative common stock in street name which indicates
that the broker does not have discretionary authority to vote on adoption of
the merger agreement, the shares will be considered present at the meeting for
purposes of determining the presence of a quorum and of calculating the vote,
but will not be considered to have been voted in favor of adoption of the
merger agreement. Your broker will vote your shares only if you provide
instructions on how to vote by following the information provided to you by
your broker.
Because adoption of the merger agreement requires the affirmative vote of at
least a majority of the shares of Creative's common stock outstanding on the
record date, abstentions, failures to vote and broker non-votes will have the
same effect as a vote against adoption of the merger agreement.
Creative does not expect that any matter other than adoption of the merger
agreement will be brought before the special meeting. If, however, other
matters are properly presented, the persons named as proxies will vote in
accordance with their judgment with respect to those matters, unless authority
to do so is withheld on the proxy card.
A holder of Creative common stock may revoke his or her proxy at any time
before it is voted by:
. notifying in writing the Corporate Secretary of Creative BioMolecules,
Inc. at 101 Huntington Avenue, Suite 2400, Boston, MA 02199;
. granting a subsequently dated proxy; or
. appearing in person and voting at the special meeting.
Attendance at the special meeting will not in and of itself constitute
revocation of a proxy.
Solicitation of Proxies and Expenses
Creative, Ontogeny and Reprogenesis will share, pro rata according to their
stockholders' relative ownership of Curis, the expenses incurred in connection
with the printing and mailing of this joint proxy statement-prospectus.
Creative will retain as its agent, at an estimated cost of $ plus
reimbursement of expenses, to assist in the solicitation of proxies. Creative
and its agent will also request banks, brokers and other intermediaries holding
shares of Creative common stock beneficially owned by others to send this joint
proxy statement-prospectus to, and obtain proxies from, the beneficial owners
and will reimburse the holders for their reasonable expenses in so doing.
You should not send in any stock certificates with your proxy card. A
transmittal letter with instructions for the surrender of stock certificates
will be mailed to you as soon as practicable after completion of the merger.
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THE SPECIAL MEETING OF ONTOGENY, INC. STOCKHOLDERS
Joint Proxy Statement-Prospectus
This joint proxy statement-prospectus is being furnished to you in
connection with the solicitation of proxies by the Ontogeny's board of
directors in connection with the proposed merger.
This joint proxy statement-prospectus is first being furnished to
stockholders of Ontogeny on or about , 2000.
Date, Time and Place of the Special Meeting
The special meeting of stockholders of Ontogeny is scheduled to be held as
follows:
June , 2000
10:00 a.m., local time
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Purpose of the Special Meeting
The special meeting is being held so that stockholders of Ontogeny may
consider and vote upon a proposal to adopt a merger agreement among Creative,
Ontogeny, Reprogenesis and Curis pursuant to which Creative, Ontogeny and
Reprogenesis will be merged into Curis, and to transact any other business that
properly comes before the Ontogeny special meeting or any adjournment or
postponement of the Ontogeny special meeting. Adoption of the merger agreement
will also constitute approval of the merger and the other transactions
contemplated by the merger agreement.
If the stockholders of Creative, Ontogeny and Reprogenesis adopt the merger
agreement, each share of Ontogeny common stock will be automatically converted
into 0.2564 of a share of Curis common stock and each share of Ontogeny
preferred stock will be automatically converted into 0.2564 of a share of Curis
common stock.
Stockholder Record Date for the Special Meeting
Ontogeny's board of directors has fixed the close of business on , 2000
as the record date for determination of Ontogeny stockholders entitled to
notice of and to vote at the special meeting. On the record date, there were:
. 2,684,690 shares of Ontogeny common stock outstanding, held by
approximately 64 holders of record;
. 4,853,334 shares of Ontogeny Series A convertible preferred stock
outstanding, held by approximately 24 holders of record;
. 7,447,223 shares of Ontogeny Series B convertible preferred stock
outstanding, held by approximately 33 holders of record;
. 400,000 shares of Ontogeny Series C convertible preferred stock
outstanding, held by one holder of record;
. 800,000 shares of Ontogeny Series C-1 convertible preferred stock
outstanding, held by one holder of record;
. 600,000 shares of Ontogeny Series D convertible preferred stock
outstanding, held by one holder of record;
. 10,000,000 shares of Ontogeny Series E convertible preferred stock
outstanding, held by approximately 49 holders of record;
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. 8,379,593 shares of Ontogeny Series F convertible preferred stock
outstanding, held by approximately 34 holders of record; and
. 400,000 shares of Ontogeny Series G convertible preferred stock
outstanding, held by one holder of record.
Ontogeny holds 268,100 shares of common stock as treasury shares.
Vote of Ontogeny Stockholders Required for Adoption of the Merger Agreement
A majority of the outstanding shares of Ontogeny capital stock entitled to
vote at the Ontogeny special meeting must be represented, either in person or
by proxy, to constitute a quorum.
Adoption of the merger agreement and the merger requires both (i) the
affirmative vote of the holders of a majority of the voting power of the
Ontogeny common stock and the Ontogeny preferred stock outstanding as of the
record date, voting together as a single group, and (ii) the affirmative vote
of the holders of two thirds of the voting power of the Ontogeny Series A
convertible preferred stock, Series B convertible preferred stock, Series E
convertible preferred stock and Series F convertible preferred stock
(collectively, the "Ontogeny Senior Preferred Stock") outstanding as of the
record date, voting together as a single class. Accordingly, abstentions will
have the same practical effect as a vote against the merger agreement and the
merger.
Holders of Ontogeny common stock are entitled to cast one vote per share of
Ontogeny common stock. Holders of Ontogeny preferred stock are entitled to cast
the number of votes equal to the number of whole shares of common stock into
which the shares of Ontogeny preferred stock held by the holder are then
convertible.
Certain directors, officers and other stockholders of Ontogeny have agreed
to vote in favor of the merger agreement and the merger and have delivered
irrevocable proxies with respect to that vote thus ensuring the approval of the
merger by Ontogeny. Those directors, officers and other stockholders together
own approximately 74.4% of the combined voting power of the outstanding shares
of Ontogeny common stock and Ontogeny preferred stock, and approximately 77.0%
of the voting power of the outstanding shares of Ontogeny Senior Preferred
Stock.
Proxies
All shares of Ontogeny common stock and preferred represented by properly
executed proxies received before or at the Ontogeny special meeting will,
unless the proxies are revoked, be voted in accordance with the instructions
indicated on those proxies. If no instructions are indicated on a properly
executed proxy card, the shares will be voted FOR adoption of the merger
agreement. You are urged to mark the box on the proxy card to indicate how to
vote your shares.
If a properly executed proxy card is returned and the stockholder has
abstained from voting on adoption of the merger agreement, the Ontogeny capital
stock represented by the proxy will be considered present at the special
meeting for purposes of determining a quorum and for purposes of calculating
the vote, but will not be considered to have been voted in favor of adoption of
the merger agreement.
Because adoption of the merger agreement requires (i) the affirmative vote
of the holders of a majority of the voting power of the Ontogeny common stock
and the Ontogeny preferred stock outstanding as of the record date, voting
together as a single group, and (ii) the affirmative vote of the holders of two
thirds of the voting power of the Ontogeny Senior Preferred Stock outstanding
as of the record date, voting together as a single class, abstentions, failures
to vote and broker non-votes will have the same effect as a vote against
adoption of the merger agreement.
Ontogeny does not expect that any matter other than adoption of the merger
agreement will be brought before the special meeting. If, however, other
matters are properly presented, the persons named as proxies will vote in
accordance with their judgment with respect to those matters, unless authority
to do so is withheld on the proxy card.
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A holder of Ontogeny common stock and preferred stock may revoke his or her
proxy (unless it is irrevocable) at any time before it is voted by:
. notifying in writing the Corporate Secretary of Ontogeny, Inc. at 45
Moulton Street, Cambridge, MA 02138;
. granting a subsequently dated proxy; or
. appearing in person and voting at the special meeting.
Attendance at the special meeting will not in and of itself constitute
revocation of a proxy.
Expenses
Creative, Ontogeny and Reprogenesis will share, pro rata according to their
stockholders' relative ownership of Curis, the expenses incurred in connection
with the printing and mailing of this joint proxy statement-prospectus.
You should not send in any stock certificates with your proxy card. A
transmittal letter with instructions for the surrender of stock certificates
will be mailed to you as soon as practicable after completion of the merger.
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THE SPECIAL MEETING OF REPROGENESIS STOCKHOLDERS
Joint Proxy Statement-Prospectus
This joint proxy statement-prospectus is being furnished to you in
connection with the solicitation of proxies by Reprogenesis' board of directors
in connection with the proposed merger.
This joint proxy statement-prospectus is first being furnished to
stockholders of Reprogenesis on or about , 2000.
Date, Time and Place of the Special Meeting
The special meeting of stockholders of Reprogenesis is scheduled to be held
as follows:
June , 2000
10:00 a.m., local time
21 Erie Street
Cambridge, Massachusetts 02139
Purpose of the Special Meeting
The special meeting is being held so that stockholders of Reprogenesis may
consider and vote upon a proposal to adopt a merger agreement among Creative,
Ontogeny, Reprogenesis and Curis pursuant to which Creative, Ontogeny and
Reprogenesis will be merged into Curis, and to transact any other business that
properly comes before the Reprogenesis special meeting or any adjournment or
postponement of the Reprogenesis special meeting. Adoption of the merger
agreement will also constitute approval of the merger and the other
transactions contemplated by the merger agreement.
If the stockholders of Creative, Ontogeny and Reprogenesis adopt the merger
agreement:
. Holders of the capital stock of Reprogenesis or options or warrants to
acquire the capital stock of Reprogenesis will be entitled to receive an
aggregate number of shares of Curis common stock equal to 0.1956
multiplied by the total number of shares of Reprogenesis capital stock
outstanding or subject to options or warrants at the time of the merger.
Because the Reprogenesis series A preferred stock is a participating
preferred stock, holders of the series A preferred stock are entitled to
receive, before any distribution to any other Reprogenesis stockholders,
$6 million of the consideration received by the Reprogenesis stockholders
in the merger. Once this preference has been paid, the remaining
consideration to the Reprogenesis stockholders is shared pro rata by the
holders of the Reprogenesis common and preferred stock. The exact number
of shares of Curis common stock received by the holders of the
Reprogenesis common and preferred stock will be determined based on the
formula described on page 54.
Stockholder Record Date for the Special Meeting
Reprogenesis' board of directors has fixed the close of business on ,
2000 as the record date for determination of Reprogenesis stockholders entitled
to notice of and to vote at the special meeting. On the record date, there
were:
. 14,744,524 shares of Reprogenesis common stock outstanding, held by
approximately 57 holders of record;
. 2,702,702 shares of Reprogenesis Series A preferred stock outstanding,
held by eight holders of record; and
. 4,729,134 shares of Reprogenesis Series B preferred stock outstanding,
held by 31 holders of record.
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Vote of Reprogenesis Stockholders Required for Adoption of the Merger Agreement
The majority of outstanding shares of Reprogenesis capital stock entitled to
vote at the Reprogenesis special meeting must be represented, either in person
or by proxy, to constitute a quorum. The affirmative vote of the holders of 66
2/3% of the outstanding shares of Reprogenesis common stock and preferred
stock, voting together as one group; the holders of 66 2/3% of the outstanding
shares of the Reprogenesis series A preferred stock, voting separately as a
class; and the holders of 66 2/3% of the outstanding shares of the Reprogenesis
series B preferred stock, voting separately as a class, is required to adopt
the merger agreement. As of the record date, Reprogenesis directors and
executive officers and their affiliates owned approximately 59.3% of the voting
power of Reprogenesis common stock and preferred stock. These individuals, as
well as certain holders of 5% or more of the voting power of the Reprogenesis
common stock and preferred stock, have agreed to vote all their shares of
Reprogenesis common stock and Reprogenesis preferred stock (which represent
approximately 67.5% of the voting power of the Reprogenesis common stock and
preferred stock, voting together as one group; 91.6% of the Reprogenesis series
A preferred stock; and 82.0% of the Reprogenesis series B preferred stock) in
favor of adoption of the merger agreement, thus assuring its adoption. At the
Reprogenesis special meeting:
. each share of Reprogenesis common stock is entitled to one vote on all
matters properly submitted to the Reprogenesis stockholders; and
. each share of Reprogenesis series A preferred stock and series B
preferred stock is entitled to one vote on all matters properly
submitted to the Reprogenesis stockholders.
Proxies
All shares of Reprogenesis common stock represented by properly executed
proxies or voting instructions received before or at the Reprogenesis special
meeting will, unless the proxies or voting instructions are revoked, be voted
in accordance with the instructions indicated on those proxies or voting
instructions. If no instructions are indicated on a properly executed proxy
card, the shares will be voted FOR adoption of the merger agreement. You are
urged to mark the box on the proxy card to indicate how to vote your shares.
If a properly executed proxy card or voting instructions is returned and the
stockholder has abstained from voting on adoption of the merger agreement, the
Reprogenesis capital stock represented by the proxy or voting instructions will
be considered present at the special meeting for purposes of determining a
quorum and for purposes of calculating the vote, but will not be considered to
have been voted in favor of adoption of the merger agreement.
Because adoption of the merger agreement requires the affirmative vote of
the holders of 66 2/3% of the outstanding shares of Reprogenesis common stock
and preferred stock, voting together as one group; the holders of 66 2/3% of
the outstanding shares of the Reprogenesis series A preferred stock, voting
separately as a class; and the holders of 66 2/3% of the outstanding shares of
the Reprogenesis series B preferred stock, voting separately as a class;
abstentions, failures to vote and broker non-votes will have the same effect as
a vote against adoption of the merger agreement.
Reprogenesis does not expect that any matter other than adoption of the
merger agreement will be brought before the special meeting. If, however, other
matters are properly presented, the persons named as proxies will vote in
accordance with their judgment with respect to those matters, unless authority
to do so is withheld on the proxy card.
A holder of Reprogenesis common stock or preferred stock that has not
entered into a stockholders agreement with Creative, Ontogeny and Reprogenesis
pursuant to the merger agreement may revoke his or her proxy at any time before
it is voted by:
. notifying in writing the Corporate Secretary of Reprogenesis, Inc. at 21
Erie Street, Cambridge, MA 02139;
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. granting a subsequently dated proxy; or
. appearing in person and voting at the special meeting.
Attendance at the special meeting will not in and of itself constitute
revocation of a proxy.
Expenses
Creative, Ontogeny and Reprogenesis will share, pro rata according to their
stockholders' relative ownership of Curis, the expenses incurred in connection
with the printing and mailing of this joint proxy statement-prospectus.
You should not send in any stock certificates with your proxy card. A
transmittal letter with instructions for the surrender of stock certificates
for Reprogenesis common stock will be mailed to you as soon as practicable
after completion of the merger.
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THE MERGER
This section of the joint proxy statement-prospectus describes material
aspects of the proposed merger, including the merger agreement and the
stockholders agreements. While we believe that the description covers the
material terms of the merger, this summary may not contain all of the
information that is important to you. You should read this entire joint proxy
statement-prospectus and the other documents we refer to carefully for a more
complete understanding of the merger. In addition, we incorporate important
business and financial information about Creative into this joint proxy
statement-prospectus by reference. You may obtain the information incorporated
by reference into this joint proxy statement-prospectus without charge by
following the instructions in the section entitled "Where You Can Find More
Information" that begins on page 174 of this joint proxy statement-prospectus.
Background of the Merger
On May 13, 1999 Charles M. Cohen, Ph.D., Chief Scientific Officer of
Creative, and Doros Platika, M.D., President and Chief Executive Officer of
Ontogeny, met regarding common interests in research and development as well as
long-term objectives for each of Creative and Ontogeny. Dr. Cohen and Dr.
Platika discussed the potential benefits of a business combination given the
current strengths of each company. Thereafter, Creative and Ontogeny discussed
business combinations with each other and other potential candidates. On July
9, 1999, representatives of Creative met with representatives of a third
biopharmaceutical company (the "original third party") to discuss its business
and scientific programs. During the period of November through December 1999,
Creative, Ontogeny and the original third party continued discussions and
negotiations toward the objective of a three-way business combination,
including preparation and negotiation of a merger agreement and conducting due
diligence investigation.
On September 10, 1999, Mr. Thomas Dietz, Senior Managing Director of Pacific
Growth Equities, Inc., a financial advisor to Reprogenesis, met with George A.
Eldridge, Chief Financial Officer of Ontogeny and Dr. Platika to explore the
level of interest at Ontogeny in a possible business combination with an
unidentified company. In response to an indication of possible interest,
information concerning Ontogeny's business was sent by Dr. Platika to Mr. Dietz
and then to Daniel R. Omstead, Eng. ScD, President and Chief Executive Officer
of Reprogenesis. After reviewing this information, Dr. Omstead forwarded
information regarding Reprogenesis to Dr. Platika.
On October 18, 1999, Dr. Omstead and Dr. Platika met at an industry
conference and expressed their mutual interest in initiating discussions
concerning a business combination. On November 16, 1999, Reprogenesis and
Ontogeny executed a confidentiality agreement and senior management of each
company made detailed presentations concerning their respective businesses and
technologies. During the period from November 21 through December 20, 1999,
there were various exchanges of information and informal discussions between
senior management of Reprogenesis and Ontogeny concerning a possible business
combination. On December 21, 1999, Dr. Platika informed Dr. Omstead that
Ontogeny was in discussions regarding potential business combinations,
including a three-way combination, and inquired concerning Reprogenesis'
interest in entering into these discussions. Dr. Omstead indicated
Reprogenesis' willingness to do so. Dr. Platika subsequently introduced
Reprogenesis to Creative. Reprogenesis and Creative then executed
confidentiality agreements and senior management of each company made detailed
presentations concerning their respective businesses and technologies.
On January 4, 2000, the original third party notified representatives of
Creative and Ontogeny that it was no longer interested in pursuing a business
combination with Creative and Ontogeny.
On January 4, 2000, the Ontogeny board held a telephonic meeting to discuss
pursuing a transaction among Creative, Reprogenesis and Ontogeny. On January 5,
2000, the board of directors of Creative held a telephonic meeting to discuss
alternatives open to Creative after the original third party's decision
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not to move forward. Four possible scenarios were presented: (i) continue to
pursue a three-way business combination with a replacement for the original
third party; (ii) complete a two-way business combination with Ontogeny; (iii)
complete no business combination and pursue a financing; or (iv) put Creative
up for sale. After discussing the advantages and disadvantages of each
alternative, the board of Creative determined to pursue a three-way business
combination with Ontogeny and Reprogenesis.
On January 7, 2000, Creative, Ontogeny, and Reprogenesis began exchanging
business, legal, technical and financial due diligence materials. Due diligence
of each of Creative, Ontogeny and Reprogenesis continued through February 14,
2000. Included in this process were presentations by senior management of
Reprogenesis and one of its consultants to senior management of Ontogeny and
Creative and their respective consultants on each of January 7 and January 12,
2000, presentations by senior management of Creative to Reprogenesis and its
consultants on January 13, 2000, presentations by senior management of Ontogeny
to Reprogenesis and its consultants on January 18, 2000, and presentations by
senior management of Reprogenesis to senior management of Ontogeny and Creative
and their respective financial advisors and regulatory consultants on January
26, 2000.
On January 11, 2000, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C,
outside counsel to Creative, delivered to Foley, Hoag & Eliot LLP, outside
counsel to Ontogeny, and Baker Botts L.L.P., outside counsel to Reprogenesis, a
draft of a proposed Agreement and Plan of Merger and related documents.
On January 20, 2000, the board of directors of Reprogenesis held its regular
quarterly meeting. Mr. Tarnow and Dr. Platika each made a presentation to the
board concerning the business of Creative and Ontogeny, respectively, and
expressed their views regarding a business combination between the three
companies. The board then discussed the possibility of a three way business
combination and instructed Dr. Omstead to continue with the discussions and to
retain Pacific Growth Equities, Inc. as the financial advisor to Reprogenesis.
On January 28, 2000, Ontogeny retained SG Cowen to render an opinion to the
Ontogeny board of directors as to the fairness, from a financial point of view,
of the exchange ratio proposed in the Agreement and Plan of Merger to Ontogeny
stockholders.
On January 31, 2000, Reprogenesis retained Pacific Growth Equities, Inc. as
its financial advisor.
On February 8, 2000, the Creative board met and discussed Reprogenesis and
its business, including reviewing the information presented on January 7th and
12th. After discussing the advantages and disadvantages of a three-way business
combination with Ontogeny and Reprogenesis, the Creative board authorized
management to continue discussions to enter into a three-way business
combination with Ontogeny and Reprogenesis.
On February 9, 2000, Creative executed an engagement letter with Chase
Securities to render an opinion to the Creative board of directors as to the
fairness, from a financial point of view, of the Creative exchange ratio to the
holders of Creative common stock.
On February 11, 2000, the Ontogeny board of directors held a telephone
meeting and discussed Reprogenesis and its business. After discussing the
advantages and disadvantages of a three-way business combination with Creative
and Reprogenesis, the Ontogeny board authorized management to continue
discussions to enter into a three-way business combination with Creative and
Reprogenesis.
Between February 10, 2000 through February 14, 2000, senior management of
each of Creative, Ontogeny and Reprogenesis and their respective financial and
legal advisors negotiated and finalized the terms of the proposed merger
agreement.
The Creative board of directors held a telephonic meeting on February 14,
2000 at which attorneys from Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. and representatives from Chase Securities participated. At
the meeting, the board reviewed and discussed the terms of the proposed merger
agreement, the financial and strategic reasons for the merger, and the effects
that the proposed merger would have on Creative stockholders
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and employees. The board also reviewed the results of due diligence and the
potential risks relating to the merger proposal. Finally, the board reviewed
the opinion of its financial advisor, Chase Securities, to the effect that,
based on and subject to the factors and assumptions set forth in its opinion,
the Creative exchange ratio was fair, from a financial point of view, to the
holders of Creative common stock. After the conclusion of these discussions,
the Creative board of directors concluded that the transaction was fair to, and
in the best interests of, Creative and its stockholders. The board unanimously
voted to approve the merger transaction and authorized its officers to
finalize, execute and deliver the merger agreement.
Also on February 14, 2000, the Ontogeny board of directors held a telephonic
meeting at which financial advisors from SG Cowen also participated. At the
meeting, the board reviewed and discussed the terms of the proposed merger
agreement, the financial and strategic reasons for the merger, and the effects
that the proposed merger would have on Ontogeny stockholders and employees. The
board also reviewed the results of due diligence and the potential risks
relating to the merger proposal. Finally, the board reviewed the opinion of its
financial advisor, to the effect that, based on and subject to the factors and
assumptions set forth in its opinion, the Ontogeny exchange ratio was fair,
from a financial point of view to the stockholders of Ontogeny. After the
conclusion of these discussions, the Ontogeny board of directors concluded that
the transaction was fair to, and in the best interests of, Ontogeny, and its
stockholders. The board voted to approve the merger transaction and authorized
its officers to finalize, execute and deliver the merger agreement.
Also on February 14, 2000, the Reprogenesis board of directors held a
telephonic meeting in which attorneys from Baker Botts L.L.P. and Mr. Milstein
of Pacific Growth Equities, Inc. also participated. At the meeting, the board
reviewed and discussed the terms of the proposed merger agreement, the
financial and strategic reasons for the merger, and the effects that the
proposed merger would have on Reprogenesis stockholders and employees. The
board also reviewed the results of due diligence and the potential risks
relating to the merger proposal. The board also consulted with Mr. Milstein
concerning his views about the appropriate level of consideration to be
received by the stockholders of Reprogenesis in the merger. After the
conclusion of such discussions, the Reprogenesis board of directors concluded
that the transaction was fair to, and in the best interests of, Reprogenesis
and its stockholders. The board unanimously voted to approve the merger
transaction and authorized its officers to finalize, execute and deliver the
merger agreement.
The definitive merger agreement was executed on behalf of Curis, Creative,
Ontogeny and Reprogenesis on February 14, 2000.
On the morning of February 15, 2000, Creative, Ontogeny and Reprogenesis
issued a joint press release announcing the proposed merger of Creative,
Ontogeny and Reprogenesis.
Joint Reasons for the Merger
The boards of directors of Creative, Ontogeny and Reprogenesis have each
determined that, compared to continuing to operate their companies on a stand-
alone basis, the merged company would have better potential to improve long-
term operating and financial results. The combined companies will be able to
offer a broader spectrum of activities than any company would have been able to
offer independently, thereby helping the combined company in its efforts to
build a fully integrated biopharmaceutical company. The boards believe that
this broadened spectrum, which ranges from discovery research to
commercialization of products for patient treatment, along with the collective
expertise of the personnel and clinical development and regulatory experience,
will make the combined company more competitive than any of the three companies
would have been operating independently. The boards believe that the combined
capabilities, research and development teams and product pipelines will
accelerate the development of an integrated biopharmaceutical company focused
on breakthrough products in the field of regenerative medicine.
Creative's Reasons for the Merger
In reaching its decision to approve the merger agreement, the Creative board
of directors consulted with its management team and advisors and independently
considered the proposed merger agreement and the transactions contemplated by
the merger agreement. Among the factors considered by the Creative board of
directors were the following factors in favor of the merger:
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. the board's view that
Creative's need to raise
additional capital to meet
its commitments and
development goals was subject
to considerable risks;
. the board's view that the
combined company will have
an increased ability to fund
research and development of
Creative's product candidates
and to exploit Creative's
technologies;
. the board's view that the
scientific synergies between
Creative's strength in protein
therapies, Ontogeny's strength
in developmental biology and
functional genomics, and
Reprogenesis' strength in
biomaterials, cell therapies
and clinical development,
would allow the combined
company to better realize the
shared objective of becoming a
fully integrated
biopharmaceutical company;
. the board's view that the
collective resources of the
combined company would enable
the combined company to
compete more effectively in
the highly competitive
regenerative medicine market
and create more opportunities
to realize long term value to
stockholders;
. Ontogeny's strong discovery
engine based on functional
genomics and developmental
biology;
. Reprogenesis' Chondrogel
product candidate which is
currently in Phase III
clinical trials;
. Ontogeny's several pre-
clinical development
programs, some of which may
enter the clinical
development stage in the next
12 to 18 months;
. the board's belief that the
combined entity would have a
stronger discovery pipeline
with product candidates in
the early, late and mid-stage
stages of development;
. access to Reprogenesis'
capabilities in the areas of
clinical development;
. the results of the due
diligence investigation of
Ontogeny and Reprogenesis
conducted by Creative's
management, financial
advisors and attorneys;
. the terms of the merger
agreement, including the
termination fee and
reimbursement of expenses to
be paid by defaulting parties
in the event of a termination
of the merger agreement for
specified reasons;
. the opinion of Chase
Securities, financial advisor
to the Creative board of
directors, to the effect
that, as of February 14,
2000, and based on and
subject to the factors and
assumptions set forth in its
opinion, the Creative
exchange ratio was fair to
the holders of Creative
common stock from a financial
point of view;
. the benefits to Creative
stockholders of holding
shares in a larger and
financially stronger
enterprise;
. the expectation that the
merger could be completed as
a tax-free reorganization for
U.S. federal income tax
purposes; and
. the recent trading price of
the Creative common stock.
The Creative board also considered factors that weighed against the merger,
including:
. the fixed nature of the
exchange ratio and the
resulting risk that should
there be a significant
increase in the market value
of Creative's common stock,
the value of the
consideration received by the
Ontogeny and Reprogenesis
stockholders would be
increased;
. the challenges of combining
the businesses of three
separate companies, including
potential business
disruptions and a potential
negative impact on employee
morale and employee
retention;
. the loss of control over the
future operations of Creative
following the merger;
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. the risk that the anticipated
benefits of the merger would
not be achieved; and
. the termination fee and
reimbursement of expenses to
be paid by Creative in the
event of the termination of
the merger agreement for
specified reasons.
This discussion of the information and factors considered by the Creative
board of directors is not intended to be exhaustive, but includes the material
factors considered. The Creative board did not assign particular weight or rank
to the factors it considered in approving the merger. In considering the
factors described above, individual members of the Creative board considered
all these factors as a whole, and overall considered them to be favorable to
and to support its determination to unanimously approve the merger agreement
and the merger.
In considering the recommendation of the Creative board of directors with
respect to the merger agreement and the merger, Creative stockholders should be
aware that directors and executive officers of Creative have interests in the
merger that are different from, or are in addition to, the interests of
Creative stockholders generally. See "--Interests of Creative Directors and
Executive Officers in the Merger."
Ontogeny's Reasons for the Merger
The Ontogeny board of directors has determined that the terms of the merger
and the merger agreement are fair to, and in the best interests of, Ontogeny
and its stockholders. Accordingly, the Ontogeny board of directors has approved
the merger agreement and the consummation of the merger and recommends that its
stockholders vote FOR approval of the merger agreement and the merger.
In reaching its decision, the Ontogeny board of directors identified several
potential benefits of the merger, the most important of which included:
. the merger will represent a significant step forward in Ontogeny's
strategy of becoming a leader in developing novel therapeutic and
diagnostic products through developmental biology;
. the expectation that the combination of Ontogeny's, Creative's and
Reprogenesis' expertise and resources will provide opportunities to
create an independent, sustainable company with long-term value, near-
term products, product development opportunities and near term product
revenue;
. the potential for accelerated new product development and features for
current and future marketing;
. the greater opportunities for Ontogeny to increase the number of its
collaborative partners as well as grow the Ontogeny network through
relationships with Creative and Reprogenesis affiliates;
. the potential to increase Ontogeny's ability to compete effectively in an
increasingly competitive industry;
. the increased trading liquidity for Ontogeny stockholders may have in
Curis common stock; and
. the expectation that the merger will be treated as a tax-free
reorganization to Ontogeny and its stockholders.
The decision of the Ontogeny board of directors to approve the merger
agreement and the merger was the result of its careful consideration of a range
of strategic alternatives, including an initial public offering as well as
potential business combinations and relationships with Creative and
Reprogenesis and other companies in the pursuit of Ontogeny's long-term
business strategy. In reaching its decision to approve the merger, the Ontogeny
board of directors consulted with Ontogeny's senior management, independent
accountants and financial advisors. Among the factors considered by the
Ontogeny board of directors in its deliberations were the following:
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. the current and prospective economic and industry environment in which
Ontogeny operates, including the trend of consolidation in the
biotechnology industry and the ability of larger industry participants to
increase market share;
. the historical information concerning Creative's and Reprogenesis' and
certain other potential merger candidates' respective businesses,
prospects, financial performance and condition, operations, technologies,
management and competitive positions;
. the comparison of the financial condition and business of Ontogeny before
and after giving effect to a merger;
. financial market conditions and historical stock market prices,
volatility and trading information;
. the impact of the merger on Ontogeny's customers and employees;
. the results of the due diligence investigation of Creative and
Reprogenesis conducted by Ontogeny's management, attorneys and financial
advisors;
. the complementary nature of the product candidates and development base
of Ontogeny, Creative and Reprogenesis;
. the consideration to be received by Ontogeny stockholders in the proposed
merger and the relationship between the value of the Curis common stock
to be issued in exchange for the Ontogeny common and preferred stock and
a comparison of comparable merger transactions;
. the prospects of Ontogeny as an independent, sustainable company;
. the potential for parties, other than Creative and Reprogenesis, to
acquire or enter into strategic relationships with Ontogeny;
. the fairness and reasonableness to Ontogeny of the terms of the merger
agreement and related agreements, which were the product of arm's length
negotiations; and
. the analysis prepared by SG Cowen and presented to the Ontogeny board of
directors and the opinion of SG Cowen, more fully described in "--Opinion
of Ontogeny's Financial Advisor," that as of the date of such opinion and
based on and subject to the assumptions made, matters considered and
limits of the review undertaken, the exchange ratio applicable to the
Ontogeny stockholders in the merger was fair, from a financial point of
view, to the Ontogeny stockholders.
In particular, the Ontogeny board of directors considered the limitations of
Ontogeny's ability to negotiate an alternative transaction with other companies
and the potential effect of these provisions on Ontogeny receiving alternative
proposals that could be superior to the merger. Because the Ontogeny board of
directors reviewed its strategic alternatives prior to entering into the merger
agreement, and because these provisions were required by Creative and
Reprogenesis in order for them to enter into the merger agreement, the Ontogeny
board of directors determined that the value for Ontogeny stockholders
represented by the merger justified these requirements.
The Ontogeny board of directors also identified and considered a number of
uncertainties and risks concerning the merger, including:
. the risk that the per share value of the consideration to be received by
Ontogeny stockholders might be significantly less than the estimated
price per share immediately prior to the announcement of the merger
because previously there has not been a public market for Curis' common
stock;
. the risk that the merger might not be consummated;
. the risk that the benefits sought in the merger might not be achieved;
. the difficulty of and risks associated with the integration of a
different management and organizational structure;
. the risk that Ontogeny might suffer employee attrition or fail to attract
key personnel due to uncertainties associated with the merger;
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. the risks that Ontogeny might face if it remains independent; and
. the other applicable risks described in this joint proxy statement-
prospectus under "Risk Factors" above.
As a result of the foregoing considerations, the Ontogeny board of
directors determined that the potential advantages of the merger outweighed
the benefits of remaining as a separate company. The Ontogeny board of
directors believes that the combined company will have a greater opportunity
than Ontogeny alone to successfully compete in its industry.
In view of the variety of factors considered in connection with its
evaluation of the merger, the Ontogeny board of directors did not find it
practicable to, and accordingly did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, many of the factors contained elements which may have both a
positive and negative effect on the fairness of the merger. Except as
described above, the Ontogeny board of directors, as a whole, did not attempt
to analyze each individual factor separately to determine its impact on the
fairness of the merger. Consequently, individual members of the Ontogeny board
of directors may have given different weight to different factors and may have
viewed differently each factor's effect on the fairness determination.
Moreover, the foregoing discussion of the reasons for the merger is not
intended to be exhaustive.
For the reasons discussed above, the Ontogeny board of directors has
approved the merger agreement and has determined that the merger is advisable
and fair to, and in the best interests of, Ontogeny and its stockholders and
recommends that Ontogeny stockholders vote for approval of the merger
agreement and the merger.
In considering the recommendation of the Ontogeny board of directors with
respect to the merger agreement and the merger, Ontogeny stockholders should
be aware that the directors and executive officers of Ontogeny have interests
in the merger that are different from, or are in addition to, the interests of
Ontogeny stockholders generally. See "--Interests of Ontogeny Directors and
Executive Officers in the Merger."
Reprogenesis' Reasons for the Merger
The board of directors of Reprogenesis believes that the merger offers a
unique opportunity to combine three biotechnology companies with complementary
technologies in the early, middle and late stages of development. In reaching
its decision to approve the merger, the Reprogenesis board of directors
consulted with Reprogenesis' senior management as well as its legal counsel
and financial advisor. In connection with its approval of the merger and
recommendation that stockholders approve the merger, the board of directors of
Reprogenesis considered many factors, including:
. a number of strategic alternatives available to Reprogenesis and the
potential risks and benefits of each alternative;
. the strategic fit of Reprogenesis with Creative and Ontogeny;
. the impact of the merger on Reprogenesis' value, financial performance
and condition, business operations and prospects;
. information concerning the financial performance and condition, business
operations and prospects of Creative and Ontogeny;
. the resulting capital structure of Curis, which should give Curis the
opportunity to pursue its strategic goals in the near term without undue
financial constraint;
. current industry, economic and market conditions;
. the structure of the merger and the terms and provisions of the merger
agreement, including its termination and termination fee provisions;
. the likelihood that the merger will be consummated; and
. in the merger, Reprogenesis stockholders will obtain a freely tradeable
equity investment in Curis on a tax-free basis.
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In determining that the merger was advisable and in the best interests of
Reprogenesis stockholders, the board of directors of Reprogenesis considered
the enumerated factors as a whole and did not quantify or otherwise assign
relative weights to the different factors. The board of directors also
considered that certain members of the board of directors and management of
Reprogenesis have interests in the merger that are in addition to, and not
necessarily aligned with, the interests in the merger of the other Reprogenesis
stockholders. Individual directors may have given different weights to
different factors. Moreover, the foregoing discussion of the reasons for the
merger is not intended to be exhaustive.
In considering the recommendation of the Reprogenesis board of directors
with respect to the merger agreement and the merger, Reprogenesis stockholders
should be aware that directors and executive officers of Reprogenesis have
interests in the merger that are different from, or are in addition to, the
interests of Reprogenesis stockholders generally. See "--Interests of
Reprogenesis Directors and Executive Officers in the Merger."
Recommendation of Creative's Board of Directors
The Creative board of directors has determined that the merger agreement and
the merger are fair to, and in the best interests of, Creative and its
stockholders. Accordingly, the Creative board of directors has unanimously
approved the merger agreement and has unanimously recommended that the Creative
stockholders vote for approval of the merger agreement and the merger.
In considering the recommendation of the Creative board of directors,
Creative stockholders should be aware that the members of the Creative board of
directors and Creative executive officers have interests in the merger that are
different from, or are in addition to, those of Creative's other stockholders,
and Curis has agreed to provide indemnification to all of the directors and
executive officers of Creative. In connection with the merger, some of the
directors and executive officers of Creative are entitled to severance
arrangements. See "--Interests of Creative Directors and Executive Officers in
the Merger".
Opinion of Creative's Financial Advisor
The Creative board of directors retained Chase Securities to act as its
financial advisor in connection with the merger. On February 14, 2000, Chase
Securities delivered its written opinion to the Creative board of directors to
the effect that, as of that date, and based upon the assumptions made, matters
considered and limits of review set forth therein, the Creative exchange ratio
was fair to the holders of the Creative common stock from a financial point of
view.
A copy of Chase Securities' opinion, which sets forth the assumptions made,
matters considered and certain limitations on the scope of review undertaken by
Chase Securities, is attached as Annex C to this joint proxy statement-
prospectus. Stockholders of Creative are urged to read such opinion in its
entirety. Chase Securities' opinion was provided for the use and benefit of the
Creative board of directors in its evaluation of the merger, was directed only
to the fairness to the holders of the Creative common stock of the Creative
exchange ratio from a financial point of view as of February 14, 2000, and does
not constitute a recommendation to any stockholder of Creative as to how such
stockholder should vote with respect to the merger. The summary of Chase
Securities' opinion set forth in this joint proxy statement-prospectus is
qualified in its entirety by reference to the full text of its opinion attached
as Annex C hereto.
In arriving at its opinion, Chase Securities, among other things:
. reviewed a draft of the merger agreement dated February 13, 2000;
. reviewed certain publicly available financial information that Chase
Securities deemed relevant relating to Creative and certain publicly
available business information that Chase Securities deemed relevant
relating to Creative, Ontogeny and Reprogenesis and the industries and
markets in which they operate;
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. reviewed certain internal non-public financial and operating data and
forecasts provided to Chase Securities by the managements of Creative,
Ontogeny and Reprogenesis relating to their respective businesses;
. discussed, with members of the senior managements of Creative, Ontogeny
and Reprogenesis, Creative's, Ontogeny's and Reprogenesis' operations,
historical financial statements and future prospects before and after
giving effect to the merger;
. reviewed the relevant historical stock prices of the Creative common
stock; and
. made such other analyses and examinations as Chase Securities deemed
necessary or appropriate.
Chase Securities assumed and relied upon, without assuming any
responsibility for verification, the accuracy and completeness of all of the
financial and other information provided to, discussed with or reviewed by or
for Chase Securities, or publicly available, for purposes of the Chase
Securities opinion and further relied upon the assurance of the managements of
Creative, Ontogeny and Reprogenesis that they were not aware of any facts that
would make such information inaccurate or misleading. Chase Securities neither
made nor obtained any independent evaluations or appraisals of the assets or
liabilities of Creative, Ontogeny or Reprogenesis, nor did Chase Securities
conduct a physical inspection of the properties and facilities of Creative,
Ontogeny or Reprogenesis. Chase Securities assumed that the financial forecasts
provided to it by Creative, Ontogeny and Reprogenesis were reasonably
determined on bases reflecting the best currently available estimates and
judgments of the managements of Creative, Ontogeny and Reprogenesis as to the
future financial performance of the respective companies. Chase Securities
expressed no view as to such forecasts or projection information or the
assumptions on which they were based.
For purposes of rendering its opinion, Chase Securities assumed that, in all
respects material to its analysis, the representations and warranties of each
party contained in the merger agreement were true and correct, that each party
would perform all of the covenants and agreements required to be performed by
it under the merger agreement and that all conditions to the consummation of
the merger would be satisfied without waiver thereof. Chase Securities further
assumed that all material governmental, regulatory or other consents and
approvals would be obtained and that in the course of obtaining any necessary
governmental, regulatory or other consents and approvals, or any amendments,
modifications or waivers to any documents to which any of Creative, Ontogeny or
Reprogenesis was a party, as contemplated by the merger agreement, no
restrictions would be imposed or amendments, modifications or waivers made that
would have any material adverse effect on the contemplated benefits of the
merger. Chase Securities further assumed that the merger will qualify as a tax-
free reorganization for U.S. federal income tax purposes. Chase Securities also
assumed that the definitive merger agreement would not differ in any material
respects from the draft thereof furnished to it.
In connection with the preparation of its opinion, Chase Securities was not
authorized by Creative or the Creative board of directors to solicit, nor did
Chase Securities solicit, third-party indications of interest for the
acquisition of or a business combination involving Creative.
Chase Securities' opinion was necessarily based on market, economic and
other conditions as they existed and could be evaluated as of the date of the
opinion. Chase Securities' opinion was limited to the fairness, from a
financial point of view, of the Creative exchange ratio to the holders of the
Creative common stock and Chase Securities expressed no opinion as to the
merits of the underlying decision by Creative to engage in the merger. In
addition, Chase Securities expressed no opinion as to the prices at which the
Creative common stock or the Curis common stock would trade following the
announcement or the consummation, as the case may be, of the merger.
The following is a summary of certain financial and comparative analyses
performed by Chase Securities in arriving at its opinion.
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Transaction Overview
Chase Securities reviewed the following information regarding the proposed
merger with the Creative board of directors:
. An overview of the key elements of the proposed transaction, including
the terms of the merger and the composition of the management and board
of directors of the combined new entity.
. A breakdown of a proposed post-merger ownership allocation of the
combined entity with approximately 43% allocated to stockholders of
Creative, 38% to stockholders of Ontogeny and 19% to stockholders of
Reprogenesis, which ownership allocation was calculated using the fully
diluted method excluding out-of-the-money Creative options.
Strategic Benefits
Chase Securities discussed with the Creative board of directors the
strategic benefits of the proposed merger identified to it by the senior
management of Creative, including the factors discussed under "--Joint Reasons
for the Merger" and "--Creative Reasons for the Merger."
Overview of Creative, Ontogeny and Reprogenesis
Chase Securities reviewed with the Creative board of directors certain
information concerning Creative, Ontogeny and Reprogenesis on stand-alone
bases:
. A review of the historical trading prices and trading volume of the
Creative common stock for the period January 1, 1999 through February 4,
2000.
. A review of the financing history of Ontogeny and Reprogenesis, including
the amount raised and the post-money valuation at each financing round
for each company, based on the respective company management data.
. A presentation of estimated revenue, expenses and net income for years
ending December 31, 2000 through 2002 for each company, based on the
respective company management estimates.
. A review of the balance sheet as of December 31, 1999 for each company,
based on the respective company management data.
. An overview of the current ownership of each company, based on the
respective company management data.
Combined Company Analyses
Chase Securities reviewed with the Creative board of directors certain pro
forma impacts on the combined company, including:
. An analysis of relative contribution of cash, cash equivalents and
marketable securities as of December 31, 1999 by Creative (30.1%),
Ontogeny (60.8%) and Reprogenesis (9.1%), based on the respective
company's management data.
. An analysis of relative contribution of operating expenses for year 2000
by Creative (34%), Ontogeny (39%) and Reprogenesis (27%), with and
without giving effect to synergies and based on the respective company's
management estimates.
. Status tables summarizing the current products and technology and the
projected products and technology as of December 31, 2000 of each company
with the corresponding stage of development or projected stage of
development of each such product and technology, based on the respective
company's management data and estimates, as the case may be. The stages
of development are: in-vitro stage, preclinical trials, clinical trials,
regulatory phase and market phase.
. An overview of the status of the products and technology of each company,
for example, Creative's OP-1 product in regulatory phase and open
fracture reduction product and technology in clinical trials,
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Ontogeny's basal cell carcinoma and peripheral neuropathies products and
technology in preclinical trials, and Reprogenesis' vesicoureteral reflux
products and technology in clinical trials and stress incontinence,
bladder augmentation and urethral repair products and technology in
preclinical trials.
. An analysis of the estimated synergies expected to result from the
proposed merger, including potential cost savings in research and
development ($8.4 million), general and administrative expenses ($6.2
million) and total operating expenses ($14.6 million), based on the
respective company's management estimates.
. An estimated fiscal year 2000 through 2002 net income and cash flow for
the combined company, giving effect to synergies through 2002 and
excluding effects of capital expenses and other potential balance sheet
and cash flow items, in each case assuming projected revenues and based
on the respective company's management estimates.
. A comparison of estimated fiscal year 2000 net income of Creative,
Ontogeny and Reprogenesis on stand-alone bases and on a pro forma basis,
with and without giving effect to synergies and transaction costs, in
each case based on the respective company's management estimates.
. A comparison of the survival index, meaning, the length of time that a
company is expected to deplete its available cash based on such company's
management data and assuming no revenue during this period, on stand-
alone bases for Creative (15 months), Ontogeny (28 months) and
Reprogenesis (6 months) and on a pro forma basis, without giving effect
to synergies (16 months) and giving effect to synergies and transaction
costs (20 months).
. An estimated year 2000 and year 2001 pro forma cash flow for the combined
company based on the initial cash contributed by the three companies,
with and without giving effect to synergies and transaction costs and
excluding effects of potential capital expenses and other potential
balance sheet and cash flow items for year 2001 estimates, in each case,
assuming no revenue and based on the respective company's management
estimates.
. An analysis of the dilutive effect on the ownership of Creative to its
existing stockholders of a hypothetical offering of equity securities of
Creative (25.4%), assuming a minimum financing need of $50 million and
10% discount and calculated using the treasury method and based on the
February 4, 2000 closing stock price of the Creative common stock.
The summary set forth above does not purport to be a complete description
of the analyses performed by Chase Securities in arriving at the Chase
Securities opinion. Arriving at a fairness opinion is a complex process not
necessarily susceptible to partial analysis or summary description. Chase
Securities believes that its analyses must be considered as a whole and that
selecting portions of analyses and of the factors considered by it, without
considering all such factors and analyses, could create a misleading view of
the processes underlying its opinion. Chase Securities did not assign relative
weights to any of its analyses in preparing the Chase Securities opinion. The
matters considered by Chase Securities in its analyses were based on numerous
macroeconomic, operating and financial assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond Creative's, Ontogeny's and Reprogenesis' control and
involve the application of complex methodologies and educated judgment. Any
estimates incorporated in the analyses performed by Chase Securities are not
necessarily indicative of actual past or future results or values, which may
be significantly more or less favorable than such estimates. Estimated values
do not purport to be appraisals and do not necessarily reflect the prices at
which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty.
The Creative board of directors selected Chase Securities to act as its
financial advisor on the basis of Chase Securities' reputation as an
internationally recognized investment banking firm with substantial expertise
in transactions similar to the merger and because it is familiar with Creative
and its business. As part of its financial advisory business, Chase Securities
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. The Chase Manhattan Corporation and its affiliates,
including Chase Securities, in the ordinary course of
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<PAGE>
business, have, from time to time, provided commercial and investment banking
services to Creative and Reprogenesis and their affiliates, for which Chase
Securities received usual and customary compensation and in the future may
continue to provide such commercial and investment banking services. In
addition, certain affiliates of Chase Securities hold approximately 15% of the
outstanding capital stock of Reprogenesis. In the ordinary course of business,
Chase Securities or its affiliates may trade in the equity securities of
Creative for its own accounts and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Pursuant to a letter agreement dated February 9, 2000, Creative agreed to
pay Chase Securities the following:
. a fee of $250,000 upon delivery of the Chase Securities opinion; and
. an additional fee of $1,000,000, against which the fee referred to in the
bullet point above will be credited, payable upon the consummation of the
merger, if the merger is consummated during the term of the letter
agreement or within 12 months after the termination or expiration of the
letter agreement.
In addition, Creative has also agreed to reimburse Chase Securities for its
reasonable out-of-pocket expenses (including the fees of its legal counsel) and
to indemnify Chase Securities and certain related persons from and against
certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws, arising out of its engagement.
Recommendation of Ontogeny's Board of Directors
The Ontogeny board of directors has determined that the merger agreement and
the merger are fair to, and in the best interests of, Ontogeny and its
stockholders. Accordingly, the Ontogeny board of directors has approved the
merger agreement and has recommended that the Ontogeny stockholders vote for
approval of the merger agreement and the merger.
In considering the recommendation of the Ontogeny board of directors,
Ontogeny stockholders should be aware that Ontogeny's directors and executive
officers have interests in the merger that are different from, or in addition
to, those of Ontogeny's other stockholders, and Curis has agreed to provide
indemnification to all of the directors and executive officers of Ontogeny. See
"--Interests of Ontogeny Directors and Executive Officers in the Merger."
Opinion of Ontogeny's Financial Advisor
Pursuant to an engagement letter dated January 28, 2000, Ontogeny retained
SG Cowen Securities Corporation ("SG Cowen") to render an opinion to the board
of directors of Ontogeny as to the fairness, from a financial point of view, to
the stockholders of Ontogeny of the exchange ratio received in the merger.
The merger agreement provides that each share of common stock of Ontogeny
and each share of convertible preferred stock (series A through G) of Ontogeny
will be converted into the right to receive 0.2564 (the "Ontogeny Exchange
Ratio") of a share of Curis. On February 14, 2000, SG Cowen delivered certain
of its written analyses and its oral opinion to the Ontogeny board of
directors, subsequently confirmed in writing as of the same date, to the effect
that and subject to the various assumptions set forth therein, as of February
14, 2000, the Ontogeny Exchange Ratio was fair, from a financial point of view,
to the stockholders of Ontogeny. The full text of the written opinion of SG
Cowen, dated February 14, 2000, is attached as Annex D and is incorporated by
reference. Holders of Ontogeny stock are urged to read the opinion in its
entirety for the assumptions made, procedures followed, other matters
considered and limits of the review by SG Cowen. The summary of the written
opinion of SG Cowen set forth herein is qualified in its entirety by reference
to the full text of such opinion. SG Cowen's analyses and opinion were prepared
for and addressed to the Ontogeny board of directors and are directed only to
the fairness, from a financial point of view, of the Ontogeny Exchange Ratio,
and do not constitute an opinion as to the merits of the merger or a
recommendation to any stockholder
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<PAGE>
as to how to vote on the proposed merger. The Ontogeny Exchange Ratio was
determined through negotiations between Ontogeny, Creative and Reprogenesis and
not pursuant to recommendations of SG Cowen.
In arriving at its opinion, SG Cowen reviewed and considered such financial
and other matters as it deemed relevant, including, among other things:
. a draft of the merger agreement;
. certain information for Ontogeny, including its financial statements for
the years ended December 31, 1998 and December 31, 1997, and its
financial information for the ten month period ended October 31, 1999 and
certain other relevant financial and operating data furnished to SG Cowen
by Ontogeny management;
. certain information for Reprogenesis including its consolidated financial
statements for the years ended December 31, 1998 and December 31, 1997,
and its financial information for the year ended December 31, 1999 and
certain other relevant financial and operating data furnished to SG Cowen
by Reprogenesis management;
. certain publicly available information for Creative, including its annual
report filed on Form 10-K for each of the years ended December 31, 1998
and December 31, 1997, and its quarterly reports filed on Form 10-Q for
each of the quarters ended March 31, June 30, and September 30, 1999 and
certain other relevant financial and operating data furnished to SG Cowen
by Creative management;
. certain internal financial analyses, financial forecasts, reports and
other information concerning Ontogeny, Creative and Reprogenesis (the
"Forecasts") prepared by the management of Ontogeny, Creative and
Reprogenesis, respectively;
. First Call estimates and financial projections in securities analyst
reports for Creative;
. discussions SG Cowen has had with certain members of the management of
each of Ontogeny, Creative and Reprogenesis concerning the historical and
current business operations, financial conditions and prospects of
Ontogeny, Creative and Reprogenesis and such other matters that SG Cowen
deemed relevant;
. certain operating results of Ontogeny, Creative and Reprogenesis as
compared to operating results of certain publicly traded companies SG
Cowen deemed relevant;
. certain financial terms of the merger as compared to the financial terms
of certain selected business combinations SG Cowen deemed relevant;
. based on the Forecasts, the cash flows generated by Ontogeny, Creative
and Reprogenesis on a stand-alone basis to determine the present value of
the discounted cash flows;
. certain pro forma financial effects of the merger; and
. such other information, financial studies, analyses and investigations
and such other factors that SG Cowen deemed relevant for the purposes of
this opinion.
In conducting its review and arriving at its opinion, SG Cowen, with
Ontogeny's consent, assumed and relied, without independent investigation, upon
the accuracy and completeness of all financial and other information provided
to it by Ontogeny, Creative and Reprogenesis or which was publicly available.
SG Cowen did not undertake any responsibility for the accuracy, completeness or
reasonableness of, or independently verify, this information. In addition, SG
Cowen did not conduct any physical inspection of the properties or facilities
of Ontogeny, Creative and Reprogenesis. SG Cowen further relied upon the
assurance of management of Ontogeny that they were unaware of any facts that
would make the information provided to SG Cowen incomplete or misleading in any
respect.
SG Cowen, with Ontogeny's consent, assumed that the Forecasts, including the
cash flows used to determine the present value of the discounted cash flows,
were reasonably prepared by the respective managements of Ontogeny, Creative
and Reprogenesis on bases reflecting the best currently available estimates
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<PAGE>
and good faith judgments of such managements as to the future performance of
their respective corporations and that such projections provide a reasonable
basis for its opinion. SG Cowen did not make or obtain any independent
evaluations, valuations or appraisals of the assets or liabilities of Ontogeny,
Creative and Reprogenesis, nor was SG Cowen furnished with these materials.
With respect to all legal matters relating to Ontogeny, Creative and
Reprogenesis, SG Cowen relied on the advice of legal counsel to Ontogeny. SG
Cowen expresses no opinion with respect to any legal matter. SG Cowen's
services to Ontogeny in connection with the merger were comprised solely of
rendering an opinion from a financial point of view of the Ontogeny Exchange
Ratio. SG Cowen's opinion was necessarily based upon economic and market
conditions and other circumstances as they existed and could be evaluated by SG
Cowen on the date of its opinion. It should be understood that although
subsequent developments may affect its opinion, SG Cowen does not have any
obligation to update, revise or reaffirm its opinion and SG Cowen expressly
disclaims any responsibility to do so. Additionally, SG Cowen was not
authorized or requested to, and did not, solicit alternative offers for
Ontogeny or its assets, nor did SG Cowen investigate any other alternative
transactions that may be available to Ontogeny.
In rendering its opinion, SG Cowen assumed, in all respects material to its
analysis, that the representations and warranties of each party contained in
the merger agreement are true and correct, that each party will perform all of
the covenants and agreements required to be performed by it under the merger
agreement and that all conditions to the consummation of the merger will be
satisfied without waiver thereof. SG Cowen assumed that the final form of the
merger agreement would be substantially similar to the last draft received by
SG Cowen prior to rendering its opinion. SG Cowen also assumed that all
governmental, regulatory and other consents and approvals contemplated by the
merger agreement would be obtained and that, in the course of obtaining any of
those consents, no restrictions will be imposed or waivers made that would have
an adverse effect on the contemplated benefits of the merger.
SG Cowen's opinion does not constitute a recommendation to any stockholder
as to how the stockholder should vote on the proposed merger. SG Cowen's
opinion does not imply any conclusion as to the likely trading range for Curis
common stock following consummation of the merger or otherwise, which may vary
depending on numerous factors that generally influence the price of securities.
SG Cowen's opinion is limited to the fairness, from a financial point of view,
of the Ontogeny Exchange Ratio. SG Cowen expresses no opinion as to the
underlying business reasons that may support the decision of Ontogeny's board
of directors to approve, or Ontogeny's decision to consummate, the merger.
The following is a summary of the principal financial analyses performed by
SG Cowen to arrive at its opinion. Some of the summaries of financial analyses
include information presented in tabular format. In order to fully understand
the financial analyses, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses.
Discounted Cash Flow Analysis. SG Cowen estimated a range of equity values
for Ontogeny, Creative and Reprogenesis based upon the discounted present value
of the projected after-tax cash flows described in the forecasts provided by
management of these companies for the fiscal years ended December 31, 2000
through December 31, 2004, and of the terminal values at December 31, 2004
based upon multiples of revenues. Ontogeny and Creative provided alternative
Forecasts, a base case and an upside case. After-tax cash flow was calculated
by taking projected earnings before interest and taxes ("EBIT") and subtracting
from this amount projected taxes, capital expenditures, changes in working
capital and changes in other assets and liabilities and adding back projected
depreciation and amortization. This analysis was based upon certain assumptions
described by, projections supplied by and discussions held with the management
of these companies. In performing this analysis, SG Cowen utilized discount
rates ranging from 25% to 35%. SG Cowen utilized terminal multiples of revenues
ranging from 4.0 times to 6.0 times. This analysis resulted in an implied
ownership in Curis for Ontogeny stockholders of 31.3% to 39.2%.
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Analysis of Selected Precedent Transactions. SG Cowen reviewed the financial
terms, to the extent publicly available, of six transactions (the "Drug
Development Transactions") involving the acquisition of companies in the
biotechnology industry, which were announced or completed since November 3,
1997. These transactions were (listed as acquiror/target):
. Arris Pharmaceutical Corp./Sequana Therapeutics, Inc.
. Corixa Corp./Ribi ImmunoChem Research, Inc.
. Ligand Pharmaceutical, Inc./Seragen, Inc.
. Merck & Co., Inc./SIBIA Neurosciences, Inc.
. Proteus International Plc/Therapeutic Antibodies, Inc.
. T Cell Sciences, Inc./Virus Research Institute, Inc.
SG Cowen reviewed the market capitalization of common stock ("Equity Value")
plus total debt less cash and equivalents ("Enterprise Value") paid in the Drug
Development Transactions as a multiple of latest reported twelve month ("LTM")
revenues and examined the multiples of Equity Value paid in the Drug
Development Transactions to the book value of common shareholders' equity
("Book Value").
The following table presents, for the periods indicated, the multiples
implied by the ratio of Enterprise Value to LTM revenues and the ratio of
Equity Value to Book Value. In calculating the Equity and Enterprise Values of
Ontogeny used in this table and the following table, SG Cowen multiplied the
total number of Curis shares to be issued to Ontogeny stockholders (using the
treasury stock method) by an assumed price per share of Curis stock. The
assumed price per share of Curis stock was calculated by dividing the Creative
stock price on February 11, 2000 by the 0.30 exchange ratio applicable to its
stockholders.
<TABLE>
<CAPTION>
Multiple
Implied by
Exchange
Ratio
Multiples for Drug Received
Development Transactions in the
-------------------------- Merger for
Low Mean Median High Ontogeny
----- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Enterprise Value as a ratio of:
LTM revenues............................ 7.27x 10.47x 10.52x 13.15x 39.01x
Equity Value as a ratio of:
Book Value.............................. 2.4x 3.8x 3.5x 5.3x 5.4x
</TABLE>
Although the Drug Development Transactions were used for comparison
purposes, none of those transactions is directly comparable to the merger, and
none of the companies in those transactions is directly comparable to Ontogeny.
Accordingly, an analysis of the results of such a comparison is not purely
mathematical, but instead involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of the companies involved and other factors that could affect
the acquisition value of such companies or Ontogeny to which they are being
compared.
Analysis of Selected Publicly Traded Companies. To provide contextual data
and comparative market information, SG Cowen compared selected historical
operating and financial data and ratios for Ontogeny to the corresponding
financial data and ratios of selected Early-Stage and Mid-Stage Drug
Development Companies (the "Drug Development Companies") whose securities are
publicly traded and which SG Cowen believes have operating, market valuation
and trading valuations similar to what might be expected of Ontogeny. These
companies were:
Selected Early-Stage and Mid-Stage Drug Development Companies
. Ariad Pharmaceuticals, Inc.
. Axys Pharmaceuticals, Inc.
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. Collateral Therapeutics, Inc.
. Genzyme Molecular Oncology
. Microcide Pharmaceuticals, Inc.
. NeoRx Corp.
The data and ratios included the Enterprise Value of the Drug Development
Companies as a multiple of LTM revenues and the Equity Value of the Drug
Development Companies as a multiple of the Book Value.
The following table presents the multiples implied by the ratio of
Enterprise Value to LTM revenues and Equity Value to Book Value for the Drug
Development Companies and Ontogeny.
<TABLE>
<CAPTION>
Selected Early-Stage and Multiple Implied
Mid-Stage Drug Development by Exchange
Company Multiples Ratio Received
-------------------------- in the Merger
Low Mean Median High for Ontogeny
----- ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Enterprise Value as a ratio of:
LTM revenues..................... 9.25x 17.84x 14.01x 34.09x 39.01x
Equity Value as a ratio of:
Book Value....................... 5.6x 11.0x 8.8x 20.6x 5.4x
</TABLE>
Although the Drug Development Companies were used for comparison purposes,
none of those companies is directly comparable to Ontogeny. Accordingly, an
analysis of the results of such a comparison is not purely mathematical, but
instead involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the Drug
Development Companies and other factors that could affect the public trading
value of the Drug Development Companies or Ontogeny to which they are being
compared.
The summary set forth above does not purport to be a complete description of
all the analyses performed by SG Cowen. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analyses and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. SG Cowen did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, notwithstanding the separate factors summarized above, SG
Cowen believes, and has advised the Ontogeny board of directors, that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the process underlying its opinion.
In performing its analyses, SG Cowen made numerous assumptions with respect to
industry performance, business and economic conditions and other matters, many
of which are beyond the control of Ontogeny. These analyses performed by SG
Cowen are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses or securities may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors. None of Ontogeny, SG Cowen
or any other person assumes responsibility if future results are materially
different from those projected. The analyses supplied by SG Cowen and its
opinion were among several factors taken into consideration by the Ontogeny
board of directors in making its decision to enter into the merger agreement
and should not be considered as determinative of such decision.
SG Cowen was selected by the Ontogeny board of directors to render an
opinion to the Ontogeny board of directors because SG Cowen is a nationally
recognized investment banking firm and because, as part of its investment
banking business, SG Cowen is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of
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listed and unlisted securities, private placements and valuations for corporate
and other purposes. In the ordinary course of our business, SG Cowen and its
affiliates may actively trade the securities of Creative for their own account
and for the accounts of their customers and, accordingly, may at any time hold
a long or short position in such securities.
Pursuant to the SG Cowen engagement letter, Ontogeny has agreed to pay
$750,000 to SG Cowen for rendering its opinion. Additionally, Ontogeny has
agreed to reimburse SG Cowen for its out-of-pocket expenses, including
attorneys' fees, and has agreed to indemnify SG Cowen against certain
liabilities, including liabilities under the federal securities laws. The terms
of the fee arrangement with SG Cowen, which are customary in transactions of
this nature, were negotiated at arm's length between Ontogeny and SG Cowen, and
the Ontogeny board of directors was aware of the arrangement.
Recommendation of Reprogenesis' Board of Directors
The Reprogenesis board of directors has determined that the merger agreement
and the merger are fair to, and in the best interests of, Reprogenesis and its
stockholders. Accordingly, the Reprogenesis board of directors has unanimously
approved the merger agreement and has unanimously recommended that the
Reprogenesis stockholders vote for approval of the merger agreement and the
merger.
In considering the recommendation of the Reprogenesis board of directors,
Reprogenesis stockholders should be aware that the members of the Reprogenesis
board of directors and Reprogenesis executive officers have interests in the
merger that are different from, or in addition to, those of Reprogenesis' other
stockholders, and Curis has agreed to provide indemnification to all of the
directors and executive officers of Reprogenesis. In connection with the
merger, some of the directors and executive officers of Reprogenesis are
entitled to severance arrangements. See "--Interests of Reprogenesis Directors
and Executive Officers in the Merger."
Interests of Creative Directors and Executive Officers in the Merger
In considering the recommendation of the board of directors of Creative to
vote for the proposal to adopt the merger agreement, stockholders of Creative
should be aware that members of the Creative board of directors and Creative's
executive officers have agreements or arrangements that provide them with
interests in the merger that differ from those of other Creative stockholders.
The Creative board of directors was aware of these agreements and arrangements
during its deliberations of the merits of the merger and in determining to
recommend to the stockholders of Creative that they vote for the proposal to
adopt the merger agreement.
Governance Structure of Curis. Pursuant to the terms of the merger
agreement, upon completion of the merger the board of directors of Curis will
be initially comprised of seven individuals, three of whom will be designated
by Creative, namely, James R. Tobin, Michael Rosenblatt and Martyn D.
Greenacre.
Key Employee Employment Agreements. Creative has entered into employment
agreements with a number of its executive officers, namely Michael M. Tarnow,
Charles Cohen, Cheryl K. Lawton, Steven L. Basta and Carl M. Cohen. These
officers will be entitled to severance payments equal to one year of their base
compensation upon the termination of their employment following the merger.
Creative Stock Options. As of March 9, 2000, Creative's executive officers
and directors, and their respective affiliates, held options to purchase
3,625,302 shares of Creative common stock, at exercise prices ranging from
$2.03 to $10.06 per share, all of which were vested. On February 8, 2000, the
Creative board of directors approved amendments to some of the stock option
agreements of its directors and executive officers to provide for the immediate
acceleration of all of their unvested stock options and to provide that upon
such person's termination of employment or removal from the board of directors,
as applicable, in connection with the merger, all vested stock options will
remain exercisable for up to one year following the date of such termination or
removal, as applicable.
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On February 8, 2000, Creative loaned to two executive officers an aggregate
of $1,131,380, which was equal to the aggregate exercise price of incentive
stock options exercised by them on the same date. The officers immediately used
these funds to pay Creative the exercise price of such incentive stock options.
These full recourse loans each bear interest at an annual rate of 7.0% and the
principal is due and payable on the earlier of May 8, 2002 or 30 days following
the sale of the stock purchased with these funds.
Indemnification and Insurance. The merger agreement provides that, upon
completion of the merger, Curis will honor Creative's obligations to indemnify
and provide advancement of expenses to its current and former directors and
officers for acts or omissions occurring prior to the completion of the merger
to the fullest extent permitted by law. The obligation of Curis will continue
until the later of the expiration of the applicable statute of limitations with
respect to any claims or, in the case of claims made prior to the expiration of
the applicable statute of limitations, the final disposition of such claims.
The merger agreement also provides that, upon completion of the merger, Curis
will maintain, for a period of six years after completion of the merger,
directors' and officers' liability insurance policies covering the current
persons covered by the policies of directors' and officers' liability insurance
maintained by Creative on terms no less favorable to those persons as the
present policies of directors' and officers' liability insurance maintained by
Creative.
Interests of Ontogeny Directors and Executive Officers in the Merger
In considering the recommendations of the Ontogeny board of directors to
vote for the proposal to adopt the merger agreement, Ontogeny stockholders
should be aware that the executive officers and directors of Ontogeny have
interests in the merger that differ from, or are in addition to, those of other
Ontogeny stockholders. The Ontogeny board of directors was aware of these
potential conflicts and considered them in reaching its decision to approve the
merger agreement and recommend that Ontogeny stockholders vote for approval of
the merger agreement and the merger.
Governance Structure of Curis. Pursuant to the terms of the merger
agreement, upon completion of the merger, the board of directors of Curis will
be initially comprised of seven individuals, three of whom will be designated
by Ontogeny, namely Dr. Platika, Ruth B. Kunath and Douglas A. Melton. In
addition, some of Ontogeny's executive officers will serve as executive
officers of Curis, including Dr. Platika, Lee L. Rubin, George A. Eldridge and
Bruce A. Leicher.
Ontogeny Restricted Stock and Options Being Assumed by Curis. As of March 9,
2000, Ontogeny's executive officers and directors, and their respective
affiliates, held 207,085 shares of restricted stock and options to purchase
2,291,040 shares of Ontogeny common stock, at exercise prices ranging from
$0.10 to $4.00 per share, of which 50,556 shares of such restricted stock and
1,341,111 options were unvested. Upon the closing of the merger, the directors
will receive acceleration of 185,750 shares subject to options granted to them
and Dr. Platika will receive acceleration of 406,667 shares subject to options
granted to him and pursuant to restricted stock agreements.
Employment Agreements. On June 17, 1996, Ontogeny entered into an employment
agreement with Dr. Platika, its president and chief executive officer. The
agreement entitles him to severance equal to twelve months of his most recent
salary and the forgiveness of the then outstanding principal balance on a loan
in the original principal amount of $500,000 from Ontogeny to him in the event
of his termination without cause by Ontogeny or its successor.
Indemnification and Insurance. The merger agreement provides that, upon
completion of the merger, Curis will honor Ontogeny's obligations to indemnify
and provide advancement of expenses to its current and former directors and
officers for acts or omissions occurring prior to the completion of the merger
to the fullest extent permitted by law. The obligation of Curis will continue
until the later of the expiration of the applicable statute of limitations with
respect to any claims or, in the case of claims made prior to the expiration of
the applicable statute of limitations, the final disposition of such claims.
The merger agreement also provides that, upon completion of the merger, Curis
will maintain, for a period of six years after completion of the merger,
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directors' and officers' liability insurance policies covering the current
persons covered by the policies of directors' and officers' liability insurance
maintained by Ontogeny on terms no less favorable to those persons as the
present policies of directors' and officers' liability insurance maintained by
Ontogeny.
Interests of Reprogenesis Directors and Executive Officers in the Merger
In considering the recommendation of the board of directors of Reprogenesis
to vote for the proposal to adopt the merger agreement, stockholders of
Reprogenesis should be aware that some of the board of directors and executive
officers of Reprogenesis have agreements or arrangements that provide them with
interests in the merger that differ from those of other Reprogenesis
stockholders. The Reprogenesis board of directors was aware of these agreements
and arrangements during its deliberations of the merits of the merger and in
determining to recommend to the stockholders of Reprogenesis that they vote for
the proposal to adopt the merger agreement.
Governance of Curis. Pursuant to the terms of the merger agreement, upon
completion of the merger, the board of directors of Curis will be initially
comprised of seven individuals, one of whom, James R. McNab, Jr., will be
designated by Reprogenesis. In addition, some of Reprogenesis' executive
officers will serve as executive officers of Curis, including James S. Sigler
and Lynn G. Baird.
Key Employee Agreements. Reprogenesis has entered into agreements with a
number of its key employees, namely Dr. Omstead, Dr. Baird, Mr. Sigler, Frank
T. Gentile, Kermit M. Borland and Michael P. Gray. Under these agreements,
these employees will be entitled to severance payments ranging in amount from
three months to one year of their base compensation upon their termination
without cause or termination by them for good reason. Good reason generally
includes a material change or diminution in their responsibilities or duties
and, in some instances, relocation. Because Dr. Omstead will not be employed by
Curis following the merger, he will be entitled to severance payments equal to
one year of his base compensation upon the termination of his employment.
Reprogenesis Stock Options and Restricted Shares. As of March 9, 2000,
Reprogenesis' executive officers and directors, and their respective
affiliates, held 300,000 shares of restricted stock and options to purchase
1,094,955 shares of Reprogenesis common stock at exercise prices ranging from
$0.10 to $2.50 per share, of which 246,875 options were unvested. All but
10,000 of these unvested options will accelerate and become immediately vested
upon the closing of the merger. The restrictions on all the shares of
Reprogenesis restricted stock will terminate, and the holder of such shares
will have a vested right in such shares, upon the closing of the merger. In
addition, the Reprogenesis board of directors approved amendments to the stock
option agreements of its directors and executive officers to provide that upon
their termination of employment or other business relationship with
Reprogenesis for any reason other than death, disability or the acceptance of
other employment with Reprogenesis, all stock options held by them will remain
exercisable for the option period specified in the stock option agreements.
Reprogenesis has also agreed to loan to Dr. Omstead $206,000 to be used to pay
taxes in connection with a restricted stock award to Dr. Omstead. Such loan
does not bear interest and is payable upon Dr. Omstead's receipt of severance
benefits.
Indemnification and Insurance. The merger agreement provides that, upon
completion of the merger, Curis will honor Reprogenesis' obligations to
indemnify and provide advancement of expenses to its current and former
directors and officers for acts or omissions occurring prior to the completion
of the merger to the fullest extent permitted by law. The obligation of Curis
will continue until the later of the expiration of the applicable statute of
limitations with respect to any claims or, in the case of claims made prior to
the expiration of the applicable statute of limitations, the final disposition
of such claims. The merger agreement also provides that, upon completion of the
merger, Curis will maintain, for a period of six years after completion of the
merger, directors' and officers' liability insurance policies covering the
current persons covered by the policies of directors' and officers' liability
insurance maintained by Reprogenesis on terms no less favorable to those
persons as the present policies of directors' and officers' liability insurance
maintained by Reprogenesis.
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Completion and Effectiveness of the Merger
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including the adoption of the merger agreement
by the stockholders of Creative, Ontogeny and Reprogenesis. The merger will
become effective upon the filing of a certificate of merger with the Secretary
of State of the State of Delaware and the articles of merger with the Secretary
of State of the State of Texas.
We are working towards completing the merger as quickly as possible. We
expect to complete the merger in June 2000.
Structure of the Merger and Conversion of Creative, Ontogeny and Reprogenesis
Stock
Structure. To accomplish the combination of their businesses, Creative,
Ontogeny and Reprogenesis formed a new company, Curis, Inc. After the merger,
Curis initially will be owned approximately 43% by the stockholders of
Creative, approximately 38% by the stockholders of Ontogeny and approximately
19% by the stockholders of Reprogenesis. At the time the merger is completed,
Creative, Ontogeny and Reprogenesis will merge with and into Curis, the
separate corporate existence of each of Creative, Ontogeny and Reprogenesis
shall cease and Curis shall, as the surviving corporation in the merger,
continue its existence under the provisions of the Delaware General Corporation
Law.
Conversion of Creative, Ontogeny and Reprogenesis Stock. When the merger is
completed:
. Creative common stockholders will receive 0.3 shares of Curis common
stock for each share they own;
. Ontogeny stockholders will receive 0.2564 shares of Curis common stock
for each share of common stock and preferred stock they own;
. Holders of the capital stock of Reprogenesis or options or warrants to
acquire the capital stock of Reprogenesis will be entitled to receive an
aggregate number of shares of Curis common stock (either upon the
completion of the merger or subsequent thereto upon exercise of such
options and warrants) equal to 0.1956 multiplied by the total number of
shares of Reprogenesis capital stock outstanding or subject to options or
warrants at the time of the merger. These shares of Curis common stock
are referred to as the Reprogenesis fully diluted merger consideration.
In addition to the number of shares that each holder of Reprogenesis
series A preferred stock will receive as discussed below, each holder of
Reprogenesis series A preferred stock will receive for each share of
Reprogenesis series A preferred stock that they own a number of shares of
Curis common stock equal to the Reprogenesis series A consideration
divided by 2,702,702. The Reprogenesis series A consideration is the
lesser of (A) that number of shares of Curis common stock whose aggregate
trailing average market price is equal to $6 million and (B) the
Reprogenesis fully diluted merger consideration. The trailing average
market price for a share of Curis common stock is the average of the last
reported sales price of Creative common stock or, in case no such
reported sales take place on such day, the average of the reported bid
and asked prices of Creative common stock, or, if the bid and asked
prices are not reported on such day, the value of the Creative common
stock as reasonably determined in good faith by the Reprogenesis board of
directors, on each of the 20 consecutive business days ending on the
fifth day prior to the merger, divided by 0.3. After payment of the
Reprogenesis series A consideration, the holders of Reprogenesis common
stock, series A preferred stock and series B preferred stock will receive
for each share of Reprogenesis common stock, series A preferred stock and
series B preferred stock that they own a number of shares of Curis common
stock equal to 0.1956 multiplied by a fraction, the numerator of which is
the Reprogenesis fully diluted merger consideration less the Reprogenesis
series A consideration and the denominator of which is the Reprogenesis
fully diluted merger consideration.
The exchange ratios set forth in the merger agreement used to calculate the
number of shares of Curis stock issuable in the merger will be correspondingly
adjusted for any stock split, stock dividend or similar event with respect to
the Curis common stock or capital stock of Creative, Ontogeny or Reprogenesis
effected between the date of the merger agreement and the effective time of the
merger.
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Book-Entry Accounts
When the merger is completed, the exchange agent will mail to you a letter
of transmittal and instructions for use in surrendering your Creative, Ontogeny
or Reprogenesis stock certificates. Physical certificates representing shares
of Curis common stock will not be issued as a result of the merger. Rather than
issuing physical certificates for shares of Curis common stock, the exchange
agent will credit such shares to book-entry accounts maintained by the transfer
agent for the benefit of the respective holders upon surrender of Creative,
Ontogeny or Reprogenesis stock certificates. This method of holding stock
eliminates the need for actual stock certificates to be issued and eliminates
the requirements for physical movement of Curis stock certificates at the time
of the merger. Promptly following the crediting of shares to your respective
book-entry accounts, you will receive a stock distribution statement from the
exchange agent evidencing your holdings, as well as general information on the
book-entry form of ownership.
You are not required to maintain a book-entry account, and you may obtain a
stock certificate for all or a portion of your Curis shares received as part of
the merger at no cost to you. Instructions describing how you can obtain stock
certificates will be included with the stock distribution statement mailed to
you.
Creative, Ontogeny and Reprogenesis stockholders will receive payment in
cash, without interest, in lieu of any fractional shares of Curis stock which
would have been otherwise issuable to them as a result of the merger.
Treatment of Creative, Ontogeny and Reprogenesis Stock Options
When the merger is completed, each outstanding Creative stock option,
Ontogeny stock option and Reprogenesis stock option will automatically and
without any action by the option holder be converted into an option to purchase
a number of shares of Curis common stock equal to the number of shares that
would have been obtained before the merger upon exercise of the option,
multiplied by the relevant exchange ratio or formula. The exercise price per
share of Curis common stock will be equal to the exercise price per share
before the conversion divided by the relevant exchange ratio or formula. The
other terms and conditions of each Creative, Ontogeny and Reprogenesis option
will continue to apply.
Promptly following completion of the merger, Curis will file a registration
statement covering the shares of Curis common stock subject to each Creative,
Ontogeny and Reprogenesis option and will maintain the effectiveness of that
registration statement for as long as any of the options remain outstanding.
Treatment of Outstanding Warrants
Treatment of Reprogenesis Warrants. When the merger is completed, pursuant
to the terms of each outstanding warrant to purchase Reprogenesis common stock
(except for the warrant to purchase 21,667 shares of Reprogenesis common stock
held by TBCC Funding Trust II), if the value of the Curis common stock that is
issuable as a result of the merger with respect to shares of the Reprogenesis
common stock exceeds the stock purchase price (as defined in the warrant), the
warrant will expire unless exercised prior to the completion of the merger. To
the extent there are any outstanding warrants to purchase Reprogenesis common
stock at the completion of the merger that have not expired, each of these
warrants will automatically and without any action by the warrant holder be
converted into a warrant to acquire a number of shares of Curis common stock
equal to the number of shares that would have been obtained before the merger
upon exercise of the warrant multiplied by the number obtained from the
Reprogenesis formula described on page 54. The exercise price per share of
Curis common stock will be equal to the exercise price per share before the
conversion divided by the number obtained from the Reprogenesis formula
described on page 54. The other terms and conditions of the Reprogenesis
warrants will continue to apply.
Treatment of Ontogeny Warrants. When the merger is completed, each
outstanding warrant to purchase Ontogeny common stock will automatically and
without any action by the warrant holder be converted into a warrant to
acquire, a number of shares of Curis common stock equal to the number of shares
that would have
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been obtained before the merger upon exercise of the warrant multiplied by the
Ontogeny exchange ratio. The exercise price per share of Curis common stock
will be equal to the exercise price per share before the conversion divided by
the Ontogeny exchange ratio. The other terms and conditions of the Ontogeny
warrants will continue to apply.
Material United States Federal Income Tax Consequences of the Merger
In connection with the merger, Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., will deliver to Creative and Creative's stockholders an opinion
regarding the material United States federal income tax consequences of the
merger to Creative's common stockholders. In connection with the merger, Baker
Botts L.L.P. will deliver to Reprogenesis and Reprogenesis' stockholders an
opinion regarding the material United States federal income tax consequences of
the merger to Reprogenesis' common stockholders and preferred stockholders. In
connection with the merger, Foley, Hoag & Eliot LLP will deliver to Ontogeny
and Ontogeny's stockholders an opinion regarding the material United States
federal income tax consequences of the merger to Ontogeny's common stockholders
and preferred stockholders.
Generally. The following discussion summarizes the opinions of Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., counsel to Creative, Baker Botts L.L.P.,
counsel to Reprogenesis, and Foley, Hoag & Eliot LLP, counsel to Ontogeny, as
to material United States federal income tax considerations generally
applicable to United States holders of Creative common stock, Reprogenesis
common and preferred stock, and Ontogeny common and preferred stock who,
pursuant to the merger, exchange their stock for Curis common stock and, if
applicable, cash paid in lieu of a fractional share of Curis common stock. The
discussion is based on and subject to the Internal Revenue Code, Treasury
Regulations under the Internal Revenue Code, and existing judicial and
administrative rulings and decisions, each as of the date of this joint proxy
statement-prospectus, all of which are subject to change (possibly with
retroactive effect) and all of which are subject to differing interpretation.
This discussion and the opinion of each of Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., Baker Botts L.L.P. and Foley, Hoag & Eliot LLP do not
purport to address all aspects of federal income taxation that may affect
particular stockholders in light of their individual circumstances. In
addition, they do not address any tax consequences to stockholders subject to
special rules under federal income tax law. Examples of such holders include
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, foreign individuals or entities, stockholders who hold their stock as
part of a hedge, appreciated financial position, straddle or conversion
transaction, stockholders who do not hold their stock as capital assets and
stockholders who have acquired their stock on the exercise of employee stock
options or otherwise as compensation. In addition, this discussion and such
opinions do not consider the effect of any applicable state, local, or foreign
tax laws. Each Creative, Reprogenesis, and Ontogeny stockholder is urged to
consult its tax advisor with respect to the specific tax consequences of the
merger to it, including the effect of United States federal, state, and local
and foreign and other tax laws, and the effect of possible changes in the tax
laws.
Creative, Reprogenesis, Ontogeny and Curis have not requested, and do not
plan to request, any rulings from the Internal Revenue Service concerning the
tax treatment of Creative, Reprogenesis, Ontogeny, or Curis with respect to the
merger. The statements in this joint proxy statement-prospectus and the opinion
of each of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Baker Botts
L.L.P., and Foley, Hoag & Eliot LLP are not binding on the Internal Revenue
Service or a court. As a result, neither Creative, Reprogenesis, Ontogeny, nor
Curis can assure you that the tax considerations or opinions contained in this
discussion will not be challenged by the Internal Revenue Service or sustained
by a court if challenged by the Internal Revenue Service.
It is a condition of the obligations of each of Creative, Reprogenesis and
Ontogeny to effect the merger, that its counsel will deliver an opinion based
on facts, representations, and assumptions stated in that opinion to the effect
that for federal income tax purposes, the merger will constitute a tax-free
reorganization, or a part of a tax-free reorganization, within the meaning of
Section 368(a) of the Internal Revenue Code.
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Assuming the merger is treated as described in the above opinions, there
will be the following tax consequences:
Tax Consequences to Creative, Reprogenesis, Ontogeny and Curis. For federal
income tax purposes, no gain or loss will be recognized by each of Creative,
Reprogenesis, Ontogeny, and Curis.
Tax Consequences to Creative, Reprogenesis and Ontogeny Stockholders. For
federal income tax purposes, (i) no gain or loss will be recognized by the
stockholders of each of Creative, Reprogenesis and Ontogeny upon the conversion
of their shares of Creative, Reprogenesis and Ontogeny stock, respectively,
into shares of Curis common stock, (ii) the aggregate tax basis of the shares
of Curis common stock received in exchange for the Creative, Reprogenesis and
Ontogeny stock pursuant to the merger (including a fractional share of Curis
common stock for which cash is received) will be the same as the aggregate tax
basis of such shares of Creative, Reprogenesis and Ontogeny stock,
respectively, (iii) the holding period for the shares of Curis common stock
received in exchange for shares of Creative, Reprogenesis and Ontogeny stock
will include the holder's holding period for such shares of Creative,
Reprogenesis and Ontogeny stock, respectively, and (iv) a stockholder of
Creative, Reprogenesis or Ontogeny who receives cash in lieu of a fractional
share of Curis common stock will recognize gain (or loss) equal to the
difference, if any, between the cash payment received and the portion of the
tax basis in the Curis common stock received that is allocable to such
fractional share. Such gain (or loss) will be a long-term capital gain (or
loss) if such fractional share of Curis common stock is considered to have been
held for more than one year at the effective time.
The opinions described above do not apply to stockholders who exercise
appraisal rights (in the case of Ontogeny stockholders) or dissenter's rights
(in the case of Reprogenesis stockholders). A holder of Reprogenesis stock or
Ontogeny stock who exercises dissenter's rights or appraisal rights with
respect to the merger and receives cash for shares of Reprogenesis or Ontogeny
stock will generally recognize capital gain (or loss) measured by the
difference between the amount of cash received and the stockholder's basis in
those shares, provided that the payment is not treated as a dividend pursuant
to Section 302 of the Internal Revenue Code or otherwise. A sale of shares
based on an exercise of dissenter's rights or appraisal rights generally will
not be treated as a dividend if the stockholder exercising dissenter's rights
or appraisal rights owns no shares of Curis immediately after the merger, after
giving effect to the constructive ownership rules pursuant to the Internal
Revenue Code. The capital gain or loss will be long-term capital gain or loss
if the holder's holding period for the shares is more than one year.
If the Internal Revenue Service were to successfully challenge the
"reorganization" status of the merger, each Creative, Reprogenesis and Ontogeny
stockholder would recognize taxable gain (or loss) with respect to the
Creative, Reprogenesis or Ontogeny stock surrendered, measured by the
difference between (i) the fair market value, as of the time of the merger, of
the Curis common stock received in the merger, and (ii) the stockholder's tax
basis in the Creative, Reprogenesis or Ontogeny stock surrendered therefor in
the merger. In such event, a stockholder's aggregate basis in the Curis common
stock so received would equal its fair market value as of the time of the
merger and the holding period for such stock would begin the day after the
merger.
Creative, Reprogenesis and Ontogeny stockholders will be required to attach
a statement to their tax returns for the year of the merger that contains the
information listed in Treasury Regulation Section 1.368-3(b). That statement
must include the stockholder's tax basis in the stockholder's Creative,
Reprogenesis or Ontogeny stock and a description of the Curis common stock
received therefor. Creative, Reprogenesis and Ontogeny stockholders are urged
to consult their tax advisors with respect to this statement and any other tax
reporting requirements.
Certain noncorporate holders of Creative, Reprogenesis and Ontogeny stock
may be subject to backup withholding at a rate of 31% on cash payments received
in lieu of a fractional share of Curis common stock or upon the exercise of
dissenter's rights or appraisal rights (in the case of Reprogenesis and
Ontogeny stockholders). Backup withholding will not apply, however, to a
stockholder who (1) furnishes a correct taxpayer identification number and
certifies that it is not subject to backup withholding on the substitute W-9 or
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successor form included in the letter of transmittal to be delivered to
Creative, Reprogenesis and Ontogeny stockholders following the completion of
the merger, (2) provides a certification of foreign status on Form W-8 or
successor form, or (3) is otherwise exempt from backup withholding.
The foregoing discussion is not intended to be a complete analysis or
description of all potential United States federal income tax consequences or
any other consequences of the merger. In addition, the discussion does not
address tax consequences which may vary with, or are contingent on, a
stockholder's individual circumstances. Accordingly, we urge Creative,
Ontogeny and Reprogenesis stockholders to consult their own tax advisors as to
the specific consequences to them of the merger, including the applicable
federal, state, local and foreign tax consequences of the merger.
Accounting Treatment of the Merger
The merger will be accounted for under the purchase method of accounting
for business combinations.
Restrictions on Sales of Shares by Affiliates of Creative, Ontogeny and
Reprogenesis
The shares of Curis common stock to be issued in connection with the merger
will be registered under the Securities Act of 1933 and will be freely
transferable under the Securities Act, except for shares of common stock
issued to any person who is deemed to be an "affiliate" of any of Creative,
Ontogeny and Reprogenesis at the time of the special meetings. Persons who may
be deemed to be affiliates include individuals or entities that control, are
controlled by, or are under the common control of any of Creative, Ontogeny
and Reprogenesis and may include our executive officers and directors, as well
as our significant stockholders. Affiliates may not sell their shares of Curis
common stock acquired in connection with the merger except pursuant to:
. an effective registration statement under the Securities Act covering the
resale of those shares;
. an exemption under paragraph (d) of Rule 145 under the Securities Act; or
. any other applicable exemption under the Securities Act.
Curis' registration statement on Form S-4, of which this joint proxy
statement-prospectus forms a part, does not cover the resale of shares of
Curis common stock to be received by such affiliates in the merger.
Nasdaq National Market Listing of Curis Common Stock to be Issued in the
Merger
Curis will file a listing application with the Nasdaq National Market to
cause the shares of Curis common stock to be issued in connection with the
merger to be listed for trading on the Nasdaq National Market under the symbol
"CRIS."
Appraisal/Dissenters' Rights
Delaware Appraisal Rights Applicable to Ontogeny's Stockholders. The
following summary of the provisions of Section 262 of the Delaware General
Corporation Law is not intended to be a complete statement of the provisions
and is qualified in its entirety by reference to the full text of Section 262
of the Delaware General Corporation Law, copies of which are attached to this
joint proxy statement-prospectus as Annex F and is incorporated into this
summary by reference.
Under Delaware law, Creative stockholders are not entitled to appraisal
rights in connection with the merger. However, holders of Ontogeny common
stock and preferred stock are entitled to appraisal rights under Delaware law.
If the merger is approved by the required vote of Ontogeny's stockholders,
each holder of Ontogeny common stock and preferred stock who (1) files written
notice with Ontogeny of an intention to exercise rights to appraisal of his,
her or its shares prior to the Ontogeny special meeting, and (2) does not vote
in favor of the merger and who follows the procedures set forth in Section
262, will be entitled to have his or her Ontogeny
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common stock or preferred stock purchased by the surviving corporation for cash
at the fair market value of the shares of Ontogeny common stock or preferred
stock, as the case may be. The fair market value of shares of Ontogeny common
stock and preferred stock will be determined by the Delaware Court of Chancery,
exclusive of any element of value arising from the merger. The shares of
Ontogeny common stock and preferred stock with respect to which holders have
perfected their appraisal rights in accordance with Section 262 and have not
effectively withdrawn or lost their appraisal rights are referred to in this
joint proxy statement-prospectus as the "dissenting shares."
Within ten days after the effective date of the merger, Curis, as the
surviving corporation in the merger, must mail a notice to all stockholders who
have complied with (1) and (2) above notifying such stockholders of the
effective date of the merger. Within 120 days after the effective date, holders
of Ontogeny common stock and preferred stock may file a petition in the
Delaware Court of Chancery for the appraisal of their shares, although they
may, within 60 days of the effective date, withdraw their demand for appraisal.
Within 120 days of the effective date, the holders of dissenting shares may
also, upon written request, receive from Curis a statement setting forth the
aggregate number of shares with respect to which demands for appraisals have
been received.
If any holder of Ontogeny common stock or preferred stock who demands the
appraisal and purchase of his or her shares under Section 262 fails to perfect,
or effectively withdraws or loses the right to the purchase, his or her shares
will be converted into a right to receive a number of shares of Curis common
stock, in accordance with the terms of the merger agreement. Dissenting shares
lose their status as dissenting shares if:
. the merger is abandoned;
. the shares are transferred prior to their submission for the required
endorsement;
. the dissenting stockholder fails to make a timely written demand for
appraisal;
. the dissenting shares are voted in favor of the merger;
. neither Ontogeny nor the stockholder files a complaint or intervenes in a
pending action within 120 days after mailing of the approval notice; or
. the stockholder delivers to Curis, as the surviving corporation, a
written withdrawal of the stockholder's demand for appraisal of the
dissenting shares.
Failure to follow the steps required by Section 262 of the Delaware General
Corporation Law for perfecting appraisal rights may result in the loss of
appraisal rights, in which event an Ontogeny stockholder will be entitled to
receive the consideration with respect to the holder's dissenting shares in
accordance with the merger agreement. In view of the complexity of the
provisions of Section 262 of the Delaware General Corporation Law, stockholders
who are considering objecting to the merger should consult their own legal
advisors.
Texas Dissenters' Rights Applicable to Reprogenesis Stockholders. Any
stockholder of record of Reprogenesis may exercise dissenters' rights in
connection with the merger by properly complying with the requirements of
Articles 5.11, 5.12 and 5.13 of the Texas Business Corporation Act. By
exercising dissenter's rights, any such stockholder would have the "fair value"
of his shares of Reprogenesis common or preferred stock, as the case may be,
determined by a court and paid to him in cash, instead of receiving Curis
common stock. The following is a general summary of dissenters' rights and is
qualified by its entirety by reference to Articles 5.11, 5.12 and 5.13 of the
Texas Business Corporation Act. The full text of these articles is set forth in
Annex G. You should read Annex G in its entirety for more complete information
concerning your right to dissent from the merger.
Each holder of shares of Reprogenesis common stock or preferred stock
outstanding as of the record date for the special stockholders' meeting to be
held by Reprogenesis for purposes of approving the merger agreement who follows
the procedures set forth in Articles 5.11, 5.12 and 5.13 of the Texas Business
Corporation Act will be entitled to demand the purchase of that stockholder's
shares of Reprogenesis common
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stock or preferred stock for a purchase price equal to the fair value of that
holder's shares. Under Texas law, fair value of shares for purposes of the
exercise of dissenter's rights is defined as the value of the shares as of the
day immediately preceding the day the vote is taken authorizing the merger,
excluding any appreciation or depreciation in value of the shares in
anticipation of the proposed merger.
In order to be entitled to exercise dissenters' rights, a stockholder must
file a written objection to the merger with Reprogenesis prior to the date of
the stockholders meeting called to consider the merger. The written objection
must state such stockholder will exercise his right to dissent if the merger
becomes effective and give the stockholder's address where notice of the
effectiveness of the merger should be delivered or mailed. Reprogenesis
stockholders who desire to exercise their dissenters' rights should send this
written objection to Reprogenesis, 21 Erie Street, Suite 22, Cambridge,
Massachusetts 02139, Attention: Secretary. Neither a proxy nor a vote against
the merger are sufficient to constitute a written objection as required under
the Texas Business Corporation Act.
If the merger is approved by the Reprogenesis stockholders and subsequently
becomes effective, within 10 days of the effectiveness of the merger, Curis
must deliver or mail notice of the effectiveness of the merger to each
dissenting stockholder that did not vote in favor of the merger. Any dissenting
stockholder that did not vote in favor of the merger may then make a written
demand on Curis for the payment of the fair value of the stockholder's shares
within 10 days from the delivery or mailing of the notice of Curis. Such demand
must state the number and class of shares of Reprogenesis stock owned by the
dissenting stockholder and the dissenting stockholder's estimate of the fair
value of his Reprogenesis stock. Any stockholder that fails to make such a
demand within the 10-day period will lose the right to dissent and will be
bound by the terms of the merger. In order to preserve dissenters' rights,
within 20 days of making a demand for payment, a dissenting stockholder must
also submit such stockholder's stock certificates to Curis for the appropriate
notation of the demand. Curis at its option may terminate the dissenting
stockholder's rights under Article 5.12 of the Texas Business Corporation Act
for failure to submit the stock certificates within the 20-day period unless a
court of competent jurisdiction directs otherwise upon a showing to the court
that there is good and sufficient cause.
Within 20 days of receipt of a proper demand for payment by a dissenting
Reprogenesis stockholder, Curis must deliver or mail to the dissenting
stockholder written notice that either (1) Curis accepts the amount the
dissenting stockholder claimed and agrees to pay the amount of the
stockholder's demand within 90 days after the effectiveness of the merger upon
receipt of the dissenting stockholder's duly endorsed Reprogenesis share
certificates or (2) (A) contains an estimate by Curis of the fair value of the
dissenting stockholders' Reprogenesis stock and (B) includes an offer to pay
the amount of its estimate within 90 days after the effectiveness of the
merger, provided that Curis receives notice from the stockholder within 60 days
after the effective date of the merger that the dissenting stockholder agrees
to accept Curis' estimate and upon receipt of the dissenting stockholder's duly
endorsed Reprogenesis stock certificates.
If the dissenting stockholder and Curis agree upon the value of the
dissenting stockholder's shares within 60 days after effectiveness of the
merger, Curis shall pay the amount of the agreed value to the dissenting
stockholder upon receipt of the dissenting stockholder's duly endorsed share
certificates within 90 days of the effectiveness of the merger. Upon payment of
the agreed value, the dissenting stockholder will no longer have any interest
in such shares of Reprogenesis or Curis.
If the dissenting stockholder and Curis do not agree upon the value of the
dissenting stockholder's shares within 60 days after the effectiveness of the
merger, then either the dissenting stockholder or Curis may, within 60 days
after the expiration of that 60-day period, file a petition in a court of
competent jurisdiction in the county in which the principal office of
Reprogenesis is located, seeking a determination of the fair value of the
dissenting stockholder's Reprogenesis shares. Please consult your own legal
counsel regarding the proper court for such filing. Curis shall file with the
court a list of all stockholders who have demanded payment for their shares
with whom an agreement as to value has not been reached within 10 days
following receipt of the petition filed by a dissenting stockholder or upon the
filing of such a claim by Curis. The clerk of the court will give notice of the
hearing of any such claim to Curis and to all of the dissenting stockholders on
the list
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provided by Curis. All dissenting stockholders notified in this manner and
Curis will be bound by the final judgment of the court as to the value of the
shares.
In considering such a petition, the court will determine which of the
dissenting stockholders have complied with the provisions of the Texas Business
Corporation Act and are entitled to the payment of the fair value of their
shares and will appoint one or more qualified appraisers to determine the fair
value of the shares who are directed to make such determination "upon such
investigation as to them may seem proper." The appraisers will also allow the
dissenting stockholders and the corporation to submit to them evidence as to
the fair value of the shares.
Upon receipt of the appraisers' report, the court will determine the fair
value of the shares of the dissenting stockholders and will direct the payment
to the dissenting stockholders of the amount of the fair value of their shares,
with interest from the date 91 days after the effectiveness of the merger to
the date of the judgment, by Curis, upon receipt of the dissenting
stockholder's share certificates. Upon payment of the judgment, the dissenting
stockholders will no longer have any interest in such shares of Reprogenesis or
Curis.
Any dissenting stockholder may withdraw his or her demand at any time before
receiving payment for the shares or before a petition has been filed seeking
determination of the fair value of the shares. No dissenting stockholder may
withdraw his or her demand after payment has been made or, unless Curis
consents to the withdrawal, where a petition has been filed.
Any dissenting stockholder who has properly demanded payment for his or her
shares of Reprogenesis stock will not have any rights as a stockholder, except
the right to receive payment for such shares and the right to claim that the
merger and the related transactions were fraudulent.
Failure to follow the steps required by Articles 5.11, 5.12 and 5.13 of the
Texas Business Corporation Act for perfecting dissenters' rights may result in
the loss of dissenters' rights, in which event a Reprogenesis stockholder will
be entitled to receive the consideration with respect to the holder's
dissenting shares in accordance with the merger agreement. In view of the
complexity of Article 5.11, 5.12 and 5.13 of the Texas Business Corporation
Act, if any stockholder is considering dissenting from the merger, he or she is
urged to consult his or her own legal counsel.
Delisting and Deregistration of Creative Common Stock after the Merger
When the merger is completed, Creative's common stock will be delisted from
the Nasdaq National Market and will be deregistered under the Securities
Exchange Act of 1934.
The Merger Agreement
The detailed terms of and conditions to the merger are contained in the
merger agreement, a copy of which is attached as Annex A to this joint proxy
statement-prospectus. The following summary of certain provisions of the merger
agreement is qualified in its entirety by reference to the full text of the
merger agreement. The merger agreement is incorporated into this joint proxy
statement-prospectus by this reference. For the purposes of this section, each
of Creative, Ontogeny and Reprogenesis is referred to as a "party" or by its
name. Curis is referred to by its name only.
Conditions to the Merger
Conditions to Each Party's Obligations. The obligations of each of the
parties to effect the merger are subject to the satisfaction of specified
conditions before completion of the merger, including the following:
. the SEC shall have declared the registration statement of which this
joint proxy statement-prospectus forms a part, to be effective, and no
stop order shall be in effect and no proceeding seeking a stop order
shall be threatened or pending;
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. the adoption of the merger agreement and the merger by the affirmative
vote of:
. a majority of the outstanding shares of Creative common stock;
. a majority of the votes that may be cast by the outstanding shares of
Ontogeny common stock and Ontogeny preferred stock, voting together as
one group, and 66 2/3% of the outstanding shares of Ontogeny series A
convertible preferred stock, Ontogeny series B convertible preferred
stock, Ontogeny series E convertible preferred stock and Ontogeny
series F convertible preferred stock, voting together as a separate
class; and
. 66 2/3% of the outstanding shares of Reprogenesis common stock and
Reprogenesis preferred stock, voting together as one group; 66 2/3% of
the outstanding shares of Reprogenesis series A preferred stock,
voting separately as a class; and 66 2/3% of the outstanding shares of
Reprogenesis series B preferred stock, voting separately as a class;
. the expiration or termination of the waiting periods under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, if applicable;
. the absence of any law, order or injunction prohibiting completion of the
merger;
. the approval for listing, by the Nasdaq National Market, of the shares of
Curis common stock issuable in connection with the merger, subject to
official notice of issuance;
. the shares of Ontogeny requesting appraisal are not more than 5% of the
outstanding Ontogeny common stock and 5% of the outstanding Ontogeny
preferred stock, and the shares of Reprogenesis exercising dissenters
rights are not more than 5% of the outstanding Reprogenesis common stock
and 5% of the outstanding Reprogenesis preferred stock; and
. each of Ontogeny and Reprogenesis will have amended their organizational
documents as required by the merger agreement.
Certain Additional Conditions to Each Party's Obligations. The obligations
of each party to effect the merger are subject to the satisfaction at or prior
to the completion of the merger of additional conditions by each other party,
which may be waived by such party, to the extent permitted by applicable law,
including the following:
. the representations and warranties of each of the other parties contained
in the merger agreement will be correct in all material respects as of
the effective time of the merger, subject to certain exceptions;
. each party will have performed in all material respects its agreements
and covenants in the merger agreement required to be performed on or
prior to the effective time of the merger;
. the receipt of all approvals and consents of any courts or governmental
authorities required for each other party to consummate the merger,
except for approvals and consents the failure of which to have been
received shall not have had, or be reasonably expected to have, a
material adverse effect, as described below, on any party or on Curis;
. each party will have received evidence that each other party will obtain
the licenses, permits, consents, waivers, approvals, authorizations,
qualifications or orders of governmental authorities and other third
parties required by each of the other parties to be obtained, except
where the failure to have them obtained is not reasonably likely to have
a material adverse effect on any party or on Curis;
. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to Creative,
shall have delivered to Creative, Foley, Hoag & Eliot LLP, counsel to
Ontogeny, shall have delivered to Ontogeny, and Baker Botts L.L.P.,
counsel to Reprogenesis, shall have delivered to Reprogenesis written
opinions to the effect that the merger will be treated for federal income
tax purposes as a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
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For purposes of the merger agreement, "material adverse effect," when used in
reference to any entity, means any event, change, circumstance or effect that
would be reasonably likely to have a material adverse effect on:
. the business, properties, financial condition, results of operations or
prospects of the entity; or
. the ability of the entity to consummate the transactions contemplated by
the merger agreement.
However, any adverse change in the stock price of Creative, in and of itself,
shall not be taken into account in determining whether there has been or would
be a material adverse effect on or with respect to Creative.
Covenants
Interim Operations. Each of the parties has agreed to, and to cause each of
its respective subsidiaries to, conduct its business in the ordinary course
consistent with past practice and use its commercially reasonable best efforts
to:
. preserve its business organization and assets;
. operate according to plans and budgets provided to each other party;
. keep available the services of its officers, employees and consultants;
. maintain in effect any material contracts; and
. maintain and preserve its business relationships;
from the date of the merger agreement, February 14, 2000, until the merger is
completed or the merger agreement is terminated.
Except as expressly contemplated or permitted by the merger agreement or to
the extent that each other party consents in writing, each of the parties
agrees not to, and to cause each of its respective subsidiaries not to:
. amend its organizational documents;
. issue, sell, transfer, pledge, dispose of or encumber any shares of its
capital stock (except upon exercise of options, warrants and other rights
that exist on the date of the merger agreement) or effect any stock
split, combination or other such change in its capitalization;
. grant any new options, warrants or other rights not existing on the date
of the merger agreement to acquire shares of its capital stock;
. sell or otherwise dispose of any material assets, except in the ordinary
course of business consistent with past practice;
. redeem, purchase or otherwise acquire any of its capital stock;
. declare, set aside or pay any dividend or other distribution in respect
of its capital stock;
. sell, transfer, lease, out-license, out-sublicense, mortgage, pledge,
encumber or otherwise dispose of any of its intellectual property rights
or materially amend or modify any of its existing agreements with respect
to any intellectual property rights, except for:
. non-exclusive licenses granted pursuant to material transfer
agreements entered into in the ordinary course of business consistent
with past practice; or
. non-exclusive research licenses granted as part of a research
agreement that is permitted under the merger agreement;
. acquire any business organization or division thereof;
. incur any indebtedness for borrowed money;
. issue any debt securities or assume, guarantee or become responsible for
any obligations of others;
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. make any loans, advances or enter into any financial commitments, except
in the ordinary course of business consistent with past practice and as
otherwise permitted under any of its existing loan or credit agreements;
. authorize any capital expenditures which are, in the aggregate, in excess
of $100,000 for it and its subsidiaries taken as a whole;
. hire any employee or consultant; terminate any employee or consultant,
except in the ordinary course of business consistent with past practice;
or increase any compensation payable to officers or employees, except for
employees who are not officers in the ordinary course of business
consistent with past practice;
. adopt any new employee benefit plan or amend any existing employee
benefit plan in any material respect or grant any severance pay or enter
into any employment or severance agreement;
. change any accounting principle or procedures except as required by
statutory accounting principles or generally accepted accounting
principles;
. create, incur, suffer to exist or assume any lien on any of its material
assets other than those outstanding on February 14, 2000;
. except in the ordinary course of business consistent with past practice:
. enter into any material contract;
. modify, amend or transfer in any material respect or terminate any
material contract;
. waive, release or assign any material rights under any material
contract; or
. enter into or extend any lease with respect to real property with any
third party;
. make any tax election;
. settle or compromise any tax liability or agree to an extension of a
statute of limitations;
. settle any material litigation, unless the settlement would not:
. impose material restrictions on its business; or
. exceed $50,000 in cost or value;
. assign or release any material rights or claims;
. pay or discharge any liabilities or obligations, except in the ordinary
course of business consistent with past practice in an amount or value
not exceeding $100,000 in any instance or series of related instances or
$250,000 in the aggregate;
. engage in any transaction, or enter into any agreement or understanding,
with any affiliate;
. terminate insurance policies currently in effect; and
. authorize, recommend, propose or announce an intention to do any of the
above, or enter into any agreement to do any of the above.
Additional Agreements. Pursuant to the merger agreement, each of the parties
has agreed to:
. call a meeting of its stockholders as promptly as practicable to consider
and vote upon the merger agreement and the merger and, subject to certain
exceptions, use all reasonable efforts to obtain the shareholders
approval of the merger agreement and the merger;
. provide to each other party access to its properties, books, contracts
and other information as the other parties may reasonably request;
. cooperate with each other party and use reasonable efforts to take all
actions and do all things necessary, proper or advisable under the merger
agreement to complete the merger as soon as practicable, including
obtaining all licenses, permits, consents, waivers, approvals,
authorizations,
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qualifications and orders from any third party or any domestic or foreign
governmental entity necessary to complete the merger, and using
reasonable efforts to satisfy the conditions to consumation of the
merger;
. promptly notify the other parties of: any material breach of any
representation or warranty in the merger agreement or any failure to
satisfy in any material respect any covenant or condition of the merger
agreement; any change that is reasonably likely to have a material averse
effect on such party; certain governmental communications; any litigation
relating to consummation of the merger; or any default under a material
contract;
. use reasonable efforts to cause its independent public accountants to
deliver to each of the other parties an accountant's "comfort" letter
covering such matters as are requested by the other parties;
. consult with each other party and mutually agree upon any press releases
and other announcements regarding the merger;
. use best efforts to obtain from each Rule 145 affiliate an undertaking
not to transfer Curis shares issued to such person pursuant to the merger
except pursuant to an effective registration statement, in compliance
with Rule 145 or pursuant to an exemption from the registration
requirements under the Securities Act;
. pay the costs of preparation for filing, prosecution and maintenance of
its intellectual property rights as required and not permit the lapse of
any material filings;
. vote all shares of Curis common stock owned by it in favor of the merger
agreement and the merger; and
. use best efforts to have delivered to the other parties from each of its
respective officers and directors and the affiliates of such officers and
directors on a "lock-up" agreement which prohibits them from disposing of
Curis common stock, subject to certain exceptions, for 90 days following
the merger.
Pursuant to the merger agreement, Creative has agreed to:
. use best efforts to cause agreements to vote to approve the merger and
the merger agreement to be executed by each of its directors and
officers, each of the affiliates of those directors and officers, and any
other affiliates of Creative, which agreements have been obtained; and
. timely file with the SEC each report required under the Exchange Act and
promptly deliver to the other parties the filings it makes.
Pursuant to the merger agreement, each of Ontogeny and Reprogenesis have
agreed to:
. use best efforts to cause agreements to vote to approve the merger and
the merger agreement to be executed by each of its respective directors
and officers, each of the affiliates of those directors and officers and
additional stockholders representing the requisite number of shares of
capital stock to approve the merger and merger agreement and certain
amendments to such party's charter as contemplated by the merger
agreement, which agreements have been obtained.
Pursuant to the merger agreement, Curis has agreed to:
. use its commercially reasonable best efforts to obtain, prior to the
effective time, the Nasdaq National Market's approval for the listing of
the shares issuable in the merger;
. honor each party's obligations to indemnify its current or former
directors or officers;
. maintain directors' and officers' liability insurance, if available, for
those officers and directors covered by each party's existing officers'
and directors' insurance, for six years after the effective time of the
merger;
. at all times during the two-year period beginning at the effective time
of the merger, comply with the current public information requirements of
Rule 144(c)(1) under the Securities Act; and
. continue at least one significant historic business line of each of
Creative, Ontogeny and Reprogenesis.
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However, no party is required to pay any amount or provide anything of value
(other than filing fees and other required amounts to governmental authorities)
to obtain any consents, waivers, approvals, authorizations or agreements.
The merger agreement also contains covenants relating to the cooperation
between the parties and Curis in the preparation of this joint proxy statement-
prospectus and related matters.
No Solicitation. The merger agreement contains detailed provisions
prohibiting each party from seeking an alternative transaction. Under these "no
solicitation" provisions, each of the parties has agreed that it will not, and
will not permit any of its subsidiaries or any of its or its subsidiaries'
officers, directors, employees, investment bankers, attorneys or other
representatives, advisors or agents to, and will use its best efforts to cause
each of its respective non-officer and non-director affiliates not to, directly
or indirectly:
. solicit, facilitate, initiate or encourage the making of any Acquisition
Proposal, as described below, or the making of any inquiries concerning
an Acquisition Proposal; or
. have any discussions with or provide any information to any person
concerning an Acquisition Proposal or which reasonably might be expected
to lead to an Acquisition Proposal.
"Acquisition Proposal" means, with respect to any party, any inquiry, proposal
or offer after February 14, 2000 relating to:
. any merger, consolidation, recapitalization, liquidation or other direct
or indirect business combination involving the party or any of its
subsidiaries;
. the issuance or acquisition of shares of capital stock or other equity
securities of a party or any of its subsidiaries (excluding the issuance
of capital stock upon the exercise of options or warrants outstanding on
the date of the merger agreement or upon the conversion of any
convertible securities outstanding on the date of the merger agreement);
. any tender or exchange offer that would result in any person and its
affiliates beneficially owning any shares of capital stock or other
equity securities of that party or any of its subsidiaries;
. other than as permitted by the merger agreement, the sale, lease,
exchange, license (whether exclusive or not), or any other disposition of
any significant portion of a material intellectual property right or any
significant portion of the business or other assets of an entity or any
of its subsidiaries; or
. any other transaction, the consummation of which could reasonably be
expected to impede or materially delay the consummation of the merger or
which would be reasonably expected to diminish significantly the benefits
to each other party and Curis of the merger.
However, the merger agreement excepts from the definition of Acquisition
Proposal an inquiry or proposal by a pharmaceutical or biopharmaceutical
company regarding the acquisition of 5% or less of the outstanding capital
stock of a party in connection with discussions concerning the licensing of
intellectual property rights, or regarding the sale, lease, exchange, license,
or disposition of a material portion of the business of a party if such inquiry
or proposal is:
. disclosed in reasonable detail in writing to the other parties within
three business days; and
. the chief executive officers of such other parties agree that such
inquiry does not constitute an Acquisition Proposal.
These "no solicitation" provisions do not prevent each of the parties or
their respective boards of directors from furnishing non-public information to,
or entering into discussions or negotiations with, any other person in response
to an unsolicited bona fide written Acquisition Proposal by that person.
However, a party may only take such action if and only to the extent that:
. its stockholders have not voted for approval of the merger agreement and
the merger;
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. its board of directors, after consultation with its financial advisor,
believes in good faith that the Acquisition Proposal is reasonably
capable of being completed on the proposed terms and would result in a
Superior Proposal, as described below;
. its board of directors, after consultation with outside counsel,
determines in good faith that such action is necessary for the board of
directors to comply with its fiduciary duties;
. before providing any non-public information or data to any person in
connection with an Acquisition Proposal by that person, its board of
directors receives from that person an executed confidentiality agreement
with customary provisions; and
. before providing any non-public information or data to any person or
entering into discussions or negotiations with any person, it immediately
notifies the other parties of:
. the Acquisition Proposal or any inquiry which could result in an
Acquisition Proposal; and
. the name of the person and the material terms and conditions of the
Acquisition Proposal or inquiry.
"Superior Proposal" means a bona fide proposal made by a third party to
acquire all or substantially all of the assets or capital stock of a party
which is on terms that the board of directors of such party in good faith
determines to be more favorable to the stockholders of such party than the
merger (or any counterproposal made by the other parties), after receipt of
written advice of such party's independent financial advisor and after
consultation with its outside counsel and after taking into account, among
other things, the terms and conditions of the proposal, the timing of the
closing of such proposal, the risk of nonconsummation and the financial ability
of the person making the Acquisition Proposal.
These "no solicitation" provisions permit the board of directors of each
party to:
. withdraw or modify, or propose to withdraw or modify, in a manner adverse
to the other parties the recommendation of that party's board of
directors that its stockholders vote in favor of the adoption of the
merger agreement and the merger; or
. fail to reaffirm its recommendation of the merger agreement or the merger
after a request by any other party to do so;
if and only if:
. such party has not breached its nonsolicitation covenants;
. such party's board of directors has determined in good faith, after
consultation with its outside counsel, that taking such action is
required to satisfy its fiduciary duties; and
. such party furnishes the other parties five business days prior written
notice of the taking of such action, during which time the other parties
may make, and such party will consider, a counterproposal to the Superior
Proposal.
Each of the parties has agreed under the provisions of the merger agreement
that:
. it will promptly advise the other parties of the status and terms of any
Acquisition Proposals; and
. it will, and it will cause its officers, directors, employees, investment
bankers, attorneys and other representatives, advisors and agents to
terminate all discussions or negotiations, existing as of February 14,
2000, with any person conducted before that date with respect to, or that
could reasonably be expected to lead to, an Acquisition Proposal.
Nothing contained in the "no solicitation" provisions of the merger
agreement will, during the term of the merger agreement:
. permit any party to terminate the merger agreement, except as
specifically provided in the merger agreement;
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. permit a party's board or directors to approve or recommend any
Acquisition Proposal other than the merger;
. permit a party to enter into any agreement with respect to an Acquisition
Proposal; or
. affect any other obligation of any party under the merger agreement.
The merger agreement does not prevent the board of directors of Creative
from complying with Rule 14e-2 promulgated under the Exchange Act.
Termination
The merger agreement may be terminated at any time prior to the completion
of the merger, whether before or after the stockholder approvals have been
obtained, by mutual written consent of the boards of directors of each party.
In addition, any party, acting on its own, can terminate the merger agreement
if:
. the merger is not completed on or before August 31, 2000, except that
this right to terminate the merger agreement will not be available to any
party whose failure to fulfill any obligation under the merger agreement
has been the cause of, or has resulted in, the failure of the merger to
be completed by August 31, 2000;
. any governmental entity issues an order, decree or ruling or takes any
other action restraining, enjoining or otherwise prohibiting the merger,
and the order, decree, ruling or other action becomes final and
nonappealable;
. any other party's stockholders fail to vote to approve the merger
agreement at a duly held meeting of any other such party, except that
this right to terminate will not be available to any party whose breach
of the merger agreement caused the failure to obtain such stockholder
approval;
. the board of directors of any other party (the below actions being
collectively referred to as "Adverse Action of the Board of Directors"):
. approved or recommended any Acquisition Proposal other than the
merger;
. failed to present and recommend that the stockholders of that party
authorize the merger agreement and the merger, or withdrew or modified
its recommendation of the merger agreement or the merger in a manner
adverse to the terminating party;
. failed to mail the joint proxy statement as required by the merger
agreement or failed to include its approval and recommendation of the
merger agreement and the merger therein;
. failed to reaffirm its approval and recommendation of the merger
agreement and the merger within 5 days of a request to do so;
. entered into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to an Acquisition
Proposal;
. recommended to its stockholders, after commencement of a tender or
exchange offer, that such stockholders tender their shares, or failed
to recommend against acceptance of such offer within 10 days of its
commencement;
. took any action prohibited by the non-solicitation provisions of the
merger agreement; or
. resolved or announced its intention to do any of the foregoing; or
. such party is not in material breach of its obligations or
representations and warranties under the merger agreement and another
party:
. breaches any of its representations and warranties contained in the
merger agreement; or
. willfully breaches any of its covenants or agreements contained in the
merger agreement;
in such a way as to render the related conditions to the completion of
the merger incapable of being satisfied and such breach is not cured
within 30 days of written notice to both of the other parties (a
"Material Breach Event").
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Termination Fees. For purposes of this section, "defaulting party" is used to
describe any party whose act or omission gives rise to any other party's
termination right.
Reciprocal Termination Fees. A fee of $5 million shall be payable by a
defaulting party to each other party that is not in material breach of its
obligations, representations or warranties under the merger agreement (and, in
certain cases, that has received the requisite vote of its stockholders to
approve the merger agreement) upon the termination of the merger agreement by
any party:
. based on any Adverse Action of the Board of Directors of the defaulting
party;
. based on the failure of the defaulting party's stockholders to vote to
approve the merger agreement at a duly called meeting, if the terminating
party has received the requisite vote of its stockholders to approve the
merger agreement and if, within one year of such termination, the
defaulting party or any of its subsidiaries enters into an agreement with
any person with respect to an Equity Financing, as defined below,
providing the defaulting party with gross proceeds of at least $50
million;
. based on the failure of the defaulting party's stockholders to vote to
approve the merger agreement at a duly called meeting, if at the time of
such failure an Acquisition Proposal has been made to the defaulting
party and is known by any stockholder of the defaulting party, if, within
one year of such termination, either:
. the defaulting party enters into one of a specified set of
transactions resulting in a transfer of more than 50% of its equity,
voting interests or assets; or
. any person commences a tender offer that results in the acquisition
by the person making the tender offer of a majority of the defaulting
party's common stock; or
. based on a Material Breach Event by the defaulting party, and if, within
one year of such termination, either:
. the defaulting party enters into one of a specified set of
transactions resulting in a transfer of more than 50% of its equity,
voting interests or assets;
. any person commences a tender offer that results in the acquisition
by the person making the tender offer of a majority of the defaulting
party's common stock; or
. the defaulting party or any of its subsidiaries enters into an
agreement with any person with respect to an Equity Financing
providing the defaulting party with gross proceeds of at least $50
million.
For this purpose, "Equity Financing" means a financing transaction (or
series of related transactions) in which a party raises proceeds by selling
shares of its capital stock or any security convertible into, or exchangeable
for, its capital stock.
In addition, the defaulting party shall reimburse each other party up to
$750,000 of the reasonable fees and expenses actually incurred by such other
party in connection with the merger agreement and the transactions contemplated
thereby ("Stipulated Expenses") if:
. such party is entitled to a termination fee in any of the circumstances
described above, except where the fee is due because an Equity Financing
has occurred; or
. the merger agreement is otherwise terminated because of a Material Breach
Event by the defaulting party, other than due to an event entirely
outside the control of the defaulting party and due to no act or omission
of the defaulting party.
Reprogenesis Termination Fee. A fee of $1.5 million is payable by Creative
to Reprogenesis if Reprogenesis terminates the merger agreement based on the
failure of the Creative stockholders to vote to approve the merger agreement at
the meeting called for that purpose.
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Limitation. The merger agreement provides that the maximum amount of
termination fees and Stipulated Expenses that any party shall be obligated to
pay to any other party, even if more than one of the termination fee provisions
are applicable, is $5.75 million (or a total of $11.5 million if fees are due
to both other parties).
Fees and Expenses Generally. All fees and expenses, other than attorneys'
fees, incurred in relation to the printing and filing of the joint proxy
statement-prospectus, the registration statement, and any fees and expenses
required to be paid by Curis shall be paid by the parties in proportion to each
party's proposed relative ownership of Curis upon completion of the merger. All
other fees and expenses incurred in connection with the merger agreement shall
be paid by the party incurring such expenses, except as otherwise described
above with respect to Stipulated Expenses.
Other Remedies. The merger agreement provides that the termination fee
provisions shall not be exclusive of any other rights or remedies any party may
have under the merger agreement or at law or in equity for any breach of the
merger agreement.
Amendment
The merger agreement may be amended by the parties, by action taken by or on
behalf of their respective boards of directors at any time prior to the
completion of the merger, subject to Section 252 of the Delaware General
Corporation Law. All amendments to the merger agreement must be in writing
signed by each party.
Representations and Warranties
Each party makes various representations and warranties in the merger
agreement which are reciprocal. The representations and warranties include
those with respect to:
. organization, good standing and foreign qualification;
. capitalization;
. authorization, no conflict and required consents;
. stockholder vote required for adoption of merger agreement;
. financial statements;
. no undisclosed liabilities;
. absence of certain changes or events;
. taxes;
. property matters;
. intellectual property matters;
. preclinical testing and clinical trials;
. material contracts;
. litigation;
. environmental matters;
. employee benefits;
. compliance with laws;
. certain regulatory matters;
. information supplied in connection with this joint proxy statement-
prospectus and the registration statement of which it is a part;
. labor matters;
. insurance matters;
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. no existing discussions;
. opinions of financial advisors;
. no brokers; and
. stockholder rights.
None of these representations and warranties survives the effectiveness of
the merger.
Curis Charter and By-laws
Upon completion of the merger, the certificate of incorporation for Curis
will be in substantially the form set forth in Annex E to this joint proxy
statement-prospectus. For a summary of the material provisions of the
certificate of incorporation and by-laws of Curis, and the rights of
stockholders of Curis under the certificate of incorporation and by-laws, see
the section entitled "Description of Curis Capital Stock."
Curis' certificate of incorporation provides that special meetings of
stockholders may be called at any time by the chairman of the board, the chief
executive officer and the board of directors. The certificate of incorporation
further provides that, subject to Delaware law, Curis retains the right to
modify or repeal any provision contained in the certificate of incorporation
except for the provisions pertaining to who may call special meetings of
stockholders and the provisions pertaining to the amendment or repeal of the
certificate of incorporation. Prior to the closing of the merger, Curis intends
to amend its certificate of incorporation to prohibit stockholder action by
written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Curis' certificate of incorporation requires
the affirmative vote of the holders of at least 75% of Curis' capital stock
issued and outstanding and entitled to vote to amend or repeal the provisions
described in the prior paragraph.
Curis' by-laws provide that directors may be removed only for cause by the
affirmative vote of more than 75% of Curis' capital stock issued, outstanding
and entitled to vote. The by-laws further provide that, subject to Delaware
law, the amendment or repeal of the by-laws pertaining to the removal of
directors for cause requires either the approval of the board of directors or
the affirmative vote of more than 75% of Curis' capital stock issued,
outstanding and entitled to vote.
The super-majority voting provisions which are set forth in Curis'
certificate of incorporation and by-laws and are summarized above have the
effect of making it more difficult to change the membership of the board of
directors. In order to amend Curis' certificate of incorporation to permit
persons other than the chairman of the board, chief executive officer or board
of directors to call a special meeting of stockholders, an affirmative vote of
more than 75% of Curis' capital stock issued, outstanding and entitled to vote
must be obtained. Similarly, in order to remove a director for cause or to
amend the procedures for removing a director for cause, an affirmative vote of
more than 75% of the Curis' capital stock issued, outstanding and entitled to
vote must be obtained.
Curis' by-laws indicate that the number of directors will be set by
resolution of the board of directors, provided, however, that in no event shall
the number of directors be less than three. Curis' by-laws provide for three
classes of directors, each consisting as nearly as possible of one-third of the
total number of directors constituting the entire board of directors. At each
annual meeting of stockholders, one class is elected to serve for a three year
term. Classification of the board of directors has the effect of making it more
difficult to change the membership of the board of directors even if the reason
for such a change may be dissatisfaction with the performance of the incumbent
directors. At least two annual stockholder meetings would ordinarily be
required to effect a change of control of Curis' board of directors.
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<PAGE>
Curis' certificate of incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. These provisions eliminate a director's liability for monetary
damages for a breach of fiduciary duty as a director, except in certain
circumstances involving wrongful acts, such as a breach of a director's duty of
loyalty or acts or omissions that involve intentional misconduct or a knowing
violation of the law. Further, Curis' certificate of incorporation contains
provisions to indemnify Curis' directors and officers to the fullest extent
permitted by the General Corporation Law of Delaware. Curis believes that these
provisions will assist it in attracting and retaining qualified individuals to
serve as directors.
Stockholder Agreements
The following summary of the stockholder agreements is qualified in its
entirety by reference to the complete text of the form of stockholder
agreement, which is incorporated by reference and attached as Annex B to this
joint proxy statement-prospectus. We urge you to read the full text of the form
of stockholder agreement.
In connection with the execution and delivery of the merger agreement, (i)
Creative's directors and officers, each of their respective affiliates, and a
holder of approximately 9.0% of the voting power of the common stock of
Creative, (ii) Ontogeny's directors and officers, each of their respective
affiliates, and such other holders of the Ontogeny common stock and preferred
stock as are necessary to obtain the requisite vote of the stockholders of
Ontogeny to approve the merger agreement and the amendment of the Ontogeny
certificate of incorporation, and (iii) Reprogensis' directors and officers,
each of their respective affiliates, and such holders of 5% or more of the
voting power of the Reprogenesis common stock and preferred stock as are
necessary to obtain the requisite vote of the stockholders of Reprogenesis to
approve the merger agreement and the amendment of the Reprogenesis articles of
incorporation, each entered into a stockholder agreement.
As of the record date, Creative stockholders owning shares representing
approximately 14.6% of the Creative common stock entitled to vote at the
Creative special meeting were party to such an agreement. As of the record
date, Ontogeny stockholders owning shares representing approximately 74.4% of
the voting power of Ontogeny common stock and preferred stock, voting together
as one class, and 77.0% of the Ontogeny senior preferred stock were party to
such an agreement. As of the record date, Reprogenesis stockholders owning
shares representing approximately 67.5% of the voting power of Reprogenesis
common stock and Reprogenesis preferred stock, voting together as one class,
91.6% of the voting power of Reprogenesis series A preferred stock and 82.0% of
the voting power of Reprogenesis series B preferred stock, in each case
entitled to vote at the Reprogenesis special meeting, were party to such an
agreement.
Pursuant to the terms of the stockholder agreements, each stockholder who
signed a stockholder agreement has agreed (i) to vote all of the shares of
capital stock of Creative, Ontogeny or Reprogensis, as the case may be, owned
by the stockholder in favor of the merger agreement and the merger, (ii) not to
vote the stockholder's shares in favor of any other acquisition proposal, (iii)
not to directly or indirectly, sell, transfer, pledge, assign or otherwise
dispose of, or enter into any contract, option, commitment or other arrangement
or understanding with respect to the sale, transfer, pledge, assignment or
other disposition of the stockholder's shares and (iv) not to take any action
or omit to take any action which would prohibit, prevent or preclude the
stockholder from performing the stockholder obligations under the merger
agreement.
In addition, the Ontogeny stockholders who signed a stockholder agreement
have agreed to vote in favor of an amendment to the certificate of
incorporation of Ontogeny and the Reprogensis stockholders who signed a
stockholder agreement have agreed to vote in favor of an amendment to the
Reprogenesis articles of incorporation, in each case as required to effectuate
the merger on the terms set forth in the merger agreement.
The stockholder agreements terminate upon the earlier to occur of the
completion of the merger and the termination of the merger agreement.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives
effect to the merger using the purchase method of accounting, after giving
effect to the pro forma adjustments described in the accompanying notes. The
unaudited pro forma combined financial information should be read in
conjunction with the audited historical financial statements and related notes
of Creative, Ontogeny and Reprogenesis, which appear elsewhere in this joint
proxy statement-prospectus.
Pursuant to the merger agreement, Creative, Ontogeny and Reprogenesis will
merge to form Curis. Following completion of the transaction, Creative's
stockholders will hold approximately 43%, Ontogeny's stockholders will hold
approximately 38%, and Reprogenesis' stockholders will hold approximately 19%
of Curis. Consequently, for accounting purposes, Curis will be deemed to be the
successor to Creative, and the merger will be accounted for as a purchase of
Ontogeny and Reprogenesis. Subsequent to the completion of the transaction, the
historical financial statements of Creative will become the historical
financial statements of Curis. When the merger is completed, Ontogeny common
and preferred stockholders will receive 0.2564 shares of Curis common stock for
each share of Ontogeny capital stock they own and Reprogenesis common and
preferred stockholders will receive 0.1956 (subject to adjustment to account
for the preference of the Reprogenesis series A preferred stockholders) shares
of Curis common stock for each share of Reprogenesis common and preferred stock
they own.
The purchase price for Ontogeny and Reprogenesis will be allocated to the
assets and liabilities of Ontogeny and Reprogenesis based on their fair values.
The price of Curis' common stock issued for Ontogeny's and Reprogenesis' common
and preferred stock will be based on the value of Ontogeny and Reprogenesis
equity using the average market price of Creative's common stock, adjusted for
conversion, of $7.142 and $5.348, respectively. The average market price of
Creative's common stock of $8.357 was determined based on a reasonable period
(February 11, 2000 through February 16, 2000) before and after the date the
terms of the merger were agreed to and announced. Based on this price, the
purchase price as of February 15, 2000 has been estimated at $304,400,000 and
$154,500,000 for Ontogeny and Reprogenesis, respectively, which includes the
value of the outstanding Ontogeny and Reprogenesis common and preferred stock,
the fair value of Ontogeny and Reprogenesis outstanding options and warrants
exchanged for options and warrants to purchase Curis common stock and the
estimated transaction costs of the merger. The ultimate purchase price will be
dependent upon the number of Ontogeny and Reprogenesis shares, options and
warrants outstanding upon closing, as well as final transaction costs related
to the merger. For purposes of the pro forma financial information, Curis has
made a preliminary estimate of the fair values of identifiable assets and
liabilities of Ontogeny and Reprogenesis at the date of acquisition.
The unaudited pro forma financial information does not give effect to any
cost savings and other synergies that may result from the merger. Curis is
developing its plans for integration of the business but cannot make final
decisions until the merger is complete.
An independent third party appraisal company conducted a preliminary
valuation of Ontogeny intangible assets. These intangibles include in-process
research and development and the in-place workforce. The preliminary valuation
of intangibles included $115,100,000 for in-process research and development
and $400,000 for the workforce. The excess of the purchase price over the fair
value of identifiable tangible and intangibles net assets of $149,000,000 will
be allocated to goodwill. Intangible assets are expected to be amortized over 5
years. The fair value of the in-process research and development, which relates
to Ontogeny's current in-process development projects, will be recorded as an
expense in the period in which the merger is completed.
The valuation of the in-process research and development was determined
using the income method. Revenue and expense projections as well as technology
assumptions were prepared through 2010 based on information provided by
Ontogeny management. Revenue projections for each in-process development
project were identified as follows: (i) revenue derived from products relying
on current technology, if any, and (ii) revenue derived from projects relying
on a new in-process research and development project. Expense
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<PAGE>
projections including cost of goods and operating expenses varied depending on
the in-process development project. The projected cash flows were discounted
using a 30% to 50% rate depending on the in-process development project. The
fair value of in-process research and development was determined separately
from all other acquired assets using the percentage of completion method. The
percentage of completion ratio was estimated based on the time, cost and
complexity factors for each in-process development project to achieve
technological feasibility. The in-process research and development projects'
stage of completion ranged from 25% to 50% complete. The in-process development
projects are not expected to reach technological feasibility until the 2004-
2006 timeframe. Management is responsible for the estimates of the fair value
of the in-process research and development.
An independent third party appraisal company conducted a preliminary
valuation of Reprogenesis intangible assets. These intangibles include in-
process research and development and the in-place workforce. The preliminary
valuation of intangibles included $98,900,000 for in-process research and
development and $100,000 for the workforce. The excess of the purchase price
over the fair value of identifiable tangible and intangible net assets of
$49,100,000 will be allocated to goodwill. Intangible assets are expected to be
amortized over 5 years. The fair value of the in-process research and
development, which relates to Reprogenesis' current in-process development
projects, will be recorded as an expense in the period in which the merger is
completed.
The valuation of the in-process research and development was determined
using the income method. Revenue and expense projections as well as technology
assumptions were prepared through 2010 based on information provided by
Reprogenesis management. Revenue projections for each in-process development
project were identified as follows: (i) revenue derived from products relying
on current technology, if any, and (ii) revenue derived from projects relying
on a new in-process research and development project. Expense projections
including cost of goods and operating varied depending on the in-process
development project. The projected cash flows were discounted using a 40% to
60% rate depending on the in-process development project. The fair value of the
in-process research and development was determined separately from all other
acquired assets using the percentage of completion method. The percentage of
completion ratio was estimated based on the time, cost and complexity factors
for each in-process research and development project to achieve technological
feasibility. The in-process research and development projects' stage of
completion ranged from 40% to 70% complete. The in-process development projects
are not expected to reach technological feasibility until the 2002-2004
timeframe. Management is responsible for the estimates of the fair value of the
in-process research and development.
Based on the timing of the closing of the transaction, the finalization of
the integration plans and other factors, the final purchase adjustments may
differ materially from those presented in the pro forma financial information.
A final appraisal of the intangibles will be performed as of the closing date
and the allocation adjusted accordingly. The effect of these adjustments on the
results of operations will depend on the nature and amount of the assets or
liabilities adjusted.
The unaudited pro forma financial information does not purport to represent
what the consolidated financial position or results of operations actually
would have been if the merger, in fact, had occurred on December 31, 1999 or at
the beginning of the period presented or to project the consolidated financial
position or results of operations as of any future date or any future period.
This information should be read in conjunction with the historical consolidated
financial statements of Creative, Ontogeny and Reprogenesis, including the
related notes and other financial information include in this joint proxy
statement-prospectus.
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UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of December 31, 1999
<TABLE>
<CAPTION>
Historical
----------------------------------------- Pro Forma Pro Forma
Creative Ontogeny Reprogenesis Adjustments Combined
------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents........... $ 2,751,069 $ 7,159,520 $ 6,492,341 $ 1,846,000 (C) $ 18,248,930
Marketable securities.. 18,619,516 36,140,987 -- 54,760,503
Accounts receivable.... 60,296 -- 213,023 273,319
Notes receivable from
related parties....... -- 65,000 -- 65,000
Prepaid expenses and
other current assets.. 146,764 1,089,722 163,012 1,399,498
------------- ------------ ------------ ------------- -------------
Total current assets... 21,577,645 44,455,229 6,868,376 1,846,000 74,747,250
PROPERTY AND EQUIPMENT--
net.................... 2,130,158 4,691,215 1,590,678 8,412,051
OTHER ASSETS:
Notes receivable--
related parties....... -- 230,000 -- 230,000
Patents and licensed
technology--net....... 951,198 -- -- 951,198
Deferred patent
application costs--
net................... 4,124,716 -- -- 4,124,716
Assembled workforce.... 500,000 (A) 500,000
Goodwill............... 198,100,000 (A) 198,100,000
Other.................. 108,574 234,475 36,658 379,707
------------- ------------ ------------ ------------- -------------
Total other assets..... 5,184,488 464,475 36,658 198,600,000 204,285,621
------------- ------------ ------------ ------------- -------------
Total................ $ 28,892,291 $ 49,610,919 $ 8,495,712 $ 200,446,000 $ 287,444,922
============= ============ ============ ============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lease obligation--
current portion....... $ 347,323 $ 1,038,840 -- $ 1,386,163
Accounts payable and
accrued expenses...... 3,452,715 2,565,027 $ 918,527 $ 2,200,000 (F) 14,636,269
5,500,000 (A)
Notes payable--current
portion............... -- 295,000 353,508 648,508
Deferred revenue....... 661,279 997,268 -- (230,000)(A) 1,428,547
------------- ------------ ------------ ------------- -------------
Total current
liabilities........... 4,461,317 4,896,135 1,272,035 7,470,000 18,099,487
LEASE OBLIGATIONS....... 1,009,388 2,487,959 -- 3,497,347
NOTES PAYABLE........... -- 2,599,003 885,961 3,484,964
REDEEMABLE CONVERTIBLE
PREFERRED STOCK........ -- 62,395,647 -- (62,395,647)(E) --
STOCKHOLDERS' EQUITY:
Preferred stock........ -- 8,738,123 74,318 (8,812,441)(E) --
Common stock........... 366,651 28,585 108,977 (137,562)(E) 510,360
143,709 (E)
Additional paid-in
capital............... 148,062,906 3,853,603 18,477,131 (22,330,734)(E) 603,060,735
454,997,829 (E)
Accumulated other
comprehensive income.. (30,801) (69,391) -- 69,391 (E) (30,801)
Accumulated deficit.... (124,977,170) (32,245,454) (12,217,012) 44,462,466 (E) (341,177,170)
(216,200,000)(F)
Treasury stock......... -- (2,681) -- 2,681 (E) --
Deferred compensation.. -- (3,070,610) (105,698) 3,176,308 (E) --
------------- ------------ ------------ ------------- -------------
Total stockholders'
equity (deficit)...... 23,421,586 (22,767,825) 6,337,716 255,371,647 262,363,124
------------- ------------ ------------ ------------- -------------
Total................ $ 28,892,291 $ 49,610,919 $ 8,495,712 $ 200,446,000 $ 287,444,922
============= ============ ============ ============= =============
</TABLE>
See notes to Unaudited Pro Forma Combined Condensed Financial Information
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UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Historical
---------------------------------------- Pro Forma Pro Forma
Creative Ontogeny Reprogenesis Adjustments Combined
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Research and development
contracts.............. $ 3,159,460 $ 4,469,399 $ 517,614 $ 8,146,473
Interest................ 1,924,313 2,474,734 274,042 4,673,089
Other................... 54,177 -- 1,556,234 1,610,411
------------ ------------ ----------- ------------
Total revenues........ 5,137,950 6,944,133 2,347,890 14,429,973
------------ ------------ ----------- ------------
Costs and expenses:
Research and
development............ 10,434,560 13,686,346 7,526,699 31,647,605
General and
administrative......... 6,396,094 4,051,580 1,221,060 11,668,734
1999 reorganization and
1998 sale of
manufacturing
operations............. 255,701 -- -- 255,701
Amortization of goodwill
and assembled
workforce.............. -- -- -- $39,700,000 (B) 39,700,000
Interest................ 161,385 917,058 1,229,483 2,307,926
------------ ------------ ----------- ------------ ------------
Total costs and
expenses............. 17,247,740 18,654,984 9,977,242 39,700,000 85,579,966
------------ ------------ ----------- ------------ ------------
Net loss from
operations............. (12,109,790) (11,710,851) (7,629,352) (39,700,000) (71,149,993)
Minority interest....... -- -- (375,000) (375,000)
------------ ------------ ----------- ------------ ------------
Net loss................ (12,109,790) (11,710,851) (8,004,352) (39,700,000) (71,524,993)
Accretion of preferred
stock.................. (2,395,559) (194,557) -- 194,557 (D) (2,395,559)
------------ ------------ ----------- ------------ ------------
Net loss applicable to
common stockholders.... $(14,505,349) $(11,905,408) $(8,004,352) $(39,505,443) $(73,920,552)
============ ============ =========== ============ ============
Basic and diluted loss
per common share....... $ (0.40) $ (4.59) $ (0.74) $ (3.17)
============ ============ =========== ============
Common shares for basic
and diluted loss
computation............ 36,665,115 2,591,735 10,762,044 23,314,376
============ ============ =========== ============
</TABLE>
See notes to Unaudited Pro Forma Combined Condensed Financial Information
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Notes to Unaudited Pro Forma Combined Condensed Financial Information
Note 1. Basis of Presentation
The unaudited pro forma combined condensed statement of operations for the
year ended December 31, 1999 gives effect to the merger as if the transaction
had occurred at the beginning of the period presented. The unaudited pro forma
combined condensed balance sheet as of December 31, 1999 gives effect to the
merger as if it had occurred on December 31, 1999.
Below is a table of the estimated purchase price:
<TABLE>
<CAPTION>
Ontogeny Reprogenesis Total
------------ ------------ ------------
<S> <C> <C> <C>
Estimated purchase price:
Common stock....................... $259,500,000 $143,100,000 $402,600,000
Fair value of Curis' outstanding
options and warrants exchanged for
Ontogeny and Reprogenesis options
and warrants ..................... 41,300,000 9,500,000 50,800,000
Estimated merger-related fees and
expenses*......................... 3,600,000 1,900,000 5,500,000
------------ ------------ ------------
Total estimated purchase price... $304,400,000 $154,500,000 $458,900,000
============ ============ ============
</TABLE>
- --------
*Allocation of Curis' estimated transaction costs of the merger.
Below is a table of the estimated purchase price allocation. The purchase
price allocation is subject to change based on final valuation and appraisals:
<TABLE>
<CAPTION>
Ontogeny Reprogenesis Total
------------ ------------ ------------
<S> <C> <C> <C>
Purchase price allocation:
Tangible net assets acquired...... $ 39,900,000 $ 6,400,000 $ 46,300,000
Assembled workforce............... 400,000 100,000 500,000
In-process research and
development...................... 115,100,000 98,900,000 214,000,000
Goodwill.......................... 149,000,000 49,100,000 198,100,000
------------ ------------ ------------
Total........................... $304,400,000 $154,500,000 $458,900,000
============ ============ ============
</TABLE>
Curis' outstanding options and warrants exchanged for Ontogeny and
Reprogenesis options and warrants were valued by an independent appraiser using
a Black-Scholes Model with the following assumptions:
<TABLE>
<S> <C>
Life of options.................... 6 months to 4 years
Risk-free interest rate............ 5.43% to 6.56%
Volatility......................... calculated based on Creative's volatility
for a reasonable period prior to February
15, 2000, 115%
Dividend rate...................... 0%
</TABLE>
The market value utilized for the stock options and warrants was $7.142 and
$5.348 for Ontogeny and Reprogenesis, respectively, based on Creative's market
value of $8.357, adjusted for conversion.
Tangible net assets of Ontogeny and Reprogenesis acquired principally
include cash and cash equivalents, marketable securities, property and
equipment, accounts payable, accrued liabilities, deferred revenues and notes
payable.
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Note 2. Pro Forma Adjustments
(A) To reflect the allocation of the purchase price and the acquisition
accounting to be recorded as a result of the merger:
. Record assembled workforce and goodwill:
Assembled workforce--$500,000
Goodwill--$198,100,000
. Adjust deferred revenue for the present value of costs that will be
incurred to deliver the future services plus an allowance for normal
profits.
. Record the write-off of in-process research and development of
$214,000,000 as of December 31, 1999, and estimated merger-related fees
and expenses of $5,500,000.
(B) To reflect the amortization of assembled workforce and goodwill
recorded as a result of the merger. Amortization has been estimated based on
an estimated useful life of 5 years:
Assembled workforce--$100,000
Goodwill--$39,600,000
(C) To reflect receipt of cash for Reprogenesis warrants assumed to be
exercised prior to the merger.
(D) To eliminate accretion on Ontogeny preferred stock assumed to be
converted into common stock as of January 1, 1999.
(E) To record issuance of common stock and conversion of preferred stock
and related equity adjustments.
(F) As required by Article 11 of Regulation S-X, the unaudited pro forma
combined condensed statement of operations excludes material non-recurring
charges which result directly from the merger and which will be recorded
within twelve months following the merger. The following schedule shows the
effect of the write-off of in-process research and development of $214,000,000
and Creative's estimated integration costs, including severance and facility
shutdown costs, of $2,200,000.
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Net loss................................................. $(287,725,000)
Basic and diluted loss per common share.................. $ (12.44)
</TABLE>
Note 3. Pro Forma Net Loss Per Share
The unaudited pro forma basic and diluted net loss per share is based on
the weighted average number of shares of Creative, Ontogeny and Reprogenesis
common shares outstanding on an exchange ratio of one share for 0.30, 0.2564
and 0.1956 (subject to adjustment to account for the preference of the
Reprogenesis series A preferred stockholders), respectively, of a Curis common
share during the period and the weighted average number of Ontogeny and
Reprogenesis preferred shares and certain of Reprogenesis warrants on an as-
converted basis using the respective exchange ratio for Curis common shares.
Options and warrants outstanding have not been included in the computation of
pro forma diluted net loss per share for the year ended December 31, 1999
because their effect would be antidilutive.
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CURIS BUSINESS
Overview of Curis
Curis intends to be a leader in the emerging field of regenerative medicine.
Formed by the merger of Creative, Ontogeny and Reprogenesis, Curis will apply
the insight gained through the study of developmental biology with expertise in
protein factors, cell therapies, tissue engineering and small molecules to
facilitate the development of new regenerative medicine therapies. Curis'
product pipeline will include: a product which is currently under regulatory
review in the United States, Europe and Australia; products in late-stage
clinical development; numerous early clinical and advanced preclinical
products; and a discovery engine that combines functional genomics and
developmental biology across multiple medical indications. We believe these
products have the potential to change the way degenerative disease, cancer and
other disorders associated with loss of function are treated.
Regenerative Medicine Background
The aging population is creating a growing need for therapies that improve,
restore or preserve the function of tissues and organs. Chronic degenerative
diseases result in deteriorating quality of life and increasing cost of patient
care. Whether addressing degenerative disorders, malignancies, trauma (e.g.,
paralysis due to spinal cord damage), auto-immune disorders or other
conditions, there are a lack of therapies currently available generally to
address the underlying loss of tissue function inherent in these degenerative
disorders.
One solution for the challenges posed by an aging population is to identify
therapeutics that can stimulate repair and regeneration of damaged tissues and
organ systems. There is mounting evidence that even elderly adults retain or
can regain the capacity to repair and rebuild tissues and organs. The
restoration of lost function would improve the independence and quality of life
of the individual while having the potential to decrease the financial burden
to society. The emerging field of therapeutics used to reactivate the body's
ability to repair damaged tissues and organs has been named regenerative
medicine.
Functional Genomics/Developmental Biology
As the sequencing of the human genome nears completion, a major objective
for biopharmaceutical companies will be to identify the key target genes for
drug discovery. A significant challenge will be to sort efficiently through the
over 100,000 genes in the human genome to identify these key target genes.
Understanding the function of genes in key biological processes is becoming an
important basis for creating new drug development screens and new therapies.
Developmental biology is a powerful tool that can be used to identify
therapeutics relevant to tissue repair and regeneration. Developmental biology
is the study of the molecules and pathways that the embryo uses to build all
the critical organ systems of the body. The same process of growth and
differentiation is constantly occurring in the adult during, for example, the
body's normal replenishing of the blood supply and maintenance of skin and hair
growth. Therefore, the control molecules discovered in the embryo may be
applied to the treatment of adult diseases to induce tissue regeneration or
restore function.
Curis is positioned to integrate genomics sequence data and knowledge of
developmental biology to understand the function of genes in tissue formation
and repair. We believe creating high throughput screening assays based on
developmental biology discoveries will enable us to accelerate the
identification of new therapeutic product candidates.
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Regenerative Medicine Technologies
Curis has expertise in four major regenerative medicine technologies
necessary to take advantage of the opportunities created by the sequencing of
the human genome and developmental biology. These technologies are:
. Protein Factors: gene/protein identification, expression and functional
characterization, and the ability to develop therapies based on or
incorporating genes/proteins through protein biochemistry, protein
production and protein delivery.
. Cell Therapies: the ability to culture, qualify, deliver and manage
cells for the development of therapies incorporating living cells for
tissue regeneration.
. Tissue Engineering: matrix development and delivery expertise including
knowledge of biomaterials, synthetic materials and other scaffolds for
tissue formation and knowledge of cell/factor/matrix interactions in
tissue formation and repair.
. Small Molecules: cell-based assays, developmental biology expertise,
high throughput screening, combinatorial chemistry libraries and
medicinal chemistry.
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Curis Product Opportunities Portfolio
Curis, via the merger of Creative, Ontogeny and Reprogenesis, will have an
integrated product portfolio as more fully described in the respective business
sections of each of Creative, Ontogeny and Reprogenesis. Set forth in the chart
below are the principal product candidates and research programs of Curis. A
brief description of these product candidates and research programs as they
would be consolidated under Curis is set forth following the chart. For a more
complete description of these product candidates and research programs, see
"Creative Business, Selected Consolidated Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Product Development and Research Programs", "Ontogeny Business, Selected
Financial Data and Management's Discussion and Analysis of Financial Condition
and Results of Operations--Ontogeny's Clinical Leads and Targets" and
"Reprogenesis Business, Selected Consolidated Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Products."
Curis Product and Product Candidate Chart
Curis Pipeline
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pre- IND Phase II Phase III Regulatory
Research clinical Preparation Pilot Pivotal Review
<S> <C>
</TABLE>
- --------------------------------------------------------------------------------
Non-Union --------------------------------------------------------
Fractures(/1/)
Fresh ----------------------------------------------
Fractures(/1/)
Vesicoureteral ----------------------------------------------
Reflux(/2/)
Periodontal -----------------------------------
Disease(/1/)
Spinal -----------------------------------
Fusion(/1/)
Inhibition of -------------------------
Restenosis(/2/)
Basal Cell -------------------------
Carcinoma(/3/)
Stroke ------------------------
Recovery(/4/)
Bladder ------------------------
Augmentation(/2/)
Neuropathies/CNS(/5/)
--------------
Chronic Renal --------------
Failure(/3/)
Hair Growth(/3/) --------------
Maxillofacial --------------
Repair(/2/)
Diabetes ------
Factors(/3/)
Pancreatic ------
Islets(/3/)
- --------
(1) Partnered with Stryker by Creative.
(2) From Reprogenesis.
(3) From Ontogeny.
(4) From Creative.
(5) Partnered with Biogen by Ontogeny.
OP-1
OP-1 Device. The OP-1 device is comprised of Bone Morphogenetic Protein-7
(BMP-7) and a highly purified Type 1 collagen matrix for orthopaedic
reconstruction and grafting. Creative has partnered with Stryker to develop the
OP-1 device. Based upon the clinical results of the pivotal trial in non-union
fractures, Stryker filed an application for marketing approval of the OP-1
device in the U.S., Europe and Australia. OP-1 is in pivotal and early trials
for other bone reconstruction indications including fresh fractures, spinal
fusion and periodontal disease. We believe that OP-1 provides our first example
of the regenerative capabilities of the human body to direct regrowth of
degenerated, damaged or missing tissue, in this case bone.
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Stroke Recovery. In preclinical studies conducted at Massachusetts General
Hospital and other leading institutions, animals treated with OP-1 showed a
statistically significant improvement in the rate and extent of motor skills
recovery compared to untreated animals when OP-1 was administered up to three
days following the stroke. OP-1 is in preclinical development for use as a
stroke recovery therapy.
Renal Failure. In preclinical models of chronic and acute renal failure, OP-
1 treatment has shown an ability to preserve renal function and reduce kidney
tissue damage. OP-1 is in preclinical development for use as a renal failure
therapy.
Chondrogel for Vesicoureteral Reflux
Chondrogel is a structural tissue product comprised of ex vivo expanded
autologous cartilage cells in a biodegradable hydrogel matrix for endoscopic
injection. This material is injected into the submucosa of the bladder at the
junction of the ureter and bladder in order to reduce the size of the opening
from the ureter to the bladder to prevent the backflow of urine to the kidney.
Chondrogel is in a Phase III clinical trial.
Vascugel for the Inhibition of Restenosis
Vascugel is designed to enhance the efficacy of bypass graft surgery and
chronic vascular access by reducing or eliminating restenosis. Recognizing that
the endothelial cells regulate smooth muscle cell overgrowth, Vascugel utilizes
allogeneic endothelial cells in a degradable matrix placed on the outside of
bypassed or grafted vessels at the time of surgery. Preclinical studies are
underway to support a regulatory filing for permission to initiate a clinical
trial of Vascugel.
Hedgehog Proteins
Ontogeny possesses proprietary rights to another important family of
proteins that induce cell and tissue growth and differentiation, referred to as
the hedgehog family. Sonic Hedgehog has neuro-inductive, growth factor and
neuroprotective properties, and offers the potential for treatment of
neurodegenerative diseases such as peripheral neuropathy, Parkinson's disease,
Alzheimer's disease, Amyotrophic Lateral Sclerosis and Multiple Sclerosis.
Desert Hedgehog plays a role in normal peripheral nerve signaling. Ontogeny is
exploring its use in disorders related to nerve signaling such as chemotherapy-
and diabetes-induced neuropathy. Neurology therapies based upon the hedgehog
proteins are being developed in partnership with Biogen.
Basal Cell Carcinoma Treatment and Prophylaxis
The hedgehog receptor "patched" is critical for normal skin and hair
formation. In cases of abnormal skin growth such as basal cell carcinoma (BCC),
Ontogeny has identified small molecules that turn off the patched signaling
pathway to stop growth of or even shrink BCCs. Preclinical studies of a
candidate therapy for treatment of BCC are underway. These studies are intended
to support an IND filing for a BCC therapeutic.
Bladder Augmentation
Reprogenesis is developing a bladder product that uses the patient's cells
on a synthetic matrix for bladder augmentation. The approach under development
is intended to augment or replace the use of transplanted bowel segments to
increase bladder capacity. Preclinical studies are underway to support clinical
trials.
Hair Growth
Sonic Hedgehog can induce or accelerate hair growth in animals. Based upon
this biology, Ontogeny has developed proprietary cell-based assays and is
screening for small molecule therapies that will induce the same hair growth
effect.
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Other Products in Research and Development
Several additional programs are in research or early preclinical evaluation.
These include research and development of therapies for diabetes, cancer and
arthritis, and tissue engineering products for maxillofacial and soft tissue
reconstruction.
Research and Development Portfolio Review
Curis intends to review the research and development pipeline of the
combined companies, and allocate resources among the various research and
development projects based on their strategic fit and the availability of
internal resources. To the extent a project requires greater resources than are
available internally, Curis may seek to enter into academic and commercial
collaborations to continue such projects to address this need, however, no
assurance can be given that all of the current projects of Creative, Ontogeny
and Reprogenesis will be continued.
Competition
We will face competition in each of our product development programs and in
our developmental biology research. The products that we will be developing
would compete with existing and new products being created by pharmaceutical,
biopharmaceutical and biotechnology companies as well as universities and other
research institutions. Many of our competitors are significantly larger than we
are and have substantially greater capital resources, research and development
staffs and facilities than we have.
Competing orthopaedic and dental reconstruction products may include
morphogenic proteins, growth factors, autografts, allografts, and electrical
stimulation. Competing products and approaches for vesicoureteral reflux
include surgery, antibiotics and other bulking agents such as bovine dermal
collagen, synthetic materials and other biomaterials. Several approaches are
currently being developed to reduce restenosis including local and systemic
drug therapy, endovascular brachytherapy, gene therapy and improved stenting
techniques. Our other product development programs will similarly face
significant competition.
In addition, research in the field of developmental biology and genomics is
highly competitive. Our competitors in this field of developmental biology
include, among others, Amgen, Inc., Chiron Corporation, Exelixis, Inc.,
Genentech, Inc. and Geron Corporation. Competitors in the genomics area
include, among others, public companies such as Axys Pharmaceuticals, Inc.,
Genome Therapeutics Corporation, Human Genome Sciences, Inc., Incyte
Pharmaceuticals, Inc., Millennium Pharmaceuticals, Inc. and Myriad Genetics,
Inc. We expect competition to intensify in genomics research and developmental
biology as technical advances in the field are made and become widely known.
For a further discussion of the competition against Curis see "Creative
Business, Selected Consolidated Financial Data and Management's Discussion and
Analysis of Financial Condition and Results of Operations--Competition",
"Ontogeny Business, Selected Financial Data and Management's Discussion and
Analysis of Financial Condition and Results of Operations--Competition" and
"Reprogenesis Business, Selected Consolidated Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Competition."
Regulatory Matters
Regulation by governmental agencies in the United States and other countries
is a significant factor in the clinical evaluation and licensing of our
potential products as well as in the development and research of new products.
All of our products currently under development will require regulatory
approval by the FDA under the Food, Drug, and Cosmetic Act, as a drug or
device, or under the Public Health Service Act as a biological, to be marketed
in the United States and by similar governmental agencies outside the United
States (collectively, "Regulatory Authorities"). Regardless of the
classification assigned to our products, all human diagnostic and therapeutic
products are subject to rigorous testing to demonstrate their safety and
efficacy. Generally, considerable time and expense are required to demonstrate
safety for use in humans, to design an acceptable clinical trial to enroll
patients and to clinically evaluate the safety and efficacy of a new product.
Moreover, even
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after extensive preclinical testing, unanticipated side effects can arise
during clinical trials and in the course of related or unrelated research
(within or outside the Company's control) that can halt or substantially delay
the regulatory process at any point. Seeking and obtaining regulatory approval
for a new therapeutic or diagnostic product is likely to take several years and
will require the expenditure of substantial resources. No assurance can be
given that any product which enters pre-clinical or clinical development will
be approved for sale by the FDA or any other Regulatory Authorities.
For a discussion of the regulatory matters, see "Regulatory Matters
Affecting Curis, Creative, Ontogony and Reprogenesis."
Sales and Marketing
We currently have no sales, marketing and distribution experience or
infrastructure. We plan to develop small specialty sales, marketing and
distribution capabilities for the sale marketing and distribution of Chondrogel
and other specialty products. There can be no assurance that we will
successfully develop this sales, marketing and distribution capability. With
respect to products which address larger markets, we plan to rely significantly
on sales, marketing and distribution arrangements with third parties until we
develop broader capabilities.
For a further discussion of Curis' sales and marketing position, see
"Creative Business, Selected Consolidated Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Ontogeny Business, Selected Financial Data and Management Discussion and
Analysis of Financial Condition and Results of Operations" and "Reprogenesis
Business, Selected Consolidated Financial Data and Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Collaborative Alliances
Our strategy for development and commercialization of many of our products
depends upon the formation of various collaborations and strategic alliances.
We will have strategic alliances with Stryker, Biogen, Becton Dickinson,
Genzyme and others. There can be no assurance that we will be able to establish
additional collaborations and strategic alliances necessary to develop and
commercialize our products, that any such arrangements will be on terms
favorable to us or that the current or future strategic alliances ultimately
will be successful.
For a further discussion of the collaborative alliances of Curis, see
"Creative Business, Selected Consolidated Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Collaborative Agreements", "Ontogeny Business, Selected Financial Data and
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Collaborative Agreements" and "Reprogenesis Business, Selected
Consolidated Financial Data and Management's Discussion and Analysis of
Financial Condition and Results of Operations--Collaborative Agreements."
Patents
Our ability to commercialize our products and compete effectively with other
companies will depend, in part, on our ability to maintain proprietary rights
to our products and technology. Collectively, Creative, Ontogeny and
Reprogenesis currently own or have rights to 107 issued and 158 pending patent
applications in the United States and have foreign counterpart patent filings
for most of these patents and patent applications. These patent applications
are directed to compositions of matter, methods of making and using these
compositions, methods of repairing, replacing, augmenting and creating tissue
for multiple applications, methods for drug screening and discovery,
developmental biological processes, and patents relating to our proprietary
technologies. The patent positions of pharmaceutical, biopharmaceutical, and
biotechnology companies, including us, are generally uncertain and involve
complex legal and factual questions. There can be no assurance that any of
these pending patent applications will result in issued patents, that we will
develop additional proprietary technologies or products that are patentable,
that any of our patents or those of our collaborative partners will provide a
basis
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for commercially viable products or will provide us with any competitive
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on our ability to conduct our business.
For a further discussion of Curis' patent estate see "Creative Business,
Selected Consolidated Financial Data and Management's Discussion and Analysis
of Financial Condition and Results of Operations--Patents and Proprietary
Rights", "Ontogeny Business, Selected Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Patents and Proprietary Rights" and "Reprogenesis Business, Selected
Consolidated Financial Data and Management's Discussion and Analysis of
Financial Condition and Results of Operations--Patents and Protection of
Proprietary Technology."
Employees
Creative, Ontogeny and Reprogenesis collectively have approximately 152 full
time employees of whom 57 hold Ph.D. or other advanced degrees. Approximately
115 of these employees are currently involved in research, development,
engineering, production, clinical or regulatory affairs activities. None of our
employees are a party to a collective bargaining agreement, and each of
Creative, Ontogeny and Reprogenesis considers its relations with employees to
be good. We have established transition teams which will review the research
and development programs and the capabilities of Curis to determine, among
other things, the needed staffing to support our research, development and
other activities. For a further discussion of Curis' employees, see "Creative
Business, Selected Consolidated Financial Data and Management's Discussion and
Analysis of Financial Condition and Results of Operations--Employees",
"Ontogeny Business, Selected Financial Data and Management's Discussion and
Analysis of Financial Condition and Results of Operations--Employees" and
"Reprogenesis Business, Selected Consolidated Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Employees, Facilities and Manufacturing."
Facilities
Curis will have facilities in four locations upon the closing of the merger.
These include 36,000 square feet in Cambridge, Massachusetts, 52,000 square
feet at a separate site in Cambridge Massachusetts, 35,400 square feet in two
adjacent facilities in Hopkinton, Massachusetts, and 10,500 square feet of
office space in Boston, Massachusetts. We intend to consolidate our operations
from these multiple facilities into the two Cambridge locations. For a further
discussion of Curis' facilities, see "Creative Business, Selected Consolidated
Financial Data and Management's Discussion and Analysis of Financial Condition
and Results of Operations--Description of Property", "Ontogeny Business,
Selected Financial Data and Management's Discussion and Analysis of Financial
Condition and Results of Operations--Facilities" and "Reprogenesis Business,
Selected Consolidated Financial Data and Management's Discussion and Analysis
of Financial Condition and Results of Operations--Employees, Facilities and
Manufacturing."
Manufacturing
We have limited experience and capabilities in large-scale commercial
manufacturing of protein, cell therapy, biomaterials or small molecule
products. Creative established manufacturing facilities to produce the OP-1
device which were sold to Stryker in 1998 and are being used to produce the OP-
1 device. We retain some of the personnel with skills needed for formulation,
analysis and development of recombinant proteins. Reprogenesis has established
a manufacturing facility and staff to support clinical trials of Chondrogel and
Vascugel. We have in this group skills in the production and qualification of
cell therapy and biocompatible materials products. Our commercialization plan
for Chondrogel involves in-house manufacturing of this product. We do not
currently have any commercial manufacturing operations and do not have a
qualified cGMP commercial manufacturing facility for Chondrogel or other
products that we may choose to develop. We or our collaborative partners will
need to establish commercial manufacturing capacity, either internally or
through third parties, for future products that we or our collaborative
partners may develop. For a further discussion of Curis' manufacturing, see
"Reprogenesis Business, Selected Consolidated Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Employees, Facilities and Manufacturing."
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CREATIVE BUSINESS, SELECTED CONSOLIDATED FINANCIAL DATA AND MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business of Creative
Creative is a biopharmaceutical company focused on the development of
products for human tissue regeneration and repair. Creative's core technologies
are based on its understanding of the role that morphogenic proteins play in
human biology. These proteins are involved in the initiation and regulation of
the cellular events responsible for the formation of human tissues and organs.
Creative's goal is to apply certain aspects of genetic engineering and its
understanding of cellular biology to the development and commercialization of
morphogenic proteins and related compounds to treat a wide array of medical
conditions. Creative has product candidates in development for several
applications including orthopaedic and dental reconstruction, treatment of
kidney disease, and treatment of stroke and other neurological disorders.
Through Creative's efforts to patent and license its technology, Creative has a
strong intellectual property position covering morphogenic proteins as
therapies. Creative's lead product candidate, the OP-1 device, is in the final
stages of development and commercialization by Stryker Corporation.
Orthopaedic Reconstruction and Dental Therapeutics. Creative has had a long-
term collaboration with Stryker, a leading surgical and medical products
company, to develop Osteogenic Protein-1, OP-1, for use in the repair or
replacement of bone and joint tissue, orthopaedic reconstruction, and for use
in dental therapeutics. Prior to November 1998, Creative was responsible for
manufacturing OP-1 products for Stryker and conducting research for Stryker in
the orthopaedic reconstruction and dental fields. Stryker was responsible for
clinical and regulatory development and sales and marketing of OP-1 products in
these fields. The Stryker agreement was restructured in November 1998 to
provide Stryker with the exclusive rights to manufacture OP-1 products in these
fields. At this time Stryker acquired Creative's commercial manufacturing
operations. As a result, Stryker has the exclusive right to develop, market,
manufacture, and sell products based on OP-1 proteins for use in orthopaedic
reconstruction and dental therapeutics. In return, Creative agreed with Stryker
to increase the royalty rate under the agreement.
Stryker has completed a pivotal study of an OP-1 device designed to induce
new bone formation. This trial was conducted in 122 patients with non-union
fractures of the tibia, the major bone of the lower leg. The objective of this
trial was to demonstrate that treatment with the OP-1 device could repair non-
union fractures of the tibia as well as treatment with the currently most
widely used treatment, autograft. Autograft is a procedure which involves
removal of bone from the hip and implanting that bone at the fracture site to
induce healing. The results of the trial, as presented in March 1998,
demonstrated that the group of patients treated with the OP-1 device had
comparable clinical success to the autograft group without the need for a
second invasive procedure to harvest autograft bone. In June 1999, Stryker
announced that it had submitted a Pre-Market Approval application to the FDA
and a Marketing Authorization Application in Europe to the European Medicines
Evaluation Agency. The FDA accepted Stryker's application for filing in July
1999. In December 1999, Stryker also filed for regulatory approval in
Australia. The applications are Stryker's formal requests to the various
regulatory authorities for approval to market the OP-1 device.
In addition to the pivotal trial in non-union fractures, Stryker has
reported initiating clinical studies in other bone graft indications. These
studies include a 200 patient clinical trial in Canada to evaluate use of the
OP-1 device to treat fresh fractures, a U.S. clinical trial to evaluate the use
of the OP-1 device in spinal fusion, a study in Australia to treat patients
with difficult to heal orthopaedic indications, and several pilot studies in
Europe.
Stryker is also developing an OP-1 device for the treatment of periodontal
disease. Completed preclinical studies indicate that an OP-1 device may restore
the periodontal tissues necessary to maintain tooth attachment when used in
conjunction with standard surgical treatments of periodontal disease. Stryker
is conducting a clinical trial in the United States to test an OP-1 device in
the treatment of periodontal disease.
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Neurological Disorders. Creative is developing morphogenic protein therapies
for neurological disorders, including stroke and Parkinson's disease. In vitro
studies have shown that OP-1 enhances the survival of neurons and may promote
the establishment of new neuronal connections. In several preclinical studies,
OP-1 improved the rate and extent of motor function recovery in animal models
of stroke. Such positive results in preclinical studies of stroke have been
observed even if treatment with OP-1 is initiated up to three days after the
stroke. Additional preclinical studies are currently underway in preparation
for a stroke therapy IND and to evaluate the effectiveness of Creative's
proprietary proteins in treating other neurological disorders, including
traumatic brain injury, spinal cord injury and Parkinson's disease.
Kidney Disorders. Creative is developing an OP-1 based therapy for chronic
renal failure, a condition characterized by the slow progressive loss of kidney
function ultimately resulting in the need for kidney transplantation or
dialysis. Chronic renal failure represents a substantial unmet medical need.
Preclinical studies indicate that OP-1 administration improves kidney function
in animal models of both acute and chronic renal failure. Through December
1999, Creative had a development agreement with Biogen under which Biogen
provided funding for and retained an option to OP-1 based therapies for chronic
renal failure. As of December 31, 1999, Biogen did not exercise its option, and
Creative has assumed all rights to OP-1 based renal therapies.
Other Programs. In addition to its work with OP-1, Creative is conducting
research directed toward the development of new therapeutic applications for
other related morphogenic proteins in Creative's proprietary portfolio.
Creative also has a program underway to develop and identify orally-active drug
compounds that either promote morphogenic protein expression or mimic the
biological activities of morphogenic proteins.
Creative is a Delaware corporation with principal offices at 45 South
Street, Hopkinton, Massachusetts, USA, 01748. Creative's telephone number is
(508) 782-1100.
Forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995 are made throughout this discussion of Creative's
Business, Selected Consolidated Financial Data and Management's Discussion and
Analysis of Financial Condition and Results of Operations. For this purpose,
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "seeks," "estimates," "plans," "expects," "anticipates,"
"hopes," and similar expression are intended to identify forward-looking
statements. There are a number of important factors that could cause the
results of Creative to differ materially from those indicated by such forward-
looking statements, including those detailed under the heading "Forward-looking
statements" under the heading Risk Factors set forth in Creative's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, filed March
13, 2000 with the Securities and Exchange Commission. You may obtain the
information incorporated by reference without charge by following the
instructions in the section entitled "Where You Can Find More Information" that
begins on page 174 of this joint proxy statement-prospectus.
Creative's Technology
Creative has played a significant role in advancing the scientific
understanding of the process of tissue repair and regeneration. Creative has
established a technology platform based on the molecular and cellular events
responsible for tissue and organ development. Creative was the first to
identify and characterize certain morphogenic proteins that are key regulators
of tissue and organ formation in humans. These morphogenic proteins, and
Creative's understanding of the biology related to the activity of these
proteins, provide the basis for the development of its proprietary therapeutic
products.
The role of morphogenic proteins in the formation, maintenance and repair of
many tissues has led Creative to believe that morphogenic proteins may provide
therapies to treat several types of acute injury or chronic disease. Creative's
research and that of its collaborators has indicated that morphogenic proteins
are significant in the formation of many tissues including bone, cartilage,
kidney, dental and brain tissues. OP-1, a morphogenic protein, has been
developed in a formulation with a collagen matrix to induce bone formation. In
human trials, this OP-1 and collagen device has demonstrated the ability to
repair bone defects in several hard-to-heal orthopaedic indications. Additional
clinical trials are currently underway to evaluate this device in other
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indications, including the treatment of periodontal disease, fresh fractures
and spinal fusion. Together with its collaborators, Creative is exploring the
role of several other morphogenic proteins in the development of tissues
throughout the body. Creative has determined that several of these proteins are
important in neurological development and appear to interact with neurons to
promote certain biological functions of these neurons. These findings form the
basis of the therapies Creative is developing for stroke and other neurological
diseases. Creative has also determined that OP-1 is critical to the normal
development of the kidney and plays an important role in kidney function. This
knowledge may assist Creative in developing a chronic renal failure therapy
based on OP-1. Creative is similarly exploring the role of several of the
morphogenic proteins in tissues throughout the body to identify new product
opportunities for therapies based on these proteins.
In addition to identifying and characterizing several morphogenic proteins,
including OP-1, Creative has identified with its collaborators the DNA
sequences which regulate the expression of OP-1. Creative has also discovered
the cellular receptors to which OP-1 and other morphogenic proteins bind and
through which they act as well as the three-dimensional structure of OP-1.
These discoveries have enabled Creative to initiate a small molecule program,
the goal of which is to identify second generation, orally-active drug
compounds that either promote morphogenic protein expression or mimic the
biological activities of morphogenic proteins.
Business Strategy
Creative's objective is to be the leader in the discovery and development of
therapeutics for tissue repair and regeneration based on the biology of
morphogenic proteins. Key elements of Creative's continuing business strategy
include:
Receiving Royalties from the Sale of OP-1 Orthopaedic and Dental Products by
Stryker. Creative has had a long-term research and development agreement with
Stryker that was restructured in November 1998. Under the agreement with
Stryker, Creative receives royalties on sales of Stryker's OP-1 products.
Stryker is seeking approval from regulatory authorities to market and sell the
OP-1 bone graft device in the United States and foreign markets. If approved,
Stryker will be responsible for worldwide commercialization of the OP-1 device
and Creative will receive royalties on such sales. There can be no assurance
that Stryker can obtain such regulatory approvals or successfully commercialize
its OP-1 products. If Stryker does not commercialize its OP-1 products,
Creative may never receive significant royalties on Stryker's OP-1 products.
Developing Morphogenic Protein Therapies for Stroke and Other Neurological
Disorders. Preclinical studies have demonstrated that the administration of OP-
1 following stroke can improve the rate and extent of motor skills recovery.
Creative is currently conducting additional preclinical studies which are
intended to support the filing of an Investigational New Drug, or IND,
application with the FDA in order to initiate clinical trials for a new stroke
therapy. Creative is also evaluating morphogenic protein therapies designed to
treat other neurological disorders.
Developing OP-1 as a Therapy for Renal Disease. Preclinical results have
demonstrated that OP-1 may be beneficial in protecting against kidney damage in
acute conditions and in slowing kidney function decline in chronic disease.
Creative is currently conducting additional preclinical studies which are
intended to support the filing of an IND application with the FDA in order to
enable Creative to initiate clinical trials for a therapy to treat chronic
renal failure.
Creating New Morphogenic Protein Therapies. Creative has proprietary rights
covering several morphogenic proteins that may be involved in the formation and
repair of several tissues and organs. Creative is investigating the role of
these proteins in several new therapeutic indications.
Developing Molecular Therapeutics Based on Morphogen Biology. Creative
believes that certain small compounds may be able to stimulate important
biological responses involved in the activity of morphogenic proteins. Creative
further believes that since such small compounds are more likely to lead to
orally available therapies, they could be attractive candidates for commercial
development. Creative is developing biochemical and cell-based screens based on
the biology of morphogenic proteins and has a collaboration with Neogenesis,
Inc. to screen chemistry libraries and identify small molecule therapeutic
candidates.
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Establishing Corporate Collaborations. Creative may elect to establish
corporate collaborations to achieve several purposes. Creative hopes that such
collaborations will allow it to strengthen its financial resources, broaden its
pipeline of programs, access complementary technologies, and gain development,
manufacturing and commercialization expertise.
Establishing Academic Collaborations. Creative utilizes a large network of
academic collaborators to extend expertise and knowledge about tissue formation
and morphogenic protein biology, to identify additional therapeutic uses for
morphogenic proteins, and to conduct preclinical studies of our therapies.
Product Development and Research Programs
Creative or its collaborators are developing several therapeutic products.
The following table sets forth Creative's product development programs:
<TABLE>
<CAPTION>
Commercial
Potential Application Rights Development Status(1)
- --------------------- ---------- ---------------------
<S> <C> <C>
Orthopaedic Reconstruction and
Dental Applications
Non-Union Fractures, Tibia........ Stryker U.S. Pivotal Trial Completed
Regulatory review underway in
the United States, Europe and
Australia
Non-Union Fractures, All Long Stryker U.S. Treatment Study
Bones............................
Fresh Fractures................... Stryker Canadian Clinical Study
Spinal Fusion..................... Stryker U.S. Clinical Study
Other Bone Graft Indications(2)... Stryker International Clinical Studies
Periodontal Disease............... Stryker U.S. Clinical Study
Cartilage Regeneration............ Stryker Preclinical
Kidney Disorders
Acute Renal Failure............... Creative Preclinical
Chronic Renal Failure............. Creative Preclinical
Neurological Disorders
Stroke............................ Creative Preclinical
Other Neurological Disorders...... Creative Preclinical
</TABLE>
- --------
(1) "Pivotal Clinical Trials" are investigations conducted under an
Investigational Device Exemption, IDE, intended to be used as the
primary supporting documentation for regulatory approval of a new
medical device. "Treatment Study" denotes an open label study
pursuant to a supplement to an IDE. "Clinical Studies" vary in scope
from a Canadian Clinical Trial in 200 patients with fresh fractures
to several physician sponsored feasibility investigations conducted
among a small number of patients. "Preclinical" denotes the
collection and analysis of data from multiple studies in animals
relating to toxicity and/or efficacy in preparation for an
Investigational New Drug, IND, or IDE application filing. See
"Regulatory Matters Affecting Curis, Creative, Ontogeny and
Reprogenesis." In any case where more than one product formulation or
composition may be developed, the status stated relates to the most
advanced product in that field.
(2) Stryker has announced that it has initiated clinical studies for
several orthopaedic reconstruction applications of OP-1. Preliminary
data has been reported from some of the ongoing studies.
Orthopaedic Reconstruction and Periodontal Applications--Stryker Products in
Development. Creative has collaborated with Stryker, a leading specialty
surgical and medical products company, to develop and commercialize orthopaedic
reconstruction and dental therapy products. Under its collaboration agreement
with Stryker, Creative granted Stryker exclusive rights to develop, manufacture
and commercialize OP-1 products in orthopaedic reconstruction and dental
applications, for which Creative will receive royalties on commercial sales of
OP-1 products in this field. See "--Collaborative and Licensing Agreements--
Stryker Corporation."
Orthopaedic Reconstruction. Creative believes there is a significant
commercial opportunity for the use of OP-1 products to regenerate bone and
cartilage tissue in orthopaedic reconstruction. Creative believes that in 1995,
there were more than 1.6 million procedures performed in the United States that
may have benefited from an OP-1 device, if it were available. These procedures
included repair of non-healing fractures (170,000), open
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fracture reductions (440,000), spinal fusions (200,000), maxillofacial
reconstructions (220,000), prosthetic fixations (540,000) and gap fillings
(30,000). In addition, in 1995 there were 570,000 cartilage-related injuries in
the United States.
Through its collaboration with Stryker, Creative has generated substantial
evidence that OP-1 is a potent stimulator of bone and cartilage formation.
Numerous studies in six different animal species have demonstrated that OP-1 is
capable of inducing bone regeneration at a wide array of sites within the body
in which bone is normally present. Bone formed in response to OP-1 has been
shown to be biochemically and biomechanically identical to normal bone.
The most widely employed reconstruction procedure for the replacement of
lost or damaged bone is bone grafting. Grafting involves surgical
transplantation of bone or bone chips to the site of the defect to facilitate
new bone formation. Autograft, the currently preferred grafting approach,
involves two surgical steps: a first step to harvest the graft, and a second
step to implant the graft at the site of the defect or injury. In addition to
the pain and cost associated with this two-step procedure, many patients
experience complications resulting from the graft harvesting step. A second
approach involving allograft procedures utilizes bone grafts or demineralized
bone taken from cadavers. Creative believes that the OP-1 device applied
locally to the site of the defect could be used as an alternative to many bone
graft procedures, and may provide reliable healing without the need for graft
harvesting with its associated complications.
Stryker has reported completing a pivotal clinical trial under an IDE to
evaluate the use of an OP-1 device as a bone graft substitute. The randomized
prospective study included 122 patients at 18 different centers throughout the
United States. Patients included in the study had tibial non-union fractures
for at least nine months following initial injury without demonstrating
progress toward union for the previous three months. Such non-union fractures
are often caused by high-energy trauma, do not usually heal well, and generally
require repeated surgical interventions. The study was designed to evaluate
whether treatment with the OP-1 device is equivalent to autograft, the current
standard of treatment. The OP-1 device used in this study consisted of a paste-
like formulation that was applied locally at the fracture site.
The results of the trial, presented in March 1998 at the American Academy of
Orthopaedic Surgeons, demonstrated that the OP-1 device had comparable clinical
success to autograft without the need for a second invasive procedure to
harvest autograft bone from the hip. The analysis of the data in this trial
showed statistical equivalence between OP-1 and autograft with respect to the
clinically important areas of weight-bearing and pain. In addition, the data
confirmed that there were comparable rates of re-operation for the two groups
of patients. Specifically, eleven of the 61 autograft patients and ten of the
61 OP-1 patients have required re-operation to date. Finally, the data showed a
significant reduction in blood loss for the OP-1 patients as compared to the
autograft patients and the elimination of certain other complications
associated with the harvest of autograft. Radiographic evidence of healing did
not meet the predicted target for either group and was approximately 10% higher
for the autograft group during the long-term follow-up period.
In October 1995, the FDA approved a supplemental treatment arm, or an Open-
Label Trial, of the pivotal trial, allowing Stryker to expand the study to test
the OP-1 device for the treatment of all long bone non-union fractures. Stryker
has completed the selection of patients in this Open-Label Trial.
Data presented at a scientific conference in November 1998 from an
Australian clinical experience involving 80 patients indicated good clinical
and radiological success with use of an OP-1 device to treat patients with
hard-to-heal orthopaedic indications. The presenting clinician reported that 41
(93%) of the 44 patients who had completed five months of follow-up showed
clinical or radiological improvement following OP-1 device treatment. Patients
enrolled in this study had a variety of orthopaedic indications including non-
union fractures, spinal fusions, revision arthroplasty, peri-prosthetic
fractures, bone defects, and arthrodeses. Since the data were presented,
Stryker has continued enrollment of additional patients in this study.
Stryker has initiated a 200 patient clinical study in Canada to evaluate the
use of the OP-1 device for the treatment of fresh fractures and a U.S. clinical
study to evaluate the OP-1 device in spinal fusion. Stryker has also initiated
clinical studies in several European countries. Stryker may initiate additional
clinical trials to demonstrate the utility of OP-1 based products in additional
orthopaedic indications. Stryker and Creative have
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also conducted preclinical studies indicating the potential utility of OP-1 in
the treatment of cartilage defects. Creative believes that Stryker's goal is to
market OP-1 products for a number of orthopaedic reconstruction indications in
major markets around the world.
Based on the results of the U.S. pivotal trial, other clinical and
preclinical data, and Creative's development of a commercial scale
manufacturing process and facility, Stryker submitted a Pre-Market Approval
application to the FDA and a Marketing Authorization Application in Europe to
the European Medicines Evaluation Agency in June 1999. In December 1999,
Stryker also filed for regulatory approval in Australia. The applications are
pending.
Periodontal Tissue Repair. Periodontal disease is a bacterially induced
inflammatory disorder that results in the progressive destruction of the
periodontal tissues that hold teeth in place. Reliable and effective
restoration of periodontal tissue damaged or lost as a result of periodontal
disease is not possible with current therapies. Based on data from the most
recent American Dental Association Survey of Services Rendered, or ADA Survey,
in 1995 approximately four million patients underwent periodontal surgery in
the United States for severe periodontal disease. Creative believes that many
of these procedures would have been candidates for treatment with an OP-1
periodontal product.
Stryker is conducting a clinical trial in the United States to test an OP-1
device in the treatment of periodontal disease. This trial follows preclinical
studies which demonstrated that an OP-1 device was capable of regenerating the
normal tissue structures surrounding the tooth root.
Kidney Disorders
Kidney disorders, particularly various types of renal failure, are a large
and growing health care problem. Billions of dollars are spent annually in the
United States on the treatment of renal failure patients. Despite these
expenditures, mortality rates remain high and quality of life low. Studies
conducted by Creative's scientists and academic collaborators have shown that
OP-1 is a key morphogenic signal that initiates kidney formation at the
earliest stages of kidney development.
Chronic Renal Failure. Chronic renal failure is characterized by a gradual
and progressive loss of kidney function. The most common conditions associated
with onset of chronic renal failure are diabetes and high blood pressure.
Chronic renal failure eventually results in end stage renal disease, a
condition that requires dialysis or kidney transplantation. Aside from the
substantial economic costs associated with dialysis, quality of life is
significantly impacted, and the average life expectancy of patients on dialysis
is substantially diminished. Based on reports from the United States Renal Data
System and epidemiology studies, more than 360,000 patients suffered from end
stage renal disease in 1997. Seventy-nine thousand new patients with chronic
renal failure begin dialysis therapy in the United States every year. Creative
believes that there is a significant commercial opportunity for a therapy that
could reduce, delay or prevent the need for dialysis or that could halt the
progression of chronic renal failure.
Under the terms of Creative's partnership in renal therapy with Biogen,
Inc., a leading protein therapeutics company, Creative received financial
support from Biogen through 1999 to develop an OP-1-based therapy to moderate
or halt the progression of chronic renal failure. As of January 1, 2000,
Creative has reacquired all rights to the renal therapy program. See "--
Collaborative Agreements--Biogen, Inc." Creative has initiated a series of
studies to investigate the potential of OP-1 to moderate the progression of
chronic renal failure. Results indicate that systemic administration of OP-1
can retard the progressive loss of kidney function in a preclinical model of
chronic renal failure. Additional preclinical studies are currently underway.
Creative hopes to initiate human clinical investigation of an OP-1 product for
the treatment of chronic renal failure once preclinical studies are completed.
Acute Renal Failure. Acute renal failure is the rapid and sudden loss of the
kidneys' ability to perform their essential functions and is often associated
with multiple organ failure and a high mortality rate.
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The primary causes of acute renal failure are interruptions of blood flow
(often as a result of certain surgical procedures or cardiac arrest), trauma
and certain medications with toxic side effects to the kidneys. Based on data
from the National Center for Health Statistics and other sources there were
250,000 diagnosed cases of acute renal failure in the United States in 1995.
Currently, therapies that prevent, improve recovery or reduce the extent of
kidney injury from acute renal failure are limited.
Animal studies have been conducted by Creative scientists and collaborators
to determine if acute renal failure can be treated with systemic administration
of OP-1. Results of these studies indicate that an OP-1 product can reduce the
extent of injury to the kidneys and promote more rapid recovery of kidney
function in animal models of acute renal failure. Although clinical trials are
difficult to design in this indication, Creative is currently exploring
potential avenues for a therapy in acute renal failure.
Neurological Disorders
A number of neurological disorders, including stroke, Parkinson's disease,
brain trauma, Alzheimer's disease, and Amyotrophic Lateral Sclerosis (Lou
Gehrig's disease), are characterized by the acute or progressive death of
neurons or the loss of neuronal function. Creative has completed a number of
cell-based studies which indicate that OP-1 can promote neuron survival and can
induce the formation or development of dendrites, the structures on neurons
which pick up signals from other neurons. This dendrite formation effect of OP-
1 may be an important factor in maintaining or recovering function following
neurological injury or disease. Based on these findings, Creative has initiated
a preclinical investigation to study the use of OP-1 as a treatment for certain
neurological disorders. In addition to Creative's research activities with OP-
1, Creative is investigating the effect of other proprietary proteins in the
treatment of disease and injury affecting the central nervous system. To
complement Creative's in-house proteins, Creative has licensed exclusive rights
to GDF-1, a growth factor with potential in the treatment of a number of
nervous system disorders.
Stroke. Strokes occur when blood flow to the brain is interrupted by a
clogged or burst artery. The interruption deprives the brain of oxygen and
nutrients, and causes neurons to die. Stroke is the third leading cause of
death in the United States and the number one cause of adult disability. The
National Stroke Association has estimated that there are 550,000 strokes every
year in the United States and that three million Americans are permanently
disabled because of stroke. Therapeutics currently available to aid the
recovery from stroke are limited. Creative believes that there is a substantial
commercial opportunity for a protein-based therapy that could promote enhanced
recovery from stroke.
Research by Creative's academic collaborators has indicated that OP-1 can
promote the development of dendrites on neurons and thereby enhance the ability
of neurons to establish connections with adjacent neurons. This activity may
enable the brain to form new neuronal connections and may aid recovery
following stroke. In preclinical studies conducted by Creative's collaborators
at Massachusetts General Hospital, the OP-1 group showed a statistically
significant improvement in the rate and extent of motor skills recovery
compared to the control group with administration a full three days following
the stroke. Creative is continuing these studies with the goal of initiating
human clinical investigation of OP-1 as a treatment to enhance recovery from
stroke.
Creative believes that OP-1 represents a potential significant advance in
stroke therapy. Most therapies in development or on the market for stroke are
designed to limit the damage caused to the brain tissue and must therefore be
administered within hours of the stroke's onset. In contrast, OP-1 appears to
enhance the body's natural regenerative processes to help the brain compensate
for areas damaged by the stroke. The ability to administer this agent three
days after a stroke may also provide a clinical advantage in design of trials
and in the care of patients. All of the data generated in Creative's stroke
therapy research is derived from preclinical studies. The therapy has not yet
been tested in human clinical trials.
Research Programs
New Applications of Morphogenic Proteins. The morphogenic proteins to which
Creative has proprietary rights are involved in the development of several
tissues and mediate the activity of many cell types. Creative
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is exploring the biology and activity of these proteins to identify new
therapeutic applications of its proteins. Among these potential applications in
early research are the treatment of inflammatory bowel disease, treatment of
certain vision impairments and other new product opportunities. These programs
are in an early stage of research and require significant development work to
determine the therapeutic potential of such possible future products.
Molecular Therapeutics. In addition to identifying and characterizing OP-1
and other morphogenetic proteins, Creative has identified the DNA sequences
which regulate the expression of OP-1, identified the cellular receptors to
which morphogenic proteins bind and through which they act, and determined the
three-dimensional structure of OP-1. Creative is currently seeking to use this
knowledge to format assays for screening to identify orally-active drug
compounds that either promote endogenous morphogenic protein expression or
mimic morphogenic protein biological activities. In addition, the information
that relates to the three-dimensional structure of OP-1 can be used to aid the
rational design or modification of small molecule drug candidates. These assays
and information have enabled Creative to develop a molecular therapeutics
program that seeks to identify the next generation of drug development
candidates based on morphogenic protein biology.
Collaborative Agreements
Stryker Corporation. Creative had a collaboration agreement with Stryker to
identify and develop bone-inducing proteins and to develop dental therapeutics.
OP-1 was first isolated and characterized by Creative scientists under this
collaboration. Under this agreement, in exchange for research funding, future
royalties and revenue from commercial manufacturing, Creative developed OP-1 as
a therapy for orthopaedic reconstruction and cartilage regeneration, and
supplied Stryker material for use in clinical trials. Creative has devoted
significant time and resources to developing and implementing the commercial
scale process for manufacturing the OP-1 device. Creative restructured its
agreements with Stryker in November 1998 to provide Stryker with the exclusive
rights to manufacturing OP-1 products in these fields. At that time, Stryker
acquired Creative's commercial manufacturing operations. As a result, Stryker
has the exclusive right to develop, market, manufacture and sell products based
on OP-1 proteins for use in orthopaedic reconstruction and dental therapies. In
June 1999, Stryker announced that it had submitted a Pre-Market Approval
application to the FDA and a Marketing Authorization Application in Europe to
the European Medicines Evaluation Agency. The FDA accepted Stryker's
application for filing in July 1999. In December 1999, Stryker also filed for
regulatory approval in Australia. The applications are Stryker's formal
requests to the various regulatory authorities for approval to market the OP-1
device.
Under Creative's agreement with Stryker, as amended, Stryker has exclusive
rights to develop, market and sell products incorporating bone and cartilage-
inducing proteins developed under the research program, including OP-1, for use
in the field of orthopaedic reconstruction and dental therapeutics. Subject to
certain exceptions in connection with the acquisition or merger of Creative,
Creative has also agreed not to undertake any research, development or
commercialization of any products in the fields of orthopaedic reconstruction
and dental therapeutics, on its own behalf or for third parties, for the term
of certain patents. Creative has the exclusive and irrevocable right to
develop, market and sell products incorporating morphogenic proteins developed
under the research program, including OP-1, for all uses and applications other
than orthopaedic and dental reconstruction such as renal failure, neurological
diseases, osteoporosis, and others. Subject to certain exceptions in connection
with the acquisition or merger of Stryker, Stryker has agreed not to undertake
any research, development or commercialization of any products in Creative's
field, on its own behalf or for third parties, for the term of those patents.
Each company has the right to grant licenses to third parties in their
respective fields, and each is obligated to pay royalties to the other on its
sales of such products and to share royalties received from licensees.
Creative maintains an exclusive license in its field (applications other
than orthopaedic reconstruction and dental therapies) under certain patents and
claims that were assigned to Stryker in November 1998 as part of
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the sale of certain of its manufacturing rights and assets to Stryker. In
addition, Creative granted Stryker an exclusive license under patents in
Creative's morphogen portfolio for use in the fields of orthopaedic
reconstruction and dental therapeutics.
Biogen, Inc. Creative is developing an OP-1 based therapy for chronic renal
failure, a condition characterized by the slow progressive loss of kidney
function ultimately resulting in the need for kidney transplantation or
dialysis. Chronic renal failure represents a substantial unmet medical need.
Preclinical studies indicate that OP-1 administration improves kidney function
in preclinical models of both acute and chronic renal failure.
Through December 1999, Creative had a development agreement with Biogen
under which Biogen provided funding for and retained an option to OP-1 based
therapies for chronic renal failure. As of December 31, 1999, Biogen did not
exercise its option and Creative has assumed all rights to OP-1 based renal
therapies.
Genetics Institute. Creative has a cross-license agreement with Stryker and
Genetics Institute, Inc., a wholly-owned subsidiary of American Home Products
Corporation. Each party to the agreement has cross-licensed its worldwide
patent rights to each of the other parties, royalty-free, in the bone
morphogenetic/ osteogenic protein family. The agreement allows the companies to
commercialize their respective lead compounds, which are now in clinical trials
for bone repair and regeneration, free of the risk of patent litigation among
the parties. Under the agreement, which covers both then issued patents and
pending patent applications, Creative and Stryker have exclusive rights to OP-
1, under both Creative's and Genetics Institute's patents. Genetics Institute
and Yamanouchi Pharmaceutical Company, Ltd., its collaborative partner in the
worldwide development of certain bone growth factors, have exclusive rights to
BMP-2, their lead compound, under both their own and each of Creative's and
Stryker's patents. In addition, the companies have granted each other royalty-
free, non-exclusive cross-licenses to patents and patent applications covering
certain other related morphogenic proteins.
Academic Collaborations. Creative has relationships with a number of
academic investigators who are focused on testing morphogenic proteins in
tissue regeneration and restoration applications. In these collaborations,
Creative seeks to expand the scientific knowledge concerning tissue formation
as well as the activities and characteristics of various proteins under
development by Creative scientists. The academic collaborators are not Creative
employees. Hence, Creative has limited control over their activities and
limited amounts of their time are dedicated to Creative projects. From time to
time, Creative has relationships with other commercial entities, some of which
may be competitors. Although the precise nature of each relationship varies,
the collaborators and their primary affiliated institutions generally sign
agreements that provide for confidentiality of Creative's proprietary
technology and results of studies. Creative seeks to obtain exclusive rights to
license developments that may result from these studies; however, there can be
no assurance that exclusive rights will be obtained.
Enzon Cross-Licensing Agreement. Creative owns a number of issued U.S. and
foreign patents with broad claims on the composition of BABS (Biosynthetic
Antibody Binding Sites) proteins and their interdomain linkers. BABS is a
separate technology developed by Creative, and to which Creative has retained
rights, but which is not currently being utilized in Creative's morphogen
development programs. Some of our BABS(TM) technology is also covered by
patents held by Enzon Corporation, or Enzon. In December 1993, Creative signed
cross-licensing and collaboration agreements with Enzon which consolidate the
two companies' intellectual property rights and know-how covering BABS
proteins. The parties have agreed to outlicense the combined technology to
third parties on a non-exclusive basis in exchange for license, milestone and
royalty payments. Creative believes that consolidation of the companies'
respective positions relating to BABS proteins has created a strong proprietary
position in the use and manufacture of these novel proteins.
Manufacturing
Creative has developed significant manufacturing experience in the scale-up
and production of recombinant proteins, including OP-1. This manufacturing
experience prepares Creative to move forward with
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its morphogenic proteins programs. Creative has produced a number of protein
candidates by bacterial fermentation as well as by mammalian cell culture
techniques in the laboratory, scaled-up both of these production processes, and
produced clinical grade recombinant proteins. Creative's protein formulation
and analytical science capabilities support the development and preparation of
clinical grade-materials incorporating BMPs. In addition, Creative currently
maintains inventories of GMP-grade OP-1 suitable for clinical evaluation and
research-grade material of other BMPs for research and preclinical evaluation.
In November 1998, as part of its agreement with Stryker, Creative sold its
commercial manufacturing operations to Stryker.
Competition
The therapeutic products that Creative is developing will compete with
existing and new products being developed by others for treatment of the same
indications. Competition in the development of human therapeutics is
particularly intense and includes many large pharmaceutical and
biopharmaceutical companies, specialized biotechnology firms, universities and
other research institutions. Many of these companies have extensive financial,
marketing and human resources which may result in significant competition.
Others have extensive experience in undertaking clinical trials, in obtaining
regulatory approval to market products and in manufacturing on a large scale
which may enhance their competitive position.
The technology underlying the development of human therapeutic products is
expected to continue to undergo rapid and significant advancement and change.
In the future, Creative's technological and commercial success will be based on
its ability to develop proprietary positions in key scientific areas and
efficiently evaluate potential product opportunities.
Creative is aware of a number of companies that are engaged in the research
and development of morphogenic proteins for the repair of bone and cartilage.
Creative is aware that Genetics Institute, acquired in 1996 by American Home
Products Corporation, and its collaborative partners are pursuing the
development of bone morphogenetic proteins and have initiated human clinical
trials of a recombinant bone morphogenetic protein for the repair of
orthopaedic and other skeletal defects. Genetics Institute has entered into
relationships with Yamanouchi Pharmaceuticals Co., Ltd. and Medtronic Sofamor
Danek, Inc. covering development and marketing of bone morphogenetic proteins.
Other companies may attempt to develop products incorporating proteins purified
from bone, which may include bone morphogenetic proteins, for orthopaedic
applications. In addition, Creative believes that a number of biopharmaceutical
companies are developing other recombinant human proteins, primarily growth
factors, for use in the repair of bone and cartilage defects and in other
indications. A number of other companies are pursuing traditional therapies,
including autografts, allografts and electrical stimulation devices, as well as
cell and gene therapies for the repair of bone and cartilage defects that may
compete with Creative's products.
Creative believes that potential dental or periodontal products that Stryker
may develop will compete primarily with traditional therapies and therapies
incorporating other morphogenic proteins or growth factors. Genetics Institute
is also pursuing the development of bone morphogenetic proteins for the repair
of dental and periodontal tissue.
Several biotechnology and pharmaceutical companies are developing
recombinant protein based products for the treatment of renal and neurological
disorders. In the field of renal failure, companies are evaluating several
different products in human clinical studies for acute renal failure, some of
which may also be under review preclinically for chronic renal failure.
Creative is not aware of any companies developing morphogenic protein based
products for either acute or chronic renal failure. In the field of
neurological disorders, particularly in the area of stroke therapy, there are
several companies engaged in preclinical and clinical studies with recombinant
protein based and more traditional small molecule products.
A number of biotechnology and pharmaceutical companies are pursuing the
development of other recombinant growth factors and hormones for the treatment
of osteoporosis. Creative believes that only a
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limited number of companies are seeking to develop morphogenic proteins for the
treatment of osteoporosis. However, many major pharmaceutical companies are
pursuing the development of traditional drug therapies for the treatment of
osteoporosis. Certain therapies approved or in development for osteoporosis
have demonstrated efficacy at slowing the loss of bone mineral density and
improving clinical outcomes for patients. Such therapies provide alternatives
to the treatment of osteoporosis that would compete with any osteoporosis
products developed by Creative.
In addition to competing with pharmaceutical and biotechnology companies,
Creative's products and technologies will also compete with those developed by
academic institutions, government agencies and other public organizations
conducting research. Any of these organizations may discover new therapies,
seek patent protection or establish collaborative arrangements for product
research which are competitive with Creative's products and technologies.
In addition to a product's patent position, efficacy and price, the timing
of a product's introduction may be a major factor in determining eventual
commercial success and profitability. Early entry may have important advantages
in gaining product acceptance and market share. Accordingly, the relative speed
with which Creative or its collaborative partners can complete preclinical and
clinical testing, obtain regulatory approvals, and supply commercial quantities
of the product is expected to have an important impact on Creative's
competitive position, both in the United States and abroad. Other companies may
succeed in developing similar products that are introduced earlier, are more
effective, or are produced and marketed more effectively. If any research and
development by others renders any of Creative's products obsolete or
noncompetitive, then Creative's potential for success and profitability may be
limited.
Patents and Proprietary Rights
Creative pursues a policy of obtaining broad patent protection for
patentable subject matter relating to its proprietary technology platform in
tissue repair and regeneration. As of March 2, 2000, Creative owned or had
rights to 79 issued patents and 72 pending patent applications in the United
States, and owned or had rights to 58 issued foreign patents and 164 foreign
patent applications. These patents and patent applications cover compositions
of matter, fields of uses, screening, and methods of production as well as
patents relating to Creative's morphogenic protein technology, BABS, and
interdomaine linker technology.
Certain patents and patent applications relating to morphogenic proteins,
including OP-1, are owned by Stryker and have been licensed exclusively to
Creative for use in all indications other than orthopaedic reconstruction and
dental therapeutics. See "--Collaborative Agreements--Stryker Corporation."
Certain other patents and patent applications are owned jointly with other
collaborators. There can be no assurance, however, that any such patent
applications will issue as patents, or that any patent now issued, or to be
issued, will provide a preferred position with respect to the technology or
products it covers.
Within Creative's patent estate covering morphogenic protein technology,
Creative owns or has rights to 52 issued and 69 pending applications in the
United States, and 37 issued and 145 pending counterpart foreign applications,
which contain claims to novel therapies and processes, as well as numerous
tissue applications, including renal, neural, bone, liver, periodontal, dentin,
gastrointestinal tract and immune cell-mediated tissue applications.
Creative has entered into a cross-license agreement with Stryker and
Genetics Institute in which the parties granted worldwide, royalty-free, cross
licenses to each other in the bone morphogenetic/osteogenetic protein family.
This agreement reduces the threat of potential litigation to Creative's
development programs and to Stryker's efforts to commercialize OP-1.
Creative has also entered into a cross-license agreement with Stryker under
which Creative assigned ownership of certain manufacturing and other patents
and patent applications to Stryker relating primarily to
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the OP-1 bone regeneration and dental therapeutics products. Creative retained
an irrevocable, exclusive license to these patents for all uses outside the
fields of orthopaedic reconstruction and dental therapeutics. Creative also
granted to Stryker a license to certain patents and patent applications in its
morphogen portfolio for use exclusively in the fields of orthopaedic
reconstruction and dental therapeutics.
Creative's success will depend in part on its ability to obtain marketing
exclusivity for its products for a period of time sufficient to establish a
market position and achieve an adequate return on its investment in product
development. Creative believes that protection of its products and technology
under United States and international patent laws and other intellectual
property laws is an important factor in securing such market exclusivity. U.S.
patents issued from applications filed prior to June 8, 1995 have a term of the
longer of 17 years from patent grant or 20 years from the earliest filing date.
U.S. patents issued from applications filed on or after June 8, 1995, have a
term of 20 years from the earliest filing date. Patents in most foreign
countries have a term of 20 years from the date of the filing of the patent
application. In the United States and certain foreign countries, the
exclusivity period provided by patents covering pharmaceutical products may be
extended by a portion of the time required to obtain regulatory approval for a
product. Certain patents relating to OP-1 owned by Stryker and licensed to
Creative will begin expiring in 2005.
Although Creative pursues patent protection for its technology, significant
legal issues remain as to the extent to which patent protection may be afforded
in the field of biotechnology, in both the United States and foreign countries.
Furthermore, the scope of protection has not yet been broadly tested.
Therefore, Creative also relies upon trade secrets, know-how and continuing
technological advancement to develop and maintain its competitive position.
Disclosure of Creative's know-how is generally protected under confidentiality
agreements. Creative does not know, however, whether all of its confidentiality
agreements will be honored, that third parties will not develop equivalent
technology independently, that disputes will not arise as to the ownership of
technical information or that wrongful disclosure of its trade secrets will not
occur.
Certain products and processes important to Creative may be subject in the
future to patent protection obtained by others. The field of biotechnology is
developing rapidly. Because many patent applications have been filed in this
field in recent years, Creative can not predict the scope that courts will give
to the claims of patents issued from such applications and the nature of these
claims. Several patent applications based on work done years ago have been
issued to others with broad claims directed to the use of basic recombinant DNA
technology. Creative believes that it is premature to predict what general
trend, if any, will emerge as to the breadth of allowed claims for
biotechnology products and related uses. The allowance of broader claims may
increase the incidence and cost of interference proceedings at the United
States Patent and Trademark Office and the risk of infringement litigation. A
policy of allowing narrower claims, conversely, could limit the value of
Creative's proprietary rights under its patents. It is possible that Patent and
Trademark Office interference proceedings will occur with respect to a number
of Creative patent applications or issued patents. It is also likely that
subject matter patented by others will be required by Creative to research,
develop, or commercialize at least some of Creative's products. If Creative is
unable to obtain licenses under any such patent rights of others on acceptable
terms then Creative may have to limit or terminate the development of some or
all of its products.
Regulatory Matters
For discussion of regulatory issues applicable to the business of Creative,
see "Regulatory Matters Affecting Curis, Creative, Ontogeny and Reprogenesis."
Employees
In October 1999, Creative refocused its operational and financial resources
on the development of its morphogenic protein-based clinical candidates for the
treatment of stroke and renal disease. This redirected effort resulted in a
reduction of employee headcount. Currently, Creative has approximately 40 full-
time employees, 20 of whom hold Ph.D. degrees. Creative considers its relations
with employees to be good and,
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apart from the recent restructuring, has experienced a low rate of employee
turnover. No Creative employees are parties to a collective bargaining
agreement. Creative has entered into confidentiality agreements with all of its
employees.
Description of Property
Creative currently leases an aggregate of 35,400 square feet in two adjacent
facilities in Hopkinton, Massachusetts. The location of the facilities is
approximately 30 miles west of Cambridge and Boston and 20 miles east of
Worcester, all of which are major research centers in health care and
biotechnology in Massachusetts. Creative's Hopkinton facilities house research
and development laboratories, small scale production suites, and corporate
offices. Both leases expire in 2001. In addition, Creative currently leases
10,500 square feet of office space in Boston, Massachusetts for administrative
offices. The office lease expires in 2002.
Creative believes that its existing facilities are adequate for its near
term needs. Creative expects that additional facilities may be required to meet
future needs. There can be no assurance that Creative will be able to lease or
acquire additional facilities.
Legal Proceedings
There are no material pending legal proceedings to which Creative is a party
or of which any of its property is the subject.
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Creative Selected Consolidated Financial Data
The selected consolidated financial data set forth below have been derived
with respect to the consolidated statements of operations for the years ended
December 31, 1999, 1998 and 1997, and with respect to the consolidated balance
sheets as of December 31, 1999 and 1998, from the consolidated financial
statements that have been audited by Deloitte & Touche LLP, independent
auditors. The consolidated financial statements are included elsewhere in this
joint proxy statement-prospectus. The consolidated statements of operations
data for the year ended December 31, 1996, for the three months ended December
31, 1995 and the year ended September 30, 1995, and the consolidated balance
sheet data as of December 31, 1997, 1996 and 1995 are derived from audited
consolidated financial statements not included in this joint proxy statement-
prospectus. You should read the data set forth below in conjunction with
Creative's "--Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Creative Consolidated Financial Statements and
related Notes included in this joint proxy statement-prospectus.
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended Year Ended
------------------------------------- December 31, September 30,
1999 1998 1997 1996 1995(/1/) 1995(/1/)
-------- -------- -------- ------- ------------ -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
Research and
development
contracts............. $ 3,160 $ 10,419 $ 12,693 $5 ,548 $ 971 $ 5,824
Manufacturing
contracts............. -- -- 394 4,486 770 6,159
License fees and
royalties............. 52 10 -- 11,122 2 544
Interest............... 1,924 2,184 2,331 1,174 261 649
Other.................. 2 12 15 22 -- 53
-------- -------- -------- ------- ------- -------
Total revenues........ 5,138 12,625 15,433 22,352 2,004 13,229
-------- -------- -------- ------- ------- -------
Costs and expenses:
Research and
development........... 10,435 24,856 25,122 15,651 3,194 11,688
Cost of manufacturing
contracts............. -- -- 274 3,823 715 5,330
General and
administrative........ 6,396 7,475 6,473 4,901 1,254 3,604
1999 reorganization and
1998 sale of
manufacturing
operations............ 256 1,362 -- -- -- --
Interest............... 161 327 216 217 61 229
-------- -------- -------- ------- ------- -------
Total costs and
expenses............. 17,248 34,020 32,085 24,592 5,224 20,851
-------- -------- -------- ------- ------- -------
Net loss................ (12,110) (21,395) (16,652) (2,240) (3,220) (7,622)
Accretion and repurchase
costs on Series 1998/A
Preferred Stock........ (2,395) (987) -- -- -- --
-------- -------- -------- ------- ------- -------
Net loss applicable to
common stockholders.... $(14,505) $(22,382) $(16,652) $(2,240) $(3,220) $(7,622)
======== ======== ======== ======= ======= =======
Basic and diluted loss
per common share....... $ (0.40) $ (0.66) $ (0.50) $ (0.07) $ (0.11) $ (0.37)
======== ======== ======== ======= ======= =======
Common shares for basic
and diluted loss
computation............ 36,665 33,672 33,078 30,062 28,120 20,431
======== ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31
--------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash, cash equivalents and
marketable securities.... $ 21,371 $ 57,935 $ 30,598 $ 50,075 $ 20,002
Working capital........... 17,116 49,613 32,381 48,174 21,743
Total assets.............. 28,892 66,164 59,038 73,819 41,341
Capital lease obligations,
less current portion..... 1,009 713 2,005 1,651 1,711
Accumulated deficit....... (124,977) (110,472) (88,090) (71,438) (69,198)
Total stockholder's
equity................... 23,422 33,105 52,709 67,261 37,829
</TABLE>
- --------
(1) In January 1996, Creative changed its fiscal year end from September 30 to
December 31, effective with the three-month period ended December 31,
1995.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
To date, Creative has derived most of its revenues from research and
development payments and license fees under agreements with collaborative
partners. Creative anticipates that over the next several years Creative will
derive most of its revenues from agreements with collaborative partners,
including possible royalty revenues from Stryker. Creative has never been
profitable and expects to incur additional operating losses in 2000. Results
beyond 2000 will depend largely on the timing and magnitude of royalty payments
from Stryker if the OP-1 device, currently under regulatory review with the FDA
is approved for commercial sale. There can be no assurance that Creative will
receive substantial royalties from Stryker or, if Creative does, when those
royalties will be received. Creative may incur continued losses in future
years.
Creative's research agreements with collaborative partners have typically
obligated these collaborative partners to provide for the partial or complete
funding of research and development for specified projects and pay royalties to
Creative in exchange for licenses to market the resulting products. Creative
has been a party to research collaborations with Stryker to develop products
for orthopaedic reconstruction and dental therapeutics and with Biogen to
develop products for the treatment of renal disorders. Each of these research
collaborations was restructured in 1998.
Under the research portion of Creative collaboration with Stryker, prior to
its restructuring in November 1998, Creative supplied OP-1 products to Stryker
for clinical trials and other uses, provided manufacturing regulatory support
and performed research work pursuant to work plans Creative and Stryker both
established periodically. In November 1998, Creative sold its OP-1
manufacturing rights and facilities to Stryker. In fiscal 1999, Creative has
focused internal research efforts on developing new tissue regeneration
therapies in non-bone applications and does not anticipate significant revenue
from Stryker in 2000.
Creative is developing an OP-1 based therapy for chronic renal failure, a
condition characterized by the slow progressive loss of kidney function
ultimately resulting in the need for kidney transplantation or dialysis.
Chronic renal failure represents a substantial unmet medical need. Preclinical
studies indicate that OP-1 administration improves kidney function in animal
models of both acute and chronic renal failure. In 1998, Creative modified its
partnership in renal therapy with Biogen, a leading protein therapeutics
company. Biogen provided research funding to Creative through December 1999
pursuant to an option to resume development of OP-1 as a therapy for chronic
renal failure. As of December 31, 1999, Biogen did not exercise its option and
Creative assumed all rights to OP-1 renal therapies.
In October 1999, Creative was reorganized and its directors approved a plan
to focus its operations and financial resources on the development of
morphogenic protein-based clinical candidates for the treatment of stroke and
renal disease. In connection with this reorganization, Creative reduced its
headcount from 70 to 43 employees. Creative recorded approximately $511,000 in
operating expenses for salary termination costs.
Although Creative is seeking and in the future may seek to enter into
collaborative arrangements with respect to certain other projects, there can be
no assurance that Creative will be able to obtain such agreements on acceptable
terms or that the costs required to complete the projects will not exceed the
funding available for such projects from the collaborative partners.
Creative earns and recognizes revenue based upon work performed, upon the
sale or licensing of product rights, upon shipment of product for use in
preclinical and clinical testing or upon attainment of benchmarks specified in
collaborative agreements. Creative's results of operations vary significantly
from year to year and quarter to quarter and depend on, among other factors,
the timing of payments made by collaborative partners and the timing of
contract manufacturing activities. The timing of Creative's contract revenues
may not match the timing of Creative's associated product development expenses.
As a result, research and development expenses may exceed contract revenues in
any particular period. Furthermore, aggregate research and development contract
revenues for any product may not offset all of Creative's development expenses
for such product.
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Results of Operations
Years Ended December 31, 1999 and 1998
Creative's total revenues in the year ended December 31, 1999 were
$5,138,000. Creative's total revenues in the year ended December 31, 1998 were
$12,625,000. Research and development contract revenues decreased 70% to
$3,160,000 in 1999 from $10,419,000 in 1998. The decrease in research and
development contract revenues from 1998 to 1999 was primarily the result of a
decrease in research and development contract revenues from Stryker because
Creative is no longer providing research services or supplying OP-1 to Stryker.
Creative anticipates that research and development contract revenues in the
year ending December 31, 2000 will be substantially less than the comparable
period in 1999.
License fees and royalties revenues increased by $42,000 to $52,000 in 1999
from $10,000 in 1998. The increase in license fees and royalties revenue is
partially due to royalties from Stryker and partially due to an increase in
revenue from licensing patent rights and know-how associated with certain
protein technology which is not central to Creative's business. Creative
expects that royalty revenues in the year ending December 31, 2000 will depend
largely on the timing and magnitude of royalty payments from Stryker if the OP-
1 device, currently under regulatory review with the FDA, is approved for
commercial sale and is sold.
Interest revenues decreased 12% to $1,924,000 in 1999 from $2,184,000 in
1998 in part because Creative had lower average balances of cash and marketable
securities and in part because of lower interest rates in 1999, as compared to
1998. In May 1998, Creative sold 25,000 shares of Series 1998/A Preferred
Stock. Net proceeds to Creative, after deducting fees and other expenses of the
offering, were approximately $23,618,000. In addition, Creative received
approximately $19,530,000 in the fourth quarter of 1998 from the sale of
Creative's OP-1 manufacturing-related assets to Stryker. As discussed further
below, in May 1999 Creative repurchased all of the outstanding Series 1998/A
Preferred Stock for approximately $22,470,000 in cash.
Creative's total costs and expenses decreased 49% to $17,248,000 in 1999
from $34,020,000 in 1998. Research and development expenses decreased 58% to
$10,435,000 in 1999 from approximately $24,856,000 in 1998. The decrease in
research and development expenses was primarily due to the sale of certain of
Creative's OP-1 manufacturing rights and facilities to Stryker in November 1998
and the elimination of manufacturing and facility-related expenses with respect
thereto. Creative had previously reported the costs associated with such
production of OP-1 as research and development expenses. During 1999,
Creative's research and development expenses included research relating to the
following: (i) a renal disease therapy as part of the Biogen collaboration,
(ii) research relating to neurological disease therapies, and (iii) other
indications proprietary to Creative.
Stryker initiated a modular PMA filing for the bone graft substitute product
in 1998. In June 1999, Stryker stated that it had completed submission of the
modular PMA to the FDA, and in July 1999 stated that the FDA had accepted the
PMA for filing. Stryker has also submitted for European and Australian
regulatory review the OP-1 bone graft substitute product.
General and administrative expenses decreased 14% to $6,396,000 in 1999 from
$7,474,000 in 1998. The decrease was primarily due to a reduction in external
legal and other consulting costs and a reduction in personnel-related costs.
In October 1999, Creative reorganized and the board of directors approved a
plan to focus operations and financial resources on the development of
Creative's morphogenic protein-based clinical candidates for the treatment of
stroke and renal disease. In connection with this reorganization, Creative
reduced its headcount from 70 to 43 employees. Creative recorded approximately
$511,000 in operating expenses for salary termination costs. In addition,
related to the 1998 sale of manufacturing operations, in the fourth quarter of
1999, Creative determined that health insurance claims were less than
originally estimated. This resulted in a reduction in the loss on sale of
manufacturing operations of approximately $255,000 in 1999.
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The following table summarizes the effect to the income statement for the
1999 reorganization charges and 1998 sale of manufacturing operations during
1999:
<TABLE>
<S> <C>
1999 salaries and termination benefits.......................... $ 511,000
1998 salaries and termination benefits settled for amounts less
than anticipated............................................... (255,000)
---------
Total Net..................................................... $ 256,000
=========
</TABLE>
Interest expense decreased approximately 51% to $161,000 in 1999 from
$327,000 in 1998. The decrease in interest expense was due to a decrease in
Creative's obligations under capital leases. As part of the sale to Stryker of
certain of Creative's manufacturing-related assets in November 1998, Stryker
assumed $710,000 of Creative's obligations under equipment lease agreements and
$1,727,000 of Creative's obligations under a facility capital lease.
As a result of the foregoing, Creative incurred a net loss of $12,110,000 in
1999 compared to a net loss of $21,395,000 in 1998.
Accretion and repurchase costs on Series 1998/A Preferred Stock was
$2,395,000 for the year ended December 31, 1999, and included the following:
$385,000 calculated at the rate of 5% per annum of the stated value of the
outstanding Series 1998/A Preferred Stock; $144,000 of accretion of issuance
costs related to the sale of Series 1998/A Preferred Stock; and as a result of
the repurchase of the Series 1998/A Preferred Stock on May 7, 1999 (see
discussion in "Liquidity and Capital Resources" below), a one-time charge of
approximately $1,867,000 recorded in the second quarter of 1999 which
represents accretion of the Series 1998/A Preferred Stock up to its repurchase
amount and accretion of all remaining issuance costs. Accretion on Series
1998/A Preferred Stock for the year ended December 31, 1998 was $987,000 and
includes $733,000, calculated at the rate of 5% per annum of the stated value
of the outstanding Series 1998/A Preferred Stock from May 27, 1998 and $254,000
of accretion of issuance costs related to the sale of Series 1998/A Preferred
Stock. As a result of the repurchase of the Series 1998/A Preferred Stock,
there will be no further charges relating to the Series 1998/A Preferred Stock.
In computing the net loss applicable to common stockholders for the years
ended December 31, 1999 and 1998, the accretion and repurchase costs of the
Series 1998/A Preferred Stock mentioned above are included.
Years Ended December 31, 1998 and 1997
Creative's revenues in the year ended December 31, 1998 were $12,625,000.
Creative's revenues in the year ended December 31, 1997 were $15,433,000.
Research and development contract revenues decreased 18% from $12,693,000 in
1997 to $10,419,000 in 1998. The decrease in research and development contract
revenues from 1997 to 1998 primarily is a result of a decrease in Creative's
research activity under the research collaboration with Biogen, partially
offset by an increase in research and development contract revenues from the
supply of OP-1 to Stryker.
License fees and royalties revenues in the year ended December 31, 1998
included $10,000 in revenue from licensing patent rights and know-how
associated with certain protein technology which is not central to Creative's
business.
Interest revenues decreased 6% from $2,331,000 in 1997 to $2,184,000 in 1998
because Creative had higher average balances in cash and marketable securities
in 1997 than Creative had in 1998. In December 1996, under the Biogen Research
Agreement and a Restricted Stock Purchase Agreement, Biogen paid to Creative a
$10,000,000 license fee and made an $18,000,000 equity investment in Creative's
common stock. In May 1998, Creative sold 25,000 shares of Series 1998/A
Preferred Stock. Net proceeds to Creative, after deducting fees and other
expenses of the offering, were approximately $23,618,000. In addition, Creative
received approximately $20,000,000 in the fourth quarter of 1998 from the sale
of Creative's OP-1 manufacturing related assets to Stryker.
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Creative's total costs and expenses, consisting primarily of research and
development expenses, increased approximately 6% from $32,085,000 in the year
ended December 31, 1997, to $34,020,000 in the year ended December 31, 1998.
Research and development expenses decreased 1% from $25,122,000 in 1997 to
$24,856,000 in 1998. Creative's research and development expenses for 1998 were
slightly less than 1997 due to the sale of Creative's OP-1 manufacturing rights
and facilities to Stryker in November 1998 and the elimination of manufacturing
and facility-related expenses.
General and administrative expenses increased 15% from $6,473,000 in 1997 to
$7,475,000 in 1998. The increase primarily is due to approximately $600,000 in
increased costs associated with additions to Creative's legal and
administrative staff and from increases in external legal and other consulting
costs and from costs associated with our administrative office.
In November 1998, Creative sold certain of its OP-1 manufacturing rights and
facilities to Stryker. Creative expects that the sale will provide Creative
with increased royalties on Stryker products, if approved for commercial sale,
in lieu of the manufacturing revenue anticipated under the prior agreement.
Proceeds and expenses associated with this transaction included the following:
<TABLE>
<S> <C>
Total proceeds................................................. $19,530,000
Less:
Net book value of manufacturing related assets............... 18,929,000
Employee termination costs................................... 1,438,000
Legal, accounting and consulting costs....................... 525,000
-----------
Loss on sale of manufacturing operations....................... $(1,362,000)
===========
</TABLE>
Creative recorded a charge of $1,362,000 in the quarter ended December 31,
1998, in connection with this transaction.
Interest expense increased 51% from $216,000 in 1997 to $327,000 in 1998.
The increase in interest expense is due to an increase in Creative's
obligations under an equipment lease agreement. As part of the sale to Stryker
of the manufacturing related assets, Stryker assumed $710,000 of Creative's
obligations under equipment lease agreements and $1,727,000 of Creative's
obligations under a facility capital lease.
As a result of the foregoing, Creative incurred a net loss of $21,395,000 in
the year ended December 31, 1998, compared to a net loss of $16,652,000 in the
year ended December 31, 1997.
Accretion on Series 1998/A Preferred Stock for the year ended December 31,
1998, includes $733,000, calculated at the rate of 5% per annum of the stated
value of the outstanding Series 1998/A Preferred Stock from May 27, 1998 and
$254,000 of accretion of issuance costs related to the sale of Series 1998/A
Preferred Stock. Creative is accreting the Series 1998/A Preferred Stock up to
its conversion value.
In computing the net loss applicable to common stockholders for the year
ended December 31, 1998, accretion of the Series 1998/A Preferred Stock
mentioned above is included.
Liquidity and Capital Resources
At December 31, 1999, Creative's principal sources of liquidity consisted of
cash, cash equivalents and marketable securities of $21,371,000. Creative has
financed its operations primarily through placements of equity securities,
revenues received under agreements with collaborative partners, manufacturing
contracts and the sale of certain of its OP-1 manufacturing rights and
facilities to Stryker.
Creative increased its investment in property, plant and equipment to
$8,625,000 at December 31, 1999 from $7,702,000 at December 31, 1998. Creative
currently plans to spend approximately $260,000 in the year ending December 31,
2000 in leasehold improvements and equipment purchases to upgrade research and
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development capabilities. In May 1999, Creative extended a master lease
agreement, which was originally entered into in October 1997, that provides for
the sale and leaseback or lease of up to $750,000 of laboratory and office
equipment. This lease commitment expired on December 31, 1999.
On May 27, 1998, Creative completed a private placement with three
institutional investors for the sale of 25,000 shares of Series 1998/A
Preferred Stock, with a stated value of $1,000 per share resulting in net
proceeds of approximately $23,618,000 after expenses. Since issuance of the
Series 1998/A Preferred Stock, the holders converted a total of 4,514 shares of
Series 1998/A Preferred Stock into 2,043,765 shares of common stock through May
7, 1999. On May 7, 1999, Creative repurchased 20,486 shares which represented
all of the outstanding Series 1998/A Preferred Stock following final
conversions, for approximately $22,470,000 in cash. As a result of this
transaction, the Series 1998/A Preferred Stock has been retired and there will
be no subsequent conversions into common stock.
In November 1998, Creative sold certain of its OP-1 manufacturing rights and
facilities to Stryker for total proceeds of approximately $19,530,000. In
addition, Creative expects that the sale will provide Creative with increased
royalties on Stryker products, if approved for commercial sale, in lieu of the
manufacturing revenues anticipated under the prior agreement. Creative paid
approximately $647,000 of accrued costs related to the sale of the
manufacturing operation, principally for employee termination costs, in the
year ended December 31, 1999. In prior years, Creative received significant
revenue from Stryker for research support and the supply of OP-1. As a result
of the sale of these OP-1 manufacturing rights and facilities to Stryker,
Creative received significantly reduced research funding in the year ended
December 31, 1999 and anticipates the same in the year ending December 31,
2000.
In December 1998, Creative signed the Biogen Amendment Agreement. Under the
Biogen Amendment, Biogen paid $3,000,000 to fund Creative's research in 1999
for development of OP-1 as a therapy for chronic renal failure. Biogen retained
an option through December 1999 to resume responsibility for development of OP-
1 as a therapy for chronic renal failure. Biogen did not exercise its option by
December 31, 1999 and has no further obligation to provide funds to Creative.
Creative has assumed all rights and responsibilities, independent of Biogen,
for the development of acute renal failure therapies.
Creative anticipates that its existing capital resources should enable
Creative to maintain its current and planned operations through approximately
March 31, 2001. Creative expects to incur substantial additional research and
development and other costs, including costs related to preclinical studies and
clinical trials. Creative's ability to continue funding planned operations is
dependent upon Creative's ability to generate sufficient cash flow from
royalties on Stryker products, if approved for commercial sale and is sold,
from collaborative arrangements and from additional funds through equity or
debt financings, or from other sources of financing, as may be required.
Creative is seeking additional collaborative arrangements and also expects to
raise funds through one or more financing transactions, if conditions permit.
Over the longer term, because of Creative's significant long-term capital
requirements, Creative intends to raise funds when conditions are favorable,
even if Creative does not have an immediate need for additional capital at such
time. If Stryker products are not approved for commercial sale or are approved
but do not result in Creative's receiving significant royalty payments from
Stryker, and substantial additional funding is not available, Creative's
business will be materially and adversely affected.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board, or FASB, released
Statement of Financial Accounting Standards, or SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," or SFAS No. 133, which Creative
will be required to adopt effective January 1, 2001. SFAS No. 133 establishes
standards for reporting and accounting for derivative instruments, and conforms
the requirements for treatment of hedging activities across the different types
of exposures hedged. Creative has not yet completed its evaluation of SFAS No.
133, and is therefore unable to disclose the impact adoption will have on its
consolidated financial position or results of operations.
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Year 2000 Compliance
Creative did not experience any difficulties related to the Year 2000
problem on December 31, 1999 and is not aware of any such difficulties since
that date. Creative's operations have not, to date, been adversely affected by
any difficulties experienced by any of its suppliers or customers in connection
with the Year 2000 problem. Creative's Year 2000 Compliance Plan also addressed
issues related to the date February 29, 2000 and management will continue to
monitor Creative's systems for potential difficulties through the remainder of
calendar year 2000.
Quantitative and Qualitative Disclosures About Market Risk
Creative invests cash balances in excess of operating requirements in short-
term marketable securities, generally corporate bonds and notes with minimum
rating of A and United States Government and agency instruments. The maturities
of these instruments range from one to twenty-nine months, with a weighted
average maturity of less than one year. All marketable securities are
considered available for sale. At December 31, 1999, the fair market value of
these securities amounted to $18,620,000, with unrealized losses of $30,800
included as a component of stockholders' equity. If interest rates were to
increase rapidly by 5%, an event Creative considers unlikely, the carrying
value of the securities portfolio could decline by approximately $465,000.
However, because of the quality of the investment portfolio and the short term
nature of the marketable securities, Creative does not believe that the
principal amount of the securities would be impaired and, therefore, no loss
would be ultimately recognized in the statement of operations.
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ONTOGENY BUSINESS, SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business of Ontogeny
General
Ontogeny uses developmental biology technology to discover novel therapeutic
and diagnostic pharmaceutical products. Ontogeny focuses on diseases
characterized by the impairment, disturbance or absence of cellular function.
Both on its own and through strategic alliances with leading biotechnology and
pharmaceutical companies, Ontogeny has concentrated its research discovery
efforts on the key control molecules of development, called inducing molecules,
and the role they play in certain major diseases. These inducing molecules are
developed as drug candidates directly, or used as targets for screening for
small molecule drug candidates. Through the application of Ontogeny's drug
discovery approach, Ontogeny has already identified or is in the process of
identifying several opportunities for treating various disorders, including:
.nervous system diseases (peripheral neuropathy and Parkinson's disease);
.insulin dependent diabetes;
.skin cancer related disorders; and
.hair disorders.
Ontogeny believes it can create additional value by industrializing and
systematizing the scientific methods and practices of developmental biology
currently carried out in academic laboratories around the world, thereby
accelerating the identification of new therapeutic product candidates capable
of treating disease by restoring cellular function.
Developmental biology is the study of the genetic events that control cell
growth and differentiation in an organism from its beginning (fertilization)
through maturation. The field of developmental biology has recently expanded as
the tools of molecular biology have been applied to classical embryology.
Ontogeny was formed to take advantage of this growth. It is now understood that
the same mechanisms that govern embryonic development are active and required
in adults for normal growth, regeneration and repair. Therefore, the control
molecules discovered in the embryo can be used in the treatment of adult
diseases through cell re-population, regeneration or repair. Ontogeny believes
it is one of the leaders in the field of developmental biology through its
internal research staff and its collaborations with many of the world's leading
scientists in this field. It is this scientific expertise and understanding of
developmental biology that have resulted in Ontogeny's progress to date, which
includes the identification, characterization and proprietary control of
several key inducing molecules.
Ontogeny's discovery approach uses a combination of genetic mapping
techniques, or genomics, and developmental biology. It is one of the first gene
and protein screening programs to use a developmental biology-based system for
the identification of new genes and their function, and the generation of drug
leads/targets. This program will allow Ontogeny to gain access to discoveries
generated by the mapping of the human genome and to broaden Ontogeny's own
product opportunities. To date, Ontogeny's primary focus has been the
utilization of developmental biology in the discovery and characterization of
its own inducing molecules. Ontogeny is now positioned to expand its drug
discovery efforts through relationships such as the alliances with Genzyme
Molecular Oncology and Tropix. Ontogeny intends to explore further strategic
collaborations with other biotechnology or pharmaceutical companies that have
new technologies to identify or improve the function of novel proprietary
molecules and genes.
The Drug Discovery and Development Process
Historically, pharmaceutical products have been developed primarily through
the creation and screening of large collections of chemical compounds and
natural products. Compounds were identified as pharmaceutical
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candidates based on their activity in simple assays believed to mimic aspects
of human physiology or biochemistry. Where significant activity was found in an
assay, the compound was then tested in animal models believed to simulate human
disease conditions. The principal limitation of this approach has been that
these assays and animal models have not always predicted the candidate drug's
safety and efficacy in humans. In addition, the mechanisms by which these
compounds acted and the underlying causes of the disease generally have
remained unknown. Consequently, the resulting candidate drugs were often
ineffective or only ameliorated symptoms without addressing the root causes of
the disease.
While offering a significant improvement over traditional large
pharmaceutical drug discovery methods, a traditional genetics approach to drug
development also has weaknesses compared to a developmental biology-based
approach. Traditional drug development relies on animal models and in vitro
studies using mature animals. This approach has serious limitations because the
biological processes of interest for treating disease are often inactive in the
healthy adult animal and relevant animal models of disease are difficult to
create and validate. The creation of an animal model has often been a
prerequisite and a limitation in the discovery of significant lead molecules.
Ontogeny believes that examining developing tissues and organs in embryonic
development will provide a rich source of potentially relevant molecules or
targets for drug discovery and help to avoid these limitations. It is for these
reasons that developmental biology may be a more efficient way to improve drug
discovery and move product candidates into human clinical trials sooner.
Recent advances in developmental biology and genetics have the potential to
improve drug discovery and development significantly by enabling the
identification of the control molecules (e.g., secreted proteins) and cellular
mechanisms by which organisms develop. This identification is important because
these molecules and mechanisms are believed to be responsible for inducing
organ development. In contrast to traditional drug discovery and development
techniques, a developmental biology approach focuses first on the role of
molecules in early organ development. The use of developmental biology
approaches allows the discovery of relevant molecules and processes because
cell regeneration in adults repeats the developmental processes. To understand
how to treat diseases of nerve degeneration (neuropathies), for example,
characterizing the molecules involved in embryonic nerve development may offer
a shortcut to lead discovery. Ontogeny scientists have used this approach to
show that the Desert Hedgehog molecule is critical for the development of the
sheath surrounding the nerve during development of the embryo. There are
several ways in which these lead molecules could lead to products. It is
possible that certain disease processes are caused by the lack of the
developmentally active molecules, and there is evidence that these molecules
continue to be produced and needed for normal maintenance of tissues during
adult life. Thus, the secreted inducing proteins could be used directly as
drugs. In the case of chemotherapy-induced neuropathy, for example, the
addition of Desert Hedgehog might enhance and expedite the healing process. In
addition, the developmentally active molecules and/or their receptors and
signaling pathway components can be used as targets to discover small molecules
which regulate the activity of the regeneration (i.e., developmental)
processes. Therefore, Ontogeny believes that a comprehensive commitment to
understanding the process of embryonic development is essential to realize the
full value of a developmental biology approach to drug discovery and
development.
Developmental Biology in General
Developmental biology is the study of how cells form into specialized adult
tissues and organs. The field has historically been dominated by scientists
conducting research in nematodes (worms), drosophila (fruit flies), zebra fish
and rodents. Ontogeny is heavily focused on vertebrate systems, but maintains
relationships with researchers in all of these diverse groups. In addition, for
an organization to be successful in developmental biology, a detailed expertise
is necessary in a number of scientific disciplines, including biochemistry,
cell biology, endocrinology, genetics, molecular biology and physiology. A
general description of these areas and the contribution to future insights in
developmental biology is provided below.
Biochemistry. Almost all of the key developmentally active molecules, called
inducing molecules, are proteins. The isolation and characterization of these
proteins and their corresponding receptors are key technical requirements for
realizing the pharmaceutical discovery potential of developmental biology.
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Cell biology. The principal activity of inducing molecules is to cause the
differentiation of relatively inactive precursor cells into differentiated,
functional cells. The characterization of this process is a key to
understanding the developmental process for the organ and tissue of interest.
Endocrinology. Developmentally active molecules convey information from one
cell to another. These molecules differ from hormones only in the type of
information conveyed. In the case of hormones, the information alters the
activity of a cell (e.g., insulin levels control glucose levels in target
tissues). In the case of developmental inducing molecules, the information
involves a change in cell identity. Thus, insights from endocrinology can aid
in understanding developmental biological systems.
Genetics. Not surprisingly, developmental systems are under precise genetic
control. The study of genetic variation or mutation, even in lower-order
species, can help to quickly and accurately identify molecules involved in the
developmental systems in humans. Once a candidate molecule is identified, its
role can be validated through experimental genetic variation in mice.
Molecular biology. The connections between genetic information, inducing
molecules, and cellular responses are made through molecular biology
techniques. Examples include the cloning, expression and characterization of
the inducing molecules, and the description of the cellular and tissue changes
effected by the inducing molecules.
Physiology. The tissue, organ and even organism-wide interactions involved
in the developmental process require a broad view of the physiology of the
animal to be fully understood. This broad approach is an advantage for
gathering the information needed for clinical development.
Thus, a thorough understanding of developmental biology involves many
traditional scientific areas. Ontogeny's goal is to continue to assemble
excellent scientists from these disparate areas to become a leader in the
developmental biology approach to drug discovery.
Ontogeny's Strategy
Ontogeny's primary goal is to use developmental biology to discover and
develop novel, proprietary therapeutic and diagnostic products to treat
degenerative disease. Ontogeny currently focuses on several therapeutic areas,
including central nervous system, skin cancer, hair growth and diabetes.
Ontogeny has successfully produced genes, proteins, and/or small molecule leads
in all of these areas. To achieve these goals, Ontogeny is implementing the
following strategic approach:
Technology Strategy
. Apply developmental biology techniques to identify the key inducing
molecules which control the cellular mechanisms by which organisms
develop.
. Focus on major common diseases in therapeutic areas of concentration that
are inadequately served by current therapeutic alternatives.
. Emphasize projects with the most straightforward clinical, process and
product development issues.
Business Strategy
. Establish strategic alliances with biotechnology and pharmaceutical
companies to accelerate product development and commercialization and
leverage Ontogeny's technological resources.
. Diversify business risk by working with multiple strategic alliance
partners.
. Minimize outside capital requirements through research and product
development milestone payments.
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Ontogeny's Discovery Research Program
Ontogeny's program is a developmental biology-based system for the
identification of gene function and the generation of drug development leads. A
variety of approaches are being utilized by Ontogeny scientists to study gene
expression patterns and to determine the function of developmentally
interesting proteins. Identifying the role that a gene and its protein play
during development is an essential element in determining its utility as a
basis for a therapeutic agent or screening target. The program employs the
following key elements:
. expression profiling of genes across different developmental stages of
organs/tissues to identify novel genes which may be important for repair
and regeneration of these tissues in adults;
. bioinformatics to categorize, characterize and help establish proprietary
positions for gene discoveries;
. a battery of assays to determine where and when genes and their products
become active using Ontogeny's developmental biology technologies to look
at expression patterns in the embryo;
. traditional and proprietary assays to rapidly determine the expression
patterns of genes during development and in adult organs; and
. small molecule screening through the use of functional assays, including
cell-based assays, that are amenable to screening both biological and
chemical libraries for active compounds.
The Ontogeny system provides an efficient way to functionally screen the
novel genes and proteins which are being discovered through various human
genome identification initiatives, thereby meeting a major need in modern
pharmaceutical research. The Human Genome Project and computerized and
automated sequencing have combined to generate enormous amounts of genetic
sequence information. However, without determining the function and clinical
relevance of these genes, it is difficult to determine which sequence is a
potential candidate for drug development. The Ontogeny system compares
complementary DNA libraries from relevant stages of embryonic development.
Ontogeny believes that functional screening programs are one answer to
identifying the most promising drug development leads. Ontogeny believes that
developmental biology-based functional screening programs provide a powerful
tool to identify the most significant genomic sequences that may have the
highest therapeutic potential. Follow-up assay development and high-throughput
screening produces proprietary lead compounds which can be optimized through
standard medicinal chemistry methods. Thus, Ontogeny may gain access to the
discoveries generated by the sequencing of the human genome and to expand
greatly its own internal discovery capacity.
Ontogeny's Clinical Leads and Targets
Ontogeny is pursuing lead molecules and targets that have been discovered or
characterized through its discovery research efforts for clinical intervention.
Examples of these leads and targets include:
. the Hedgehog family of inducing molecules;
. the membrane receptor called Patched1;
. factors identified at Ontogeny for their role in growth and proliferation
of pancreatic islet cells; and
. small molecule leads in these areas.
The clinical lead opportunities are being pursued in the following areas:
. nervous system diseases (peripheral neuropathy and Parkinson's disease);
. insulin dependent diabetes;
. skin related disorders; and
. hair disorders.
All of these areas are believed to represent large medical markets under-
served by current therapeutic products.
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Central Nervous System Leads: Hedgehog Proteins and Related Molecules.
Desert and Sonic Hedgehog are active in the induction and maintenance of
nervous system tissues. Ontogeny's strategy, with its partner Biogen, is to use
these inducing molecules to repair damaged nervous system tissues. Ontogeny
believes that many degenerative nerve diseases may be addressed by this
strategy. Ontogeny's lead neurology program is for the treatment of peripheral
neuropathy. Ontogeny is also evaluating hedgehog protein therapies for central
nervous system disorders including Parkinson's disease, Alzheimer's disease and
acute disorders (stroke and trauma). See "--Collaborative Agreements--Biogen,
Inc."
Peripheral neuropathy is a frequent complication of diabetes resulting in
significant pain and disability. The National Institutes of Health estimate
that 60 percent of patients with diabetes have some form of neuropathy. With
more than 10 million diabetics in the United States, treatment for diabetic
peripheral neuropathy represents a significant market opportunity. There is
currently no adequate treatment for this condition. Parkinson's disease
afflicts approximately 800,000 people in the United States. Alzheimer's disease
and stroke represent even larger markets, and the unmet medical need is high
for each of these conditions. Although these specific diseases and other
central nervous system-related disorders occur in individuals for very
different reasons, almost all of these disorders are characterized by the loss
of cellular function.
Having demonstrated the importance of Desert Hedgehog in normal peripheral
nerve cell function, Ontogeny researchers are now examining the therapeutic
effect of Desert and Sonic Hedgehog, or derivative proteins, in preclinical
models of peripheral neuropathy for diabetes as well as the dose-related side
effect of chemotherapy. Based on the behavior of these proteins in the central
nervous system, preclinical studies are also being conducted for chronic and
acute degenerative nerve conditions.
Ontogeny is developing assays based on the Hedgehog signaling pathway to
screen for small molecule therapies for central and peripheral nervous system
disorders. Thus, not only are the Hedgehog proteins candidates for therapeutic
products, but understanding their biological roles has allowed production of
validated assays for use in small molecule screening. The molecules discovered
in these assays will be tested in the same systems used for the Hedgehog
proteins.
Basal Cell Carcinoma Leads: Use of One of Ontogeny's Screening Targets.
Basal cell carcinoma is the most common human cancer and will affect one
quarter to one third of all caucasians. Ontogeny has characterized and
validated several targets for small molecule screening using its developmental
biology approach. Patched1, a membrane receptor molecule, is one example of a
molecule characterized using this approach. Patched1 plays a role in the onset
of basal cell carcinoma.
Ontogeny is studying the role of Patched1 for the development of treatments
and diagnostics for basal cell carcinoma. Ontogeny has identified a family of
small molecules which block the pathway and have the potential to treat basal
cell carcinoma. Ontogeny is evaluating several compounds in preclinical
development for preparation of an IND.
Hair Regrowth Leads: Sonic Hedgehog and Related Molecules. Sonic Hedgehog
is expressed in the normal development of embryonic hair follicles. Ontogeny
researchers have shown that administration of the Sonic Hedgehog protein can
induce or accelerate hair growth in adult mice. Furthermore, disrupting Sonic
Hedgehog activity prevents the appearance of normal hair. Ontogeny is using the
Sonic Hedgehog signaling pathway as a basis for small molecule screening assays
focused on hair growth. The molecules discovered in these assays will be tested
in preclinical models of hair growth.
Diabetes Therapeutic Area Leads. Insulin-Dependent Diabetes Mellitus is
prevalent and expensive. There are over one million sufferers in the United
States alone, and its expense to society is thought to be second only to that
of Alzheimer's disease. Ontogeny's diabetes program involves the search for the
developmental mechanisms, including factors and cells, which lead to production
of the insulin-producing cells
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of the pancreas called islet cells. These cells would be useful for the
treatment of insulin-dependent diabetic patients. Factors which lead to the
production of islet cells and/or protect islet cells may also be useful as
therapeutic agents.
One approach that Ontogeny is taking to attempt to treat diabetes is
exploring the use of inducing molecules to produce pancreatic beta cells in
vitro, and then to transplant those cells back into patients. This approach is
being studied in collaboration with Becton-Dickinson, a corporate partner of
Ontogeny in the diabetes area. See "--Collaborative Agreements--Becton
Dickinson."
Clinical leaders believe that the central problem standing in the way of
widespread beta cell transplant is the lack of a reproducible source of pure
cells. Current techniques to isolate islets from animals or create other
sources of islets cannot generate pure reproducible cell populations. Ontogeny
has important assets that it believes give it an advantage in identifying the
molecules and processes involved in cell production and cell maturation.
Important examples include two different growth factors which play important
roles in the proliferation and differentiation of pancreatic islet cells and
their precursors. These molecules were discovered at Ontogeny and are the
subject of patent applications that have been filed by Ontogeny.
Ontogeny's short term goals in this area are to further characterize the
molecules and contexts required in order to make insulin positive human cells,
to develop the islet cell growth factor leads, and to use proprietary assays
relevant to islet cell development to find small molecules which play a role in
islet cell development and/or function.
Other Earlier-Stage Research Programs. In addition to the programs
described above, Ontogeny is working on product opportunities directed at a
number of other indications in areas including oncology and cartilage and bone
repair.
Collaborative Agreements
In order to accelerate its product development efforts, Ontogeny has
established, and intends to continue to establish, strategic alliances with
pharmaceutical and biotechnology companies. These alliances are designed to
provide Ontogeny with the requisite capital and development and marketing
capabilities to commercialize the results of its discovery programs. It is
Ontogeny's goal to have each alliance provide one or more of the following:
. up-front payments in the form of license fees and equity investments;
. royalties and milestone payments;
. technology and patent rights; or
. scientific and development resources.
Becton Dickinson. In January 1999, Ontogeny and Becton Dickinson entered
into a two-year research collaboration focusing on the application of cellular
therapy and human pancreatic beta islets in the treatment of diabetes. Under
the terms of the agreement, Becton will provide one advanced researcher to work
full time at Ontogeny throughout the period of the research collaboration. All
developments created by this researcher will be the property of Ontogeny. Under
this agreement, Becton has provided and is committed to provide further debt
and equity funding to Ontogeny in connection with the exercise of its
development and commercialization option. This debt automatically converted
into equity in October 1999.
The agreement gives Becton the opportunity to obtain exclusive worldwide
rights to develop and commercialize therapeutics comprising beta islet cells
for the treatment of diabetes. This commercialization option must be exercised
in connection with the satisfaction of certain scientific milestones but no
later than
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expiration of the two-year research collaboration. Becton also has a right of
first offer to commercialize certain technologies jointly created during the
research collaboration for research reagents and diagnostic uses in the field
of diabetes, and certain technologies created solely by Becton during the
research collaboration for research reagents and diagnostic uses in all fields.
In the event Becton exercises either of these options, Ontogeny and Becton will
negotiate for three months to obtain a mutually satisfactory commercialization
agreement. If such an agreement cannot be reached, Ontogeny has the right to
pursue independently the development of such products, either on its own or in
conjunction with other research partners.
Biogen. In July 1996, Ontogeny and Biogen entered into an 18-month
strategic alliance initially focused in the fields of nervous system disorders.
Under the terms of the agreement, Biogen was committed for an 18-month period
(which has been extended to July 2000) to pay Ontogeny approximately $5.5
million in a combination of research support, licensing fees and equity
investment. The final extension, effective in July 1998, amended the agreement
to:
.extend the alliance until July 1, 2000;
. increase beyond the initial $5.5 million the amount of annual funding
provided by Biogen to Ontogeny;
.expand the alliance; and
.result in an additional equity investment in Ontogeny.
In addition, Biogen will be obligated to pay to Ontogeny royalties on the
sale by Biogen of any therapeutic product that may result from the alliance.
Conversely, Ontogeny may also be obligated to pay royalties to Biogen on the
sale by Ontogeny of certain therapeutic products that may result from the
alliance.
The agreement provides Biogen with exclusive worldwide rights to develop and
commercialize Sonic, Indian or Desert Hedgehog (depending on the molecules
Biogen selects, if any, at the end of the extended research period) for all
systemic and local human applications of Hedgehog in nervous system disorders
and all other systemic human applications, other than musculo-skeletal
applications (e.g., osteoporosis) and all other local applications of the
Hedgehog protein.
Genzyme Molecular Oncology (a division of Genzyme Corporation). In February
1998, Ontogeny entered into an agreement with Genzyme for access to Serial
Analysis of Gene Expression ("SAGE") technology. Under the terms of the
agreement, Ontogeny will provide ribonucleic acid ("RNA") from developmentally
interesting tissues to Genzyme to create RNA SAGE libraries. This SAGE analysis
will enable Ontogeny to analyze differential gene expression of these relevant
tissues. It is hoped that identified genes will be processed through Ontogeny's
screening system to validate leads and/or targets for future screening of small
molecule or natural product libraries.
Under the terms of the agreement, Genzyme is entitled to receive a fixed
dollar amount for each SAGE library requested by Ontogeny. At the earlier of
Ontogeny entering into a commercial collaboration, or filing a patent
application based upon information generated by the SAGE library, Ontogeny is
obligated to make an additional one-time payment to Genzyme.
Incyte. In 1999, Ontogeny entered into a gene expression micro-array
contract with Incyte Pharmaceuticals, Inc. Gene expression micro-arrays enable
Ontogeny to identify genes which are active in normal or diseased tissues or
cells, and whether genes are active during development or in adult tissue. This
technology enables Ontogeny to automate the application of developmental
biology expertise to the growing database of human gene sequence information.
Academic Collaborations. Ontogeny has relationships with a number of
academic institutions and investigators who are focused on developmental
biology. In Ontogeny's collaborations, it seeks to expand the scientific
knowledge concerning internal research programs as well as the activities and
characteristics of
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various proteins under development by its scientists. The academic
collaborators are not Ontogeny employees. Hence, Ontogeny has limited control
over their activities and limited amounts of their time are dedicated to
Ontogeny's projects. From time to time, academic collaborators have
relationships with other commercial entities, some of which may be Ontogeny's
competitors. Although the precise nature of each relationship varies, the
collaborators and their primary affiliated institutions generally sign
agreements that provide for confidentiality of Ontogeny's proprietary
technology and results of studies. Ontogeny seeks to obtain exclusive rights to
license developments that may result from these studies; however, Ontogeny
cannot assure you that it will obtain them.
Retained Commercialization Rights
While Ontogeny has on-going strategic corporate alliances, the alliances do
not apply to certain applications of the three Hedgehog proteins. To date,
Ontogeny has retained commercialization rights which fall broadly into five
categories:
. All proteins owned or licensed by Ontogeny except the Hedgehog proteins;
. local delivery of the Hedgehog proteins (excluding CNS applications);
.small molecule therapeutics;
.gene therapy (excluding the application of the Hedgehog proteins to CNS);
and
.diagnostics.
Ontogeny has provided an option to Becton Dickinson to license exclusively
from Ontogeny the use of beta islet cells for the treatment of diabetes. In
addition, Ontogeny has licensed exclusively to Biogen the use of the three
Hedgehog proteins (Sonic, Indian and Desert) only for:
. nervous system disorders treated by local or systemic delivery;
. gene therapy; and
. all other indications treated by systemic delivery, except for musculo-
skeletal applications and local delivery of the proteins.
In addition, discoveries arising out of Ontogeny's collaboration with
Genzyme belong to Ontogeny for its own research, development and marketing.
Under certain circumstances, Ontogeny may owe royalties on sales to its
partners.
Competition
Ontogeny faces, and will continue to face, intense competition from
organizations such as large pharmaceutical companies, biotechnology companies,
academic and research institutions and government agencies. Ontogeny is subject
to significant competition from organizations that are pursuing the same or
similar technologies as those which constitute Ontogeny's technology platform
and from organizations that are pursuing pharmaceutical or diagnostic products
that are competitive with Ontogeny's potential products. Most of the
organizations competing with Ontogeny have greater capital resources, research
and development staffs and facilities, and greater experience in drug discovery
and development, obtaining regulatory approval and pharmaceutical product
manufacturing and marketing capabilities than Ontogeny.
In addition, research in the field of developmental biology and genomics is
highly competitive. Competitors of Ontogeny in the field of developmental
biology include, among others, Amgen, Inc., Chiron
Corporation, Exelixis, Inc., Genentech, Inc., Geron Corporation, and Regeneron
Corporation, as well as other private companies and major pharmaceutical
companies. Competitors in the genomics area include, among others, public
companies such as Axys Pharmaceuticals, Inc., Genome Therapeutics Corporation,
Human Genome Sciences, Inc., Incyte Pharmaceuticals, Inc., Millennium
Pharmaceuticals, Inc. and Myriad Genetics,
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Inc., as well as private companies and major pharmaceutical companies.
Universities and other research institutions, including those receiving funding
from the federally funded Human Genome Project, also compete with Ontogeny. A
number of entities are attempting to identify and patent rapidly randomly
sequenced genes and gene fragments, typically without specific knowledge of the
function of such genes or gene fragments. In addition, Ontogeny believes that
certain entities are pursuing a gene identification and characterization and
product development strategy based on positional cloning. Ontogeny's
competitors may discover, characterize and develop important inducing molecules
or genes in advance of Ontogeny, which could have a material adverse effect on
any related Ontogeny research program. Ontogeny also faces competition from
these and other entities in gaining access to DNA samples used in its research
and development projects. Ontogeny expects competition to intensify in genomics
research as technical advances in the field are made and become more widely
known.
Ontogeny relies on its strategic partners for support in its disease
research programs and intends to rely on its strategic partners for preclinical
evaluation and clinical development of its potential products and manufacturing
and marketing of any products. Some of Ontogeny's strategic partners is
conducting multiple product development efforts within each disease area that
is the subject of its strategic alliance with Ontogeny. Ontogeny's strategic
alliance agreements may not restrict the strategic partner from pursuing
competing internal development efforts. Any product candidate of Ontogeny,
therefore, may be subject to competition with a potential product under
development by a strategic partner.
Patents and Proprietary Rights
As of March 2, 2000, Ontogeny is the owner of 3 issued United States patents
and 38 United States patent applications and is the exclusive licensee under an
additional 6 issued United States patents and 31 pending United States patent
applications. Counterpart foreign applications have been filed on most of such
patent applications and 8 of such patents have issued. Ontogeny, alone or in
conjunction with its licensors and strategic partners, intends to seek United
States and international patent protection for the proteins it in-licenses
(subject to the terms of its licensing agreements) and discovers, as well as
small molecules, therapeutic and diagnostic products and processes, drug
screening methodologies and other inventions based on such proteins, molecules
or developmental biological processes. Ontogeny's commercial success will
depend in part on its ability to obtain such patent protection. Ontogeny also
intends to seek patent protection or rely upon trade secret rights to protect
certain other technologies which may be used to discover and characterize
inducing molecules and to develop novel therapeutic and diagnostic products.
Ontogeny is party to various license agreements which give it rights to
commercialize various technologies and to use certain technologies in its
research and development processes. With respect to the three Hedgehog
molecules, Ontogeny has entered into three different license agreements with
(i) Harvard University, (ii) Columbia University and (iii) Johns Hopkins
University and the University of Washington, pursuant to which Ontogeny has
been granted an exclusive worldwide license (including the right to sublicense)
to make, use or sell products or processes covered by claims contained in
patent applications and related foreign patent applications covering clinical
applications for each of the Hedgehog molecules. With respect to the Patched1
molecule, Ontogeny has entered into a license agreement with Stanford
University, pursuant to which Ontogeny has been granted an exclusive worldwide
license (including the right to sublicense) to make, use or sell products or
processes covered by claims contained in patent applications and related
foreign patent applications covering the Patched1 molecule. To date, all of
Ontogeny's license agreements provide for the payment, with certain annual
credit provisions, of (i) certain milestones for regulatory development
progress and (ii) a royalty to the university based upon sales by Ontogeny or
its sublicensees. Ontogeny is also party to an agreement which assigns
ownership to Ontogeny of certain patent applications covering methods and
compositions for isolating, expanding and/or maintaining hematopoietic cells
and compositions comprising such hematopoietic cells in consideration of
various obligations, including payment of a royalty. Ontogeny is also party to
two agreements which assign ownership to Ontogeny of certain patent
applications covering pancreatic-derived factors, insulin-promoter factor and
uses relating thereto in consideration of various obligations, including
payment of a royalty.
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The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including Ontogeny, are generally uncertain and involve complex
legal and factual questions. There can be no assurance that any of Ontogeny's
pending patent applications will result in issued patents, that Ontogeny will
develop additional proprietary technologies that are patentable, that any
patents issued to Ontogeny or its strategic partners will provide a basis for
commercially viable products or will provide Ontogeny with any competitive
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on the ability of Ontogeny to do
business. In addition, patent law relating to the scope of claims in the
technology fields in which Ontogeny operates is still evolving. The degree of
future protection for Ontogeny's proprietary rights, therefore, is uncertain.
Furthermore, there can be no assurance that others will not independently
develop similar or alternative technologies, duplicate any of Ontogeny's
technologies, or, if patents are issued to Ontogeny, design around the patented
technologies developed by Ontogeny. In addition, Ontogeny could incur
substantial costs in litigation if it is required to defend itself in patent
suits brought by third parties or if it initiates such suits.
Others may have filed, and in the future are likely to file, patent
applications covering molecules, genes or gene products that are similar or
identical to those of Ontogeny. No assurance can be given that any such patent
application will not have priority over patent applications filed by Ontogeny.
Any legal action against Ontogeny or its strategic partners claiming damages
and seeking to enjoin commercial activities relating to the affected products
and processes could, in addition to subjecting Ontogeny to potential liability
for damages, require Ontogeny or its strategic partner to obtain a license in
order to continue to manufacture or market the affected products and processes.
There can be no assurance that Ontogeny or its strategic partners would prevail
in any such action or that any license required under any such patent would be
made available upon commercially acceptable terms, or at all. Litigation, which
could result in substantial costs to Ontogeny, may be necessary to enforce any
patents issued or licensed to Ontogeny or to determine the scope and validity
of third party proprietary rights. Some of Ontogeny's competitors have, or are
affiliated with companies having, substantially greater resources than
Ontogeny, and such competitors may be able to sustain the costs of complex
patent litigation to a greater degree and for longer periods of time than
Ontogeny. Uncertainties resulting from the initiation and continuation of any
patent or related litigation could have a material adverse effect on Ontogeny.
An adverse outcome in connection with an infringement proceeding brought by a
third party could subject Ontogeny to significant liabilities, require disputed
rights to be licensed from third parties or require Ontogeny to cease using the
disputed technology, any of which could have a material adverse effect on
Ontogeny's business, financial condition or results of operations. If
competitors of Ontogeny prepare and file patent applications in the United
States that claim technology also claimed by Ontogeny, Ontogeny may have to
participate in interference proceedings declared by the Patent and Trademark
Office to determine priority of invention, which could result in substantial
costs to Ontogeny, even if the eventual outcome is favorable to Ontogeny.
There is uncertainty concerning whether human clinical data will be required
for issuance of patents for human therapeutics. If such data is required,
Ontogeny's ability to obtain patent protection could be delayed or otherwise
adversely affected. Although the USPTO issued new utility guidelines in July
1995 that address the requirements for demonstrating utility for biotechnology
inventions, particularly for inventions relating to human therapeutics, there
can be no assurance that USPTO examiners will follow such guidelines or that
the USPTO's position will not change with respect to what is required to
establish utility for gene sequences and products and methods based on such
sequences.
Ontogeny also relies on trade secrets to protect technology, especially
where patent protection is not believed to be appropriate or obtainable.
Ontogeny attempts to protect its proprietary technology and processes in part
by confidentiality agreements with its strategic partners, employees,
consultants and certain contractors. There can be no assurance that these
agreements will not be breached, that Ontogeny would have adequate remedies for
any breach, or that Ontogeny's trade secrets will not otherwise become known or
be independently discovered by competitors. To the extent that Ontogeny or its
consultants or research collaborators use intellectual property owned by others
in their work for Ontogeny, disputes may also arise as to the rights in related
or resulting know-how and inventions, which could have a material adverse
effect on Ontogeny's business, financial condition and results of operations.
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Ontogeny's academic collaborators have certain rights to publish data and
information regarding their discoveries in which Ontogeny has rights. While
Ontogeny believes that the limitations on publication of data developed by its
collaborators pursuant to its collaboration agreements will be sufficient to
permit Ontogeny to apply for patent protection in the areas in which it is
interested in pursuing further research, there is considerable pressure on
academic institutions to publish discoveries in the genetics and genomics
fields. There can be no assurance that such publication would not affect
Ontogeny's ability to obtain patent protection in the areas in which it may
have an interest.
Employees
As of February 29, 2000, Ontogeny had 76 full-time employees, of whom 30
hold Ph.D. or M.D. degrees. Of Ontogeny's total workforce, 63 are engaged in
research and development activities and 13 are engaged in business development,
finance and administration. None of Ontogeny's employees is represented by a
collective bargaining agreement, nor has Ontogeny experienced work stoppages.
Ontogeny believes that its relations with its employees are good.
Facilities
Ontogeny's facilities currently consist of approximately 34,000 square feet
of office and research space located at 27-45 Moulton Street, Cambridge,
Massachusetts pursuant to a lease which expires in 2006 and approximately
18,000 square feet of office and research space located at 61 Moulton Street,
Cambridge, Massachusetts pursuant to a lease which expires in 2001. Ontogeny
believes that, whether or not additional space is available adjacent to its
current facility, suitable additional space will be available to it, when
needed, on commercially reasonable terms.
Regulatory Matters
For a discussion of regulatory matters, see "--Regulatory Matters Affecting
Curis, Creative, Ontogeny and Reprogenesis."
Legal Proceedings
Ontogeny is not a party to any material legal procedings.
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Ontogeny Selected Financial Data
The selected financial data set forth below have been derived from the
statements of operations for the years ended December 31, 1999, 1998 and 1997
and the balance sheets as of December 31, 1999 and 1998, included in financial
statements that have been audited by PricewaterhouseCoopers LLP. Those
financial statements appear elsewhere in this joint proxy statement-prospectus.
The statement of operations data for the years ended December 31, 1996 and
1995, and the balance sheet data as of December 31, 1997, 1996 and 1995 are
derived from financial statements not included in this joint proxy statement-
prospectus. You should read the data set forth below in conjunction with
Ontogeny's "--Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Ontogeny Financial Statements and related Notes
which appear elsewhere in this joint proxy statement-prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue........................ $ 4,469 $ 4,708 $ 3,417 $ 1,533
-------- -------- ------- -------
Costs and expenses:
Research and development..... 13,686 11,573 6,228 3,777 $ 2,288
General and administrative... 4,052 3,020 2,427 1,601 776
-------- -------- ------- ------- -------
17,738 14,593 8,655 5,378 3,064
-------- -------- ------- ------- -------
Loss from operations........... (13,269) (9,884) (5,238) (3,845) (3,064)
-------- -------- ------- ------- -------
Other income (expense):
Interest income.............. 2,475 1,537 1,473 348 73
Interest expense............. (917) (427) (216) (55) (59)
-------- -------- ------- ------- -------
1,558 1,110 1,257 293 14
-------- -------- ------- ------- -------
Net loss....................... $(11,711) $ (8,774) $(3,981) $(3,552) $(3,050)
======== ======== ======= ======= =======
Accretion of preferred stock
issuance costs................ (194) (127) (93) -- (39)
-------- -------- ------- ------- -------
Net loss available to common
stockholders.................. $(11,905) $ (8,901) $(4,074) $(3,552) $(3,089)
======== ======== ======= ======= =======
Net loss available to common
stockholders per share (basic
and diluted).................. $ (4.59) $ (3.91) $ (2.15) $ (2.35) $ (2.81)
======== ======== ======= ======= =======
Weighted average shares
outstanding (basic and
diluted)...................... 2,592 2,279 1,896 1,510 1,099
======== ======== ======= ======= =======
<CAPTION>
December 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
marketable securities......... $ 43,301 $ 49,296 $26,535 $ 8,103 $ 8,425
Working capital................ 39,559 46,590 25,154 6,170 8,062
Total assets................... 49,611 54,136 30,833 11,175 9,011
Long-term obligations.......... 5,087 8,516 1,444 1,504 241
Redeemable convertible
preferred stock............... 62,396 60,201 36,890 12,578 12,528
Stockholders' deficit.......... (22,768) (17,920) (8,988) (5,972) (4,172)
</TABLE>
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Ontogeny Management's Discussion and Analysis
of Financial Condition and Results of Operations
Overview
Since inception in May 1994, Ontogeny has been focused on applying
breakthrough discoveries in developmental biology related to research,
development and commercialization of therapies for those major diseases
characterized by the absence of cellular function.
Ontogeny has incurred net losses since inception and expects to incur
substantial and increasing losses for at least the next several years as
research and development activities are expanded. Losses have resulted
primarily from research and development activities and related administrative
expenses and as of December 31, 1999, Ontogeny's accumulated deficit was
approximately $32.2 million. To date, Ontogeny has funded operations primarily
through the sale of equity securities, research funding and license payments
from collaborators and interest income earned on cash invested. To date,
Ontogeny has not generated revenues from the sale of products and does not
expect to do so for several years, if ever.
In order to accelerate product commercialization and finance research and
development activities, Ontogeny entered into collaborations with Biogen in
July 1996, Hoffmann-La Roche in September 1996, and Becton Dickinson in January
1999. Through December 31, 1999, Ontogeny recognized revenue totaling
approximately $13.6 million in connection with these collaboration agreements.
In addition, Ontogeny may receive payments if specific research and development
milestones are met and royalties if any products generated under the terms of
the collaboration are commercialized.
Although Ontogeny is seeking and in the future may seek to enter into
collaborative arrangements with respect to certain research and development
programs, there can be no assurance that Ontogeny will be able to enter into
such arrangements on acceptable terms or that the costs required to complete
the projects will not exceed the funding provided by the collaborative
partners.
Results of Operations
Years Ended December 31, 1999 and 1998
Total revenues from collaborators decreased approximately $240,000 or 5.1%
in 1999 to $4.5 million from $4.7 million in 1998, primarily due to the
expiration of Ontogeny's collaboration with Hoffmann-La Roche during the third
quarter of 1999. Revenues recorded from Hoffmann-La Roche totaled $1.5 million
in 1999 as compared to $1.7 million during 1998. In addition, Ontogeny
recognized approximately $3.0 million in revenues in both 1999 and 1998
relating to its collaboration with Biogen.
Research and development expenses increased 18.3% to $13.7 million in 1999
from $11.6 million in 1998, primarily due to increased spending associated with
Ontogeny's pre-clinical development programs, the hiring of additional research
personnel and increased stock-based compensation expense of approximately $0.7
million related to stock options granted to non-employees. Ontogeny expects
research and development expenses to increase in 2000.
General and administrative expenses increased 34.2% to $4.1 million in 1999
from $3.0 million in 1998. The increase was primarily due to the hiring of
additional administrative personnel, higher rent expense associated with the
leasing of additional office space, and higher patent-related expenses.
Ontogeny expects that general and administrative expenses will increase in the
future to support continued growth of its research and development efforts.
Ontogeny recognized $0.8 million and $0.1 million in equity-related charges
resulting from grants of options to employees and non-employees in 1999 and
1998, respectively. These charges are included in research and development or
general and administrative expenses depending upon the nature of the work
performed by the individuals receiving the option grants. Ontogeny incurred
expenses of $79,000 in 1999
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related to the issuance of stock options to employees. These employee options
generally vest over periods of up to five years, which will result in
additional compensation expense of approximately $2.7 million for periods
ending subsequent to December 31, 1999. Ontogeny incurred expenses of $0.7
million in 1999 related to options granted to non-employees. Non-employee
equity grants are variable and the expense to be recognized in future periods
cannot be estimated and will be dependent on a number of variables including
Curis' stock price.
Other income, net, consisting of interest income from the our cash and
investments offset by interest expense related to financing obligations, was
$1.6 million in 1999 as compared to $1.1 million in 1998, an increase of $0.5
million or 40.3%. The increase was a result of higher interest income on cash
and investment balances due to Ontogeny's equity financing during the fourth
quarter of 1998 offset slightly by higher interest expense.
Years Ended December 31, 1998 and 1997
Total revenues from collaborators increased 37.8% or approximately $1.3
million in 1998 to $4.7 million from $3.4 million in 1997, primarily due to the
expansion and extension of Ontogeny's collaborations with Biogen and Hoffmann-
La Roche in 1998. Revenues recorded from Hoffmann-La Roche totaled $1.7 million
in 1998 as compared to $0.8 million during 1997. In addition, Ontogeny
recognized approximately $3 million and $2.7 million in revenues in 1998 and
1997, respectively, relating to its collaboration with Biogen.
Research and development expenses increased 85.8% to $11.6 million in 1998
from $6.2 million in 1997, primarily due to hiring of additional research
personnel in 1998 to support efforts in identifying and developing product
candidates.
General and administrative expenses increased approximately 24.4% to $3.0
million in 1998 from $2.4 million in 1997. The increase was primarily due to
the hiring of additional administrative personnel in 1998.
Other income, net consisting of interest income from the cash and
investments offset by interest expense related to financing obligations.
Interest income increased 4.4% or $0.1 million to $1.5 million in 1998 from
$1.4 million in 1997. This increase resulted primarily from higher interest
during 1998. Interest expense increased 97% or $0.2 million to $0.4 million in
1998 from $0.2 million in 1997. This increase was primarily due to higher
financing obligation balances.
Liquidity and Capital Resources
Since inception, Ontogeny's primary source of funds has been the private
sale of equity securities, contract research and license revenues from
collaborations, equipment financing arrangements, and interest income earned on
investments. Ontogeny's total cash and investment balance at December 31, 1999
was $43.3 million, which included cash and cash equivalents of $7.2 million and
$36.1 million in marketable securities. As of December 31, 1999, Ontogeny had
raised approximately $71 million from the sale of equity securities, received
approximately $14.1 million in contract research and license payments,
approximately $5.9 million in secured financing arrangements, and approximately
$6.0 million in aggregate interest income since inception.
Net cash used in operating activities was $9.6 million in 1999 compared to
$6.6 million and $3.6 million in 1998 and 1997, respectively. In 1999, Ontogeny
invested $2.1 million in property and equipment, primarily in facility
renovations and laboratory equipment, versus $0.9 million and $1.7 million
invested in 1998 and 1997, respectively.
Cash received from the issuance of notes payable was $2.0 million in 1999
resulting from a note issued during the first quarter of 1999 to Becton
Dickinson. This note, along with accrued interest, was exchanged on October 31,
1999 for 400,000 shares of newly designated Series G convertible preferred
stock. Cash received from secured financing arrangements in 1999 was $1.8
million. The annual interest rates of these financings ranged from 12.5% to
16.0% and the financing arrangements have terms of approximately four years
each. As of December 31, 1999, Ontogeny had $0.7 million available under
equipment financing arrangements, which it expects to utilize in 2000.
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On March 31, 1999, Ontogeny completed the final closing of the Series F
preferred stock private placement with the issuance of an additional 655,738
shares of Series F preferred stock, resulting in net proceeds of approximately
$2.0 million.
Ontogeny expects operating spending to increase in the future as operations
expand to support the development of new and existing product candidates, while
capital spending for 2000 is expected to be approximately $2.0 million,
consistent with 1999 activity.
Ontogeny's future capital requirements depend on numerous factors, including
market acceptance of its products, the resources needed for developing and
supporting these products, and other factors. Ontogeny expects to devote
substantial capital resources to continuing its research and development
efforts, to expanding support and product development activities, and for use
in general corporate activities, including acquisition-related expenditures.
Ontogeny believes that the current cash and investments on hand, together with
revenue to be derived from the collaboration with Biogen, will be sufficient to
fund operations at least through the year 2000. During or after this period, if
cash generated by operations is insufficient to satisfy its liquidity
requirements, Ontogeny may need to sell additional equity or debt securities or
obtain additional credit arrangements. Additional financing may not be
available on terms acceptable to Ontogeny or at all. The sale of additional
equity or convertible debt securities may result in additional dilution to the
stockholders of Ontogeny.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from the change in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 will be effective for the
Ontogeny's year ending December 31, 2001. Ontogeny believes the adoption of
SFAS No. 133 will not have a material effect on its financial statements.
Year 2000 Compliance
Ontogeny did not experience any difficulties related to the Year 2000
problem on December 31, 1999 and has not experienced any such difficulties that
it is aware of since that date. Ontogeny operations have not, to date, been
adversely affected by any difficulties experienced by any of its suppliers or
customers in connection with the Year 2000 problem. Ontogeny management will
continue to monitor its systems for potential difficulties through the
remainder of calendar year 2000.
Quantitative And Qualitative Disclosures About Market Risk
Ontogeny invests cash balances in excess of operating requirements in short-
term marketable securities, generally corporate debt and government securities
with an average maturity of less than one year. All marketable securities are
considered available for sale. At December 31, 1999, the fair market value of
these securities amounted to $41.3 million with net unrealized losses of
$69,000 included as a component of stockholders' deficit. Because of the
quality of the investment portfolio and the short-term nature of the marketable
securities, Ontogeny does not believe that interest rate fluctuations would
impair the principal amount of the securities.
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REPROGENESIS BUSINESS, SELECTED CONSOLIDATED FINANCIAL DATA AND MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS
Business of Reprogenesis
Reprogenesis, through its proprietary technology, is developing products for
human tissue regeneration and repair. Reprogenesis' core technology of
combining cells and biomaterials to repair, restore or replace tissue and its
function serves as a platform for a broad range of potential products
addressing significant clinical needs in multiple markets. Reprogenesis is
developing its technology with three general aims:
. the creation of structural tissue to augment or correct an anatomical
defect;
. the repair or restoration of a physiological function; and
. the repair or restoration of anatomical organs.
Reprogenesis' two most advanced active products are in the areas of urology
and cardiovascular surgery and consist of:
. an autologous tissue product (Chondrogel) to treat a pediatric urologic
disorder (vesicoureteral reflux) that is currently in a Phase III
clinical trial; and
. an allogeneic cellular product (Vascugel) to prevent restenosis following
coronary artery bypass graft (CABG) surgery that is currently in
preparation to begin a Phase I/II clinical trial.
Reprogenesis also has other products at various stages of development in the
areas of urology and plastic and reconstructive surgery. Reprogenesis' patent
portfolio covers its core technology.
Structural Tissue
This approach provides mechanical structure in the body to augment a
congenital anomaly or to repair an acquired defect. Reprogenesis has initially
focused on developing structural tissue since it believes this approach
provides the most rapid path to commercialization. Reprogenesis and its
collaborators have demonstrated the creation of a number of structural tissues,
including bone and cartilage, in preclinical models.
Reprogenesis' initial urological product for the treatment of vesicoureteral
reflux is based on Reprogenesis' structural tissue approach. Vesicoureteral
reflux, a congenital condition affecting approximately 1% of all children, is
characterized by a backflow of urine from the bladder into the kidneys. The
condition can result in infection, scarring, and ultimately significant kidney
damage. Current treatments in the United States include palliative antibiotics
and, in advanced patients, major corrective surgery. Reprogenesis' reflux
product, Chondrogel, is an autologous chondrocyte/matrix product which can be
endoscopically implanted in order to correct reflux by providing a bulking
function at the ureteral/bladder junction to prevent urine backflow. Chondrogel
is currently in a Phase III clinical trial.
Physiological Function
These products impart physiological function by asserting physiological
control in the body. Reprogenesis is developing a product, Vascugel, that seeks
to enhance the efficacy of vascular interventions by inhibiting restenosis.
This product has broad applications in coronary and peripheral artery disease
as well as chronic vascular access. Reprogenesis expects to initiate an initial
Phase I/II trial evaluating Vascugel as an adjunct to Coronary Artery Bypass
Graft (CABG) Surgery.
Anatomical Organs
Development of new in vivo anatomical organs is the most sophisticated
application of Reprogenesis' technology. Such products must exhibit both
structural and physiological mechanisms to be effective. Reprogenesis is
developing a tissue engineered autologous bladder augmentation product that
addresses current
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treatment limitations. Reprogenesis and its collaborators are undertaking
preclinical IND-enabling studies prior to the clinical evaluation of the safety
and efficacy of this product.
Technology
Reprogenesis' principal technology is based on combining cells with a
hydrogel matrix that can be injected into the body with standard, minimally
invasive endoscopic techniques or implanted using standard surgical techniques.
These technologies allow delivery of cells in a biodegradable hydrogel matrix
that maintains structural requirements necessary to support normal tissue
generation in vivo. The technology is applicable to many tissue types.
Reprogenesis' research and development programs are principally directed by two
proprietary technologies:
. combining cells with a biodegradable hydrogel matrix which imparts the
needed structural mix for cells to remain viable and multiply; and
. the endoscopic delivery of the cell/hydrogel material to provide for a
minimally invasive delivery technique.
Tissue Formation Technology
For decades, investigators sought to create de novo tissue in the body
through the transplantation of suspensions of viable cells. These cell
suspensions often did not remain viable for extended periods or support new
tissue formation. The genesis of Reprogenesis' technology was a series of
observations made by Dr. Joseph P. Vacanti (Harvard University) and Dr. Robert
S. Langer (MIT). In preclinical models, these investigators combined a
suspension of cells with a fibrous biodegradable synthetic matrix material and
then implanted the cell/matrix combination into a host. This biodegradable
matrix imparts the structure that is often needed for the cells to organize
themselves to form tissue. The host resorbed the transplanted synthetic matrix,
and the creation of de novo tissue resulted from the net effect of this
resorption, combined with cell growth and the development of a natural matrix
by the transplanted cells. This approach allowed new solid structures to be
implanted into the body using conventional open surgical procedures for the
purpose of creating new solid tissue structures.
Separately, Reprogenesis and its collaborators developed tissue formation
techniques that could be delivered in a minimally invasive fashion. Toward this
end, Drs. Charles Vacanti (University of Massachusetts), Anthony Atala (Harvard
Medical School), Linda Griffith-Cima (MIT) and Keith Page (then at Harvard
Medical School) demonstrated in preclinical models that cells could be combined
with viscous hydrogels. If the hydrogels were biodegradable, the cell/hydrogel
suspensions could be endoscopically delivered into the body in both peripheral
and deep body structures to produce new tissue. Once delivered into the body
the cells would remain viable, propagate and synthesize natural matrix
materials with the net formation of new viable tissue.
Reprogenesis has exclusively licensed the injectable technology described
above in all therapeutic fields of use. The implantable technology using
fibrous matrices has been licensed in the areas of genitourinary (i.e., kidney,
ureter, bladder, urethra and reproductive system) and breast indications.
There are a number of advantages of Reprogenesis' technology. It is
straightforward to apply and, for the injectable approach, can be delivered in
a minimally invasive way using standard endoscopic devices. Furthermore, it can
be applied to many tissue types. To date, Reprogenesis and its collaborators
have shown that new cartilage, muscle, and genitourinary tissue can be formed
by either or both of the approaches described above. Reprogenesis' goal is to
create a variety of therapeutic interventions to correct many tissue
deficiencies.
Reprogenesis' technology has the potential to be applied using any source of
cells including autologous (i.e., from the specific patient to be treated),
allogeneic (i.e., from another human source) or xenogeneic (i.e., from another
animal species) sources. Each cell source has distinct advantages and
disadvantages associated with its
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use. Autologous tissue has the advantage of reducing or eliminating the risks
of infection with adventitious agents or immune rejection but can only be
obtained from the patient. Allogeneic cell-based products should be less
expensive to produce and more readily available to the patient because they can
be sourced in advance. However, they have an inherent risk of adventitious
agent infection and/or immune rejection. Xenogeneic cell based products should
be available in virtually unlimited supply. They also have an inherent risk of
adventitious agent infection and a potentially greater risk of immune
rejection. Reprogenesis seeks to use the most advantageous source of cells for
each of its products. For example, for its Chondrogel product, where extended
durability is desired, autologous cell sources are being used. For
Reprogenesis' cardiovascular product, Vascugel, where a physiological effect
for a limited time frame is believed to be necessary to achieve the desired
clinical effect, an allogeneic cell source is being used. In this latter case,
the body is expected to clear the cellular construct after its physiologic
effect has been imparted to the patient.
Polymer Technology
Since the formation of new tissue in vivo often requires the combination of
a cell source with a polymer or other biomaterial to provide three-dimensional
structure for the cellular construct, Reprogenesis maintains expertise and
scientific collaborations in the area of polymer chemistry and biomaterial
science. Reprogenesis actively pursues the development of new injectable and
implantable polymers that could support new tissue formation or delivery of
physiologically active substances. Toward this end, Reprogenesis has developed
a number of novel formulations and delivery techniques. For example,
Reprogenesis, in collaboration with Dr. David Mooney (University of Michigan),
has developed a number of semi-synthetic modifications of alginate, the polymer
used as a matrix material for the Chondrogel clinical product. Alginate is a
viscous natural polymer purified from brown seaweed. It is currently used as a
thickening agent in various foodstuffs. This material has been chemically
modified to produce a series of polymers with controlled and predictable rates
of resorption in vivo, thus allowing in vivo product durabilities ranging from
weeks to many months. Highly porous, non-fibrous materials, which can be used
as implantable matrix materials, have also been developed. Such materials could
be used to recapitulate diseased or damaged body structures or to deliver
bioactive substances.
PRODUCTS
Chondrogel for Vesicoureteral Reflux
Vesicoureteral Reflux
Under normal conditions, the vesicoureteral junction allows urine to enter
the bladder and prevents urine from regurgitating into the ureter, particularly
at the time of voiding. In this way, the kidney is protected from high pressure
in the bladder and from contamination by infected urine. When the junction is
incompetent, urine in the bladder flows back into the ureters and, in many
cases, to the kidneys. Vesicoureteral reflux, a congenital condition, refers to
the retrograde flow of urine from the bladder into the ureter(s) and, often, to
the kidney(s). Vesicoureteral reflux affects approximately 1% of children.
Reflux and urinary tract infections (UTI's) are significant causes of
morbidity in children. Primary reflux results from a congenital incompetence of
the vesicoureteral junction (i.e., the junction at which the ureter enters the
bladder). Retrograde flow (i.e., reflux) of infected urine can result in kidney
damage and scarring. The incidence of urinary tract infections in normal
children is approximately 1%. Approximately 30-50% of all pediatric patients
with UTI's also have reflux.
Current Treatments/Limitations for Reflux
The accepted standard of care for reflux is dependent on the severity of the
condition and is designed to minimize or prevent kidney infections. Most
patients with low-grade reflux may initially be managed medically. Medical
management typically consists of administering antibiotics (for the maintenance
of sterile urine) until
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the condition resolves. Additionally, standard care requires frequent urine
cultures and invasive examinations to monitor the condition. The inherent risks
associated with long-term use of antibiotics include the emergence of
antibiotic resistant bacteria, allergic reactions, as well as pulmonary and
hematological risks. The treatment regimens generally require the child to
return regularly to the hospital or clinic for extensive and invasive studies.
Open surgery is typically performed for those cases of severe reflux as well
as for those cases of low-grade reflux where medical management has failed. Due
to the inherent risks and invasiveness of surgery, there is a tendency for both
the physician and parents to seek to avoid open reflux surgery. Typically, open
reflux surgery is a two to three hour procedure, involves a two to five day
hospital stay, has a significant degree of associated discomfort, is expensive
and requires a four to six week recuperation.
As a result of the inherent risks and invasiveness of surgery, less invasive
approaches to treat reflux have been sought. In the early 1980's, the concept
of treating reflux using an endoscopically delivered bulking agent was
developed. The placement of a bulking agent at the ureteral junction prevents
backflow of urine from the bladder to the ureter and kidneys, thus preventing
reflux but not interfering with normal bladder function. This concept has been
embraced by medical practitioners worldwide but its use has not come into
common practice in the United States due to the historic absence of a bulking
agent that is generally accepted as safe, effective and durable.
The endoscopic injection of Teflon(R) paste as a bulking agent has been used
in Europe to correct reflux; however, concern about particle migration has
limited the use of Teflon(R) for this indication in the United States. Bovine
dermal collagen preparations have been used with limited success. The implant
volume in patients treated with this material in other indications has been
reported to decrease over time due to resorption, resulting in eventual
treatment failure.
Reprogenesis Approach
Reprogenesis has developed an autologous bulking material which it believes
meets the requirements for a desirable implant. Chondrogel can be
endoscopically implanted at the defective vesicoureteral orifice, and is
expected to obviate the need for open surgery in many patients. Chondrogel
consists of autologous chondrocytes in a calcium alginate gel and is
administered endoscopically. Chondrocytes (cartilage cells) are isolated from a
tissue biopsy from behind the subject's ear, expanded in vitro in tissue
culture media, and combined with sodium alginate which is then mixed with a
calcium suspension to form a calcium alginate gel. The gel is thought to serve
as a substrate for injectable delivery and aids in the creation and maintenance
of cartilage architecture in vivo. The cells are thought to secrete a natural
matrix that replaces the space initially occupied by the gel mixture.
Reprogenesis' product can be delivered endoscopically, appears to be well
tolerated, and has not exhibited evidence of any particulate migration in human
or animal studies. By endoscopically implanting cells in a biodegradable
hydrogel matrix, Chondrogel can correct reflux by augmenting, or bulking,
tissue at the vesicoureteral junction to prevent urine backflow without
interfering with normal bladder function. Based on its experience to date,
which is incomplete, Reprogenesis believes Chondrogel will allow children with
reflux to be treated safely and effectively with only minimally invasive
outpatient procedures required for the cartilage harvest and injection
procedures.
Clinical Development of Chondrogel
In 1996, Reprogenesis initiated clinical testing of Chondrogel in a safety
study. The trial was conducted in 10 young adult volunteers and demonstrated
that the biopsy tissue could be obtained safely. In November 1997, Reprogenesis
completed enrollment of a subsequent 29-patient Phase II open-label clinical
trial to evaluate the safety and preliminary efficacy of Chondrogel in
pediatric patients with vesicoureteral reflux. The primary endpoint of this
trial, which was conducted at two sites, was avoidance of surgery in children
with
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vesicoureteral reflux after one or more treatments. Safety and efficacy
measurements were made at three and twelve months post-treatment. At three
months after treatment, 22 of 29 (76%) patients were free of reflux. At twelve
months after treatment, 18 of 29 (62%) patients remained free of reflux.
Reprogenesis initiated a Phase III clinical trial in May 1998. In September
1998, Reprogenesis observed in preclinical models that it could create a
superior quality product with relatively minor modifications to its existing
formulation. Enrollment in this trial was discontinued since it was expected
that such improvement would maximize the clinical outcome. Development studies
identified a formulation that would deliver an increased number of viable cells
at injection. This formulation was incorporated in a "ready-to-use" preparation
for injection. Formulation development studies were completed in February 1999
and a regulatory amendment describing the new formulation was submitted to the
FDA. Reprogenesis obtained agreement from the FDA to use the new formulation to
treat patients in a new open label Phase III safety and efficacy trial. Patient
enrollment in the trial began in July 1999. Reprogenesis anticipates completion
of enrollment in the first half of 2000.
The patients enrolled in the Phase III trial will be used to determine the
safety and effectiveness of the product being submitted for licensure. The
patients in the earlier trials (original formulation) will be used to
demonstrate the safety of the product and the effectiveness of a similar
product. The current trial is being conducted at eight clinical sites in the
United States. The primary efficacy outcome for this trial is the resolution of
reflux. In addition to the Phase III trial, the FDA has asked Reprogenesis to
provide data to demonstrate the role of both chondrocytes and alginate hydrogel
for product effectiveness, i.e., tissue bulking. Toward this end, Reprogenesis
is initiating a controlled clinical trial in urinary stress incontinence
patients comparing Chondrogel with crosslinked Alginate Hydrogel (i.e., matrix
without chondrocytes). This study will be conducted in up to ten centers in the
United States and will enroll 25 patients in the Chondrogel treatment group and
25 patients in the Alginate Hydrogel group. Reprogenesis will complete this
trial prior to a filing for FDA approval for the reflux indication. However,
there can be no assurance that these trials will achieve the desired clinical
endpoints or that Chondrogel will be approved for sale. Separate from these
studies whose completion are required for licensure, Reprogenesis will also
conduct a clinical trial evaluating Chondrogel for the treatment of pediatric
patients with less severe reflux than those enrolled in the current trial.
Many of the biomaterials, cell types, and ingredients used in Reprogenesis'
products and product candidates have not previously been used as components in
medicinal products. Historically, neither FDA nor other regulatory authorities
have determined the safety and effectiveness of these materials for
pharmaceutical or other medical use. Therefore, the acceptability or
approvability of these materials has not been demonstrated. Furthermore, any
FDA approval of Chondrogel has increased uncertainty because Chondrogel is
Reprogenesis' first product using novel materials in a non-traditional manner
to undergo FDA review.
Marketing
Until January 1999, Reprogenesis was a party to a research and development
agreement and a supply and marketing agreement with American Medical Systems,
Inc. ("AMS") relating to Chondrogel. In January 1999, the agreements with AMS
were terminated, and Reprogenesis reacquired ownership of all rights to this
product. This reacquisition will allow Reprogenesis to directly market
Chondrogel to providers. Reprogenesis intends to build its own marketing and
sales force to market Chondrogel. There are approximately 250 pediatric
urologists who treat reflux in the United States. These providers treat the
majority of cases of vesicoureteral reflux and can be detailed with a
relatively small sales force. By maintaining all rights and directly marketing
the Chondrogel product, Reprogenesis will retain a much greater portion of
product sales than would have been possible if it had entered into a corporate
collaboration with a marketing partner. However, there can be no assurance that
Reprogenesis will be successful in developing its sales force or marketing
Chondrogel.
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Vascugel for the Inhibition of Restenosis and in Coronary and Peripheral
Vascular Procedures
Cardiovascular Biology
Vascular arterial disease is the most common cause of death in the United
States. Cardiovascular surgery and therapies such as angioplasty and stenting
are the current standard of care. However, a large number of these procedures
fail due to a form of arterial disease known as restenosis. Restenosis is the
re-narrowing of the treated blood vessel following vessel wall injury resulting
in decreased blood flow. This re-narrowing occurs in large part because cells
(smooth muscle cells) in the wall of the vessel proliferate after the vessel is
damaged. This proliferation occurs because the cells on the inside of the
vessel (endothelial cells) which normally control proliferation are damaged,
and apparently can no longer provide the physiological function of keeping the
underlying smooth muscle cells in a steady state. It is estimated that over 1.5
million transcutaneous (i.e., balloon angioplasty and stenting) and peripheral
and coronary arterial (coronary artery bypass graft) bypass procedures are
performed each year and that 25-50% of these will fail within months, requiring
reintervention with added risk.
Obstructive vascular problems also arise from the need for chronic access to
the blood stream. An example of such access is the arterial/venous (A/V) shunt
used by patients with end-stage renal disease (ESRD) who require kidney
dialysis. Typical failure rates of A/V shunts are 40-50% after 12 months.
Reprogenesis Approach
Reprogenesis is developing a product, Vascugel, which seeks to enhance the
efficacy of bypass surgery and chronic vascular access by reducing or
eliminating restenosis. Recognizing that the endothelial cells appear to
regulate smooth muscle cell overgrowth, Vascugel utilizes allogeneic
endothelial cells in a degradable matrix placed on the outside of injured
vessels at the time of surgery. Other researchers are attempting to deliver
inhibitors of smooth muscle cell proliferation to the lining of the artery to
prevent the overgrowth of smooth muscle cells. This is complicated by the
presence of blood flow at this site. In contrast, Reprogenesis' approach seeks
to recapture the control produced by the endothelium by implanting endothelial
cells in a protected area next to the artery (i.e., on the outside where there
is no blood flow.) When allogeneic endothelial cells are dispersed within a
polymer matrix, they remain viable and exhibit normal behavior for extended
periods. When the cell-matrix device is "wrapped" around injured arteries or
grafts, restenosis is inhibited in preclinical studies. Moreover, Reprogenesis
believes the cells prevent the overgrowth of smooth muscle cells over a long
period of time. However, the immune responses of patients to these transplanted
cells has not been characterized and the effectiveness of this product in
recipients sensitized to materials or donor antigens by blood transfusion,
pregnancy or organ transplantation is not known.
Reprogenesis' cardiovascular product will attempt to address a range of
vascular diseases, including diseases that occur in the coronary and peripheral
vascular systems. Different cell types, polymer formulations and device
configurations are being developed. In this way the intimal hyperplasia
associated with bypass surgery, organ transplantation and kidney dialysis may
be effectively treated with the potential to decrease the complexity, cost or
time of the required surgical procedure. Reprogenesis is completing preclinical
studies it believes will allow the company to file regulatory documents with
the FDA leading to the initiation of a clinical trial. However, there can be no
assurance that the FDA will find the submitted documentation adequate to
support the proposed trial.
Reprogenesis is seeking collaborative arrangements with corporate partners
relating to Vascugel. There can be no assurance that Reprogenesis will be
successful in obtaining such a collaborative arrangement.
Urology Preclinical Products
Bladder Augmentation
Reprogenesis is developing a tissue engineered autologous bladder product
that would address current treatment limitations for bladder augmentation. Up
to 500,000 patients per year in the United States could
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benefit from augmentation or replacement of the bladder due to congenital
deficiencies, resections following cancer, trauma, or other genitourinary
conditions. The current therapy for bladder augmentation is to transplant
autologous segments of bowel to provide the needed structure. The surgeries are
complex and expensive and can lead to significant complications such as
metabolic problems, lithogenesis (stone formation), mucous production, bowel
obstruction and a substantial increase in cancer of the transplanted bowel. The
invasiveness, cost and morbidity of these surgeries limits their use to only
the most severe bladder deficiencies (approximately 20,000 procedures per year
in the United States). Reprogenesis believes that a less invasive and more
effective approach could potentially increase the number of bladder
augmentation surgeries.
Reprogenesis and its collaborators are developing an approach which would
replace the transplanted bowel segments with an implant which consists of a
biodegradable polymer substrate seeded with autologous urothelial cells on the
luminal surface and autologous bladder smooth muscle cells on the external
surface. The autologous cells consist of a combination of urothelial and muscle
cells obtained from a biopsy of the patient which are then seeded on the
interior and exterior surfaces of the substrate, respectively. Such a tissue
engineered autologous bladder could remove the need for bowel resection and
provide the patient with an implant created from the patient's own bladder
cells. This could result in a newly created bladder or bladder section with
many of the biological properties of the original bladder tissue. These
properties include biocompatibility with urine, impermeability to urine,
avoidance of lithogenesis and long-term stability.
Reprogenesis, in collaboration with Dr. Anthony Atala of Children's
Hospital--Boston, has successfully created a tissue engineered bladder dome in
a canine model by:
. harvesting, isolating and expanding the two primary bladder cell types
(urothelial and smooth muscle cells);
. seeding those two cell types on a fibrous three dimensional polymer
substrate; and
. implanting this neo-bladder structure in a canine cystectomy model to
restore urinary structure and function.
The results of this study demonstrate that bladder dome structure (i.e.,
capacity) and function (i.e., compliance) are maintained after implantation.
Reprogenesis believes that this technology demonstrates for the first time in a
preclinical model that tissue engineering can be employed for the de novo
creation of functionally and anatomically normal bladders. Reprogenesis has
obtained exclusive license rights to the patent application owned by Children's
Hospital, Boston that covers this invention.
Reprogenesis is undertaking preclinical studies to be included in an IND
filing to support the initiation of a clinical trial. There is no assurance
that these studies and filings will be successful.
Urinary Incontinence
Stress urinary incontinence results in the involuntary loss of urine during
coughing, sneezing, exercising, or other physical activities that increase
intra-abdominal pressure. Current treatment options include adult diapers,
insertable devices, endoscopic bulking and surgical correction. Of the
approximately 13 million people in the U.S. that suffer from urinary
incontinence, approximately 7 million exhibit symptoms of stress incontinence.
Intrinsic sphincter deficiency (ISD) is one form of stress incontinence that
can be effectively treated by injecting bulking materials into the bladder neck
to reduce the diameter of the urethra, thus allowing the urethral sphincter to
completely close preventing involuntary loss of urine. Reprogenesis has shown
in a Phase II clinical trial, in which 32 patients were treated with
Chondrogel, that three months after a single treatment 44% (14/32) of evaluated
patients were dry and 81% (26/32) of evaluated patients were dry or improved.
At 12 months after a single treatment, 52% (15/29) of evaluated patients were
dry and 86% (25/29) of evaluated patients were dry or improved. Based on the
results of this study, Reprogenesis is evaluating Chondrogel, as well as a
series of acellular bulking agents, for potential effectiveness in the
treatment of ISD.
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Plastic and Reconstructive Surgery Preclinical Products
Maxillofacial & Soft Tissue Reconstruction
Reprogenesis is developing a family of injectable and implantable cartilage
and other soft tissue products that can be used for breast and maxillofacial
reconstruction. Currently, surgeons use autologous free cartilage or bone
transplants to reconstruct damaged maxillofacial structures. The quantity and
shape of materials available for transplant and thus the quality of the
reconstruction are limited by what can be obtained from available donor sites
in the patient to be treated.
Reprogenesis believes that its products may alter the way tissue substitutes
are used in reconstruction by providing injectable and implantable versions of
neo-cartilage and neo-soft tissue. Reprogenesis has demonstrated in animal
models that autologous cells isolated in simple biopsy procedures can be
expanded in number, re-formulated in a polymer and then re-implanted or
injected into the body to form a range of neo-tissues. For example,
chondrocytes have been shown to produce neo-cartilage. Based on these
observations, Reprogenesis is creating a family of products that seek to
replace damaged structures. Products may include substitutes for cartilage and
soft tissue (using cells obtained from a number of biopsy sources). These
products may include an initial version wherein a cell formulation is injected
and formed (or gelled) in vivo followed by an implantable form in which the
cell formulation is first gelled in a pre-formed mold and then implanted.
The first product candidate in this family may allow for the reconstruction
of significant maxillofacial defects. Reprogenesis and its collaborators have
shown, in preclinical models, that cartilage implants in the shape of chin or
cheek structures can be produced using Reprogenesis' tissue formation
technology. Chondrocytes have been combined with a hydrogel material and then
gelled ex vivo in the shape of chin and cheek implants. These molded implants
have been implanted subcutaneously in preclinical models. After approximately 6
months, the constructs were explanted. These implants exhibited neo-cartilage
and retention of their original shape. Reprogenesis is evaluating the
suitability of using such implants as an alternative to the inanimate (e.g.,
silicone-based) materials currently in common clinical use.
Collaborative Agreements
Currently, Reprogenesis is seeking collaborative arrangements relating to
Vascugel and bladder augmentation. At the present time, Reprogenesis is funding
the costs incurred in connection with the development of all of its products.
Until January 1999, Reprogenesis was a party to a research and development
agreement and a supply and marketing agreement with American Medical Systems,
Inc ("AMS"). These agreements obligated AMS to provide for the reimbursement of
research and development costs relating to Chondrogel and pay royalties to
Reprogenesis in exchange for licenses to sell and market the resulting
products. Reprogenesis received approximately $20 million from AMS under these
agreements during the period from September 1995 to January 1999. In January
1999, the agreements were mutually terminated and all obligations under the
agreements were released, except that Reprogenesis retained an obligation to
reimburse AMS upon commercialization of Chondrogel for a portion of the costs,
up to a maximum of $3.5 million, incurred by AMS in funding Reprogenesis'
research and development. Upon termination of these agreements with AMS,
Reprogenesis reacquired ownership of all rights to this product. This
reacquisition will allow Reprogenesis to directly market Chondrogel to
providers. By maintaining all rights and directly marketing Chondrogel,
Reprogenesis will retain a greater portion of product sales than would have
been possible under the agreements with AMS.
Academic Collaborations. Reprogenesis maintains a broad network of
collaborations that focus on the development of basic tissue engineering
science as well as on the application of its technology.
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Carolinas Medical Center
Reprogenesis has an agreement with the Charlotte-Mecklenburg Health Services
Foundation to conduct research to develop a natural tissue comprised of the
patient's own cells for use in soft tissue augmentation. The goal of this work
is to develop a large volume of new tissue with an associated blood supply.
University of Massachusetts Medical Center
Reprogenesis has an agreement with the University of Massachusetts Medical
Center in Worcester, Massachusetts to complete research in the tissue
engineering technology discovered by Dr. Charles A. Vacanti. This research has
applications in the fields of orthopaedics, maxillofacial repair and wound
healing.
Massachusetts Institute of Technology
Reprogenesis has an agreement with Dr. Elazer Edelman at the Massachusetts
Institute of Technology to explore tissue engineered product applications in
the field of cardiovascular biology. The goal of this work is to synthesize and
evaluate a variety of polymeric materials for implantation and in vivo
propagation of endothelial cells to be used in Reprogenesis' cardiovascular
products. Reprogenesis has received a National Institute of Standards and
Technology (NIST) grant to defray some of the costs of this program. The grant
provides $2 million over 3 years.
University of Michigan
Reprogenesis has an agreement with the University of Michigan to develop
novel matrix materials for use in Reprogenesis' products. The primary
motivation of the work is to develop proprietary, synthetic polymeric matrices
with controlled and reproducible properties. This work is directed by David J.
Mooney, Ph.D.
Children's Hospital, Boston, Massachusetts
Reprogenesis intends to enter into an agreement with Children's Hospital,
Boston, to sponsor research in the area of tissue engineering. The focus of
this work will likely include applications in urology and plastic and
reconstructive surgery.
Competition
Reprogenesis faces, and will continue to face, intense competition from
organizations such as large pharmaceutical companies, biotechnology companies,
academic and research institutions and government agencies. Reprogenesis is
subject to significant competition from organizations that are pursuing the
same or similar technologies as those which constitute Reprogenesis' technology
platform and from organizations that are pursuing pharmaceutical or diagnostic
products that are competitive with Reprogenesis' potential products. Most of
the organizations competing with Reprogenesis have greater capital resources,
research and development staffs and facilities, greater experience in drug
discovery and development and in obtaining regulatory approval and greater
pharmaceutical product manufacturing and marketing capabilities.
Chondrogel for Vesicoureteral Reflux
Current competition for Chrondrogel for vesicoureteral reflux is medical
management (antibiotic prophylaxis) and/or surgical intervention (the so-called
reimplantation procedure). Additionally, particular bulking agents could gain
acceptance for the treatment of reflux. Bulking agents not yet on the market
(Deflux from Qvestor, for example) could become a factor, and "cross-over"
bulking agents (Contigen(R) and Durasphere(TM), currently used to treat
incontinence) and bulking agents currently in use in Europe (Teflon(R),
Macroplastic(TM)) could also compete with Chondrogel.
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Vascugel for Inhibition of Restenosis in Coronary and Peripheral Vascular
Procedures
There are a variety of approaches to the prevention of restenosis following
standard revascularization procedures that are currently being examined. Some
of those approaches, in addition to Vascugel, are cell-based. For example,
other researchers are attempting to directly reconstruct the endothelial cell
lining of the artery in order to control the overgrowth of smooth muscle cells.
Many, if not most, of the approaches currently being examined are being
considered in conjunction with endovascular procedures, such as angioplasty and
stenting. However, it is possible and even likely that some of those approaches
will also be examined for use in conjunction with the open surgical procedures
(e.g., Coronary Artery Bypass Graft, Peripheral Artery Bypass Graft, A/V Shunt)
that are the initial clinical indications for Vascugel. Those approaches
include systemic drug delivery (e.g., heparin, ACE inhibitors, antioxidants),
radiation (e.g., catheter delivery system from Novoste), polymeric endoluminal
hydrogels (e.g., photo-crosslinked PEG from Focal), local drug delivery (e.g.,
heparin-coated stents from Medtronic), biologics/gene therapy (e.g., VEGF-1,
VEGF-2, Nitrous Oxide), and intravascular endothelial cells (e.g., endothelial
cell paving of the lumen).
Product for Bladder Augmentation
The current therapy for bladder augmentation is to transplant autologous
segments of bowel to provide the needed structure. Approximately 20,000
procedures of this type are performed each year in the United States.
It is possible that human and/or animal cadaveric tissues and tissue-derived
materials could be utilized to provide the structure needed for bladder
augmentation. The Surgisis(TM) Sling, for example, is an acellular matrix
material derived from porcine small intestine that is being marketed by Cook
Biotech for "tissue repair". This material is reported to have been used for
bladder augmentation.
Product for Maxillofacial Repair
Current products used for maxillofacial repair include autologous (both bone
and cartilage) and silastic implants. Other implantable materials and/or
devices are being investigated for applicability; materials being investigated
for particular uses include aluminum oxide coatings and Teflon(R).
Additionally, it is possible that osteoinductive (bone forming) materials could
be developed for use in this indication.
Patents and Protection of Proprietary Technology
Reprogenesis' ability to compete effectively with other companies will
depend, in part, on its ability to maintain the proprietary nature of its
technology and products. Reprogenesis relies on patents, trade secrets and
know-how to develop and maintain its competitive position. Reprogenesis pursues
a policy of seeking broad patent protection for the patentable subject matter
relating to its proprietary technology platform in the field of tissue
engineering. Reprogenesis currently owns or has rights through license
agreements to 19 issued patents and 17 pending applications in the United
States and owns or has rights through license agreements to seven granted
foreign patents and 40 pending foreign applications. These patents and patent
applications are directed to compositions of matter, methods of making and
using these compositions and to methods of repairing, replacing, augmenting and
creating tissue for the treatment of diseases, disorders and defects in both
therapeutic and cosmetic applications. There can be no assurance, however, that
any such patent applications will issue as patents, or that any patent now
issued, or subsequently issued, will provide a preferred position with respect
to the technology or products it purports to cover.
The license agreements that Reprogenesis has entered into with its academic
collaborators impose various obligations on Reprogenesis. These include the
obligation to meet dates and make payments for milestones relating to product
development progess, regulatory events and product introductions. They also
include obligations to make payments including license maintenance fees,
minimum royalties, running royalties and sublicense payments. Breach of these
obligations could result in the termination of these license agreements.
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Hydrogel Technology. Reprogenesis' patent estate includes both an issued
patent and pending applications directed to the use of injectable or
implantable cell/hydrogel mixtures in applications where the creation of new
tissue is desired. Such applications include vesicoureteral reflux, urinary
stress incontinence, nipple reconstruction, soft tissue reconstruction and
other plastic and reconstructive surgery procedures.
Urological Product Technology. Reprogenesis' patent estate includes patents
and pending patent applications that are directed to products and therapies
employing the use of tissue engineering to repair, reconstruct or augment
tissues and structures of the urological and reproductive systems. This
technology has application to structures that include bladder, ureters and
urethra.
Cardiovascular Technology. Reprogenesis' patent estate contains a patent
directed to tissue engineering-based therapies for inhibition of vascular
occlusion following a vascular insult.
Reprogenesis' success will depend in part on its ability to obtain marketing
exclusivity for its products for a period of time sufficient to establish a
market position and achieve an adequate return on its investment in product
development. Reprogenesis believes that protection of its products and
technology under United States and international patent laws and other
intellectual property laws is an important factor in securing such market
exclusivity. United States patents issued from applications filed prior to June
8, 1995 have a term of the longer of 17 years from patent grant or 20 years
from the earliest filing date. United States patents issued from applications
filed on or after June 8, 1995 have a term of 20 years from the earliest filing
date. Patents in most foreign countries have a term of 20 years from the date
of the filing of the patent application. In the United States and certain
foreign countries, the exclusivity period provided by patents covering
pharmaceutical products may be extended by a portion of the time required to
obtain regulatory approval for a product.
Although Reprogenesis pursues patent protection for its technology,
significant legal issues remain as to the extent to which patent protection may
be afforded in the fields of tissue engineering and medical treatment methods,
in the United States and foreign countries. Furthermore, the scope of
protection has not yet been broadly tested. Therefore, Reprogenesis also relies
upon trade secrets, know-how and continuing technological advancement to
develop and maintain its competitive position. Disclosure of Reprogenesis'
know-how is generally protected under confidentiality agreements. There can be
no assurance, however, that all Reprogenesis' confidentiality agreements will
be honored, that third parties will not develop equivalent technology
independently, that disputes will not arise as to the ownership of technical
information or that wrongful disclosure of Reprogenesis' trade secrets will not
occur.
Certain products and processes important to Reprogenesis may be subject in
the future to patent protection obtained by others. The field of tissue
engineering is developing rapidly. Because many patent applications have been
filed in this field in recent years, Reprogenesis cannot predict the scope that
courts will give to the claims of patents issued from such applications and the
nature of these claims. It is possible that United States Patent and Trademark
Office interference proceedings will occur with respect to a number of the
Reprogenesis' patent applications or issued patents. It is also likely that
subject matter patented by others will be required by Reprogenesis to research,
develop or commercialize at least some of its products. If Reprogenesis is
unable to obtain licenses under any such patent rights of others on acceptable
terms, then Reprogenesis may have to limit or terminate the development of some
or all of its products.
Regulatory Matters
For discussion of the regulatory matters pertinent to the business of
Reprogenesis, see "Regulatory Matters Affecting Curis, Creative, Ontogeny and
Reprogenesis."
Employees, Facilities and Manufacturing
As of March 2, 2000, Reprogenesis had a total of 36 full-time employees, of
whom seven hold Ph.D. or M.D. degrees. Of Reprogenesis' total workforce, 10
were in research and development, 10 were in engineering and production, 11
were in clinical, regulatory and quality, and five were in administration and
finance.
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Reprogenesis' employees are not unionized and Reprogenesis believes it has
excellent employee relations. All of Reprogenesis' employees have signed
confidentiality agreements.
Reprogenesis leases approximately 36,000 square feet in Cambridge,
Massachusetts for its administrative offices, research laboratories and
clinical production facility. Of this space, approximately 21,000 square feet
has been renovated to include laboratory, manufacturing, warehouse and office
space and is currently being occupied. The remaining 15,000 square feet may be
used for Reprogenesis' commercial manufacturing facility. Reprogenesis
subleased this 15,000 square feet of space through June 30, 2000. Reprogenesis
also has a right of first refusal to other space in its building (up to 14,000
square feet) as the space comes available.
Legal Proceedings
Reprogenesis is not a party to any material legal proceedings.
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Reprogenesis Selected Consolidated Financial Data
The selected consolidated financial data set forth below have been derived
with respect to the consolidated statements of operations for the years ended
December 31, 1999, 1998 and 1997, and with respect to the consolidated balance
sheets as of December 31, 1999 and 1998, from the consolidated financial
statements that have been audited by Arthur Andersen LLP, independent auditors.
The consolidated financial statements are included elsewhere in this joint
proxy statement-prospectus. The consolidated statements of operations data for
the years ended December 31, 1996 and 1995, and the consolidated balance sheets
data as of December 31, 1997, 1996 and 1995 are derived from audited
consolidated financial statements not included in this joint proxy statement-
prospectus. You should read the data set forth below in conjunction with
Reprogenesis' "--Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Reprogenesis Consolidated Financial
Statements and related Notes included in this joint proxy statement-prospectus.
<TABLE>
<CAPTION>
For the Years Ending December 31,
------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues:
Research and development contracts
and government grants............ $ 518 $ 4,254 $ 5,957 $3,864 $3,489
Interest income................... 274 171 201 20 25
Other income...................... 1,556 -- -- -- --
-------- ------- ------- ------ ------
Total revenues...................... 2,348 4,425 6,158 3,884 3,514
-------- ------- ------- ------ ------
Costs and expenses:
Research and development.......... 6,973 6,339 5,697 4,397 1,581
General and administrative........ 1,221 1,694 637 430 641
Interest expense.................. 1,229 107 3 1 --
Other expense..................... 554 -- -- -- --
-------- ------- ------- ------ ------
Total costs and expenses: 9,977 8,140 6,337 4,828 2,222
-------- ------- ------- ------ ------
(Loss) income from operations....... (7,629) (3,715) (179) (944) 1,292
Minority interest in (income) losses
of CTDP............................ (375) 98 58 92 65
-------- ------- ------- ------ ------
Net (loss) income .................. $ (8,004) $(3,617) $ (121) $ (852) $1,357
======== ======= ======= ====== ======
Basic and diluted net loss per
common share....................... $ (0.74) $ (0.35) $ (0.01) * *
======== ======= ======= ====== ======
Weighted average shares outstanding
(basic and diluted)................ 10,762 10,398 10,398 * *
======== ======= ======= ====== ======
<CAPTION>
December 31,
------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and
marketable securities.............. $ 6,492 $ 1,692 $ 4,842 $ 18 $1,275
Working capital..................... 5,596 1,754 6,028 340 1,578
Total assets........................ 8,496 4,886 6,305 1,510 1,654
Note payable, net of current
portion............................ 886 1,239 -- -- --
Retained earnings (accumulated
deficit)........................... (12,217) (4,213) (596) (474) 587
Total shareholders' equity.......... 6,338 2,505 6,122 318 1,587
</TABLE>
- --------
* Reprogenesis was a partnership until it merged into Reprogenesis, Inc. on
July 1, 1996.
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Management's Discussion And Analysis Of Financial Condition And Results Of
Operations
General
Since the formation of Reprogenesis in 1993, Reprogenesis has funded its
business activities from various sources. Its primary sources of funding have
been its:
. collaborations with AMS and the Charlotte-Mecklenburg Health Services
Foundation;
. sales of equity securities; and
. borrowings incurred in connection with the construction of its current
facility.
Reprogenesis has not been profitable since 1995 and expects to incur
additional losses in 2000. Results beyond 2000 will depend largely on its
ability to enter into collaborative partnerships and the magnitude of the
commercial success of Chondrogel and other products, if such products are
approved by the FDA for commercial sale. Although Reprogenesis is seeking to
enter into collaborative arrangements with respect to certain projects, there
can be no assurance that it will be able to obtain such arrangements on
acceptable terms or that the costs required to complete the projects will not
exceed the funding available from collaborative partners. Reprogenesis is
likely to incur continued losses in future years, and Reprogenesis expects to
be dependent on its ability to raise additional funds through collaborations
and equity or debt financings in order to continue its operations.
Until January 1999, Reprogenesis was party to a research and development
agreement and a supply and marketing agreement with AMS. These agreements
obligated AMS to provide for the reimbursement of research and development
costs relating to Chondrogel and pay royalties to Reprogenesis in exchange for
licenses to sell and market the resulting products. In January 1999, the
agreements were mutually terminated and all obligations under the agreements
were released, except that Reprogenesis retained an obligation to reimburse AMS
upon commercialization of Chondrogel for a portion of the costs (up to a
maximum of $3.5 million) incurred by AMS in funding Reprogenesis' research and
development. Currently, Reprogenesis is funding all of the costs incurred in
connection with the development of Chondrogel and its other products.
Prior to 1999, Reprogenesis conducted its breast and soft tissue research
through a general partnership with the Charlotte-Mecklenburg Health Services
Foundation. Reprogenesis owned a 75% interest in the partnership and the
Foundation owned the remaining 25% interest. The partnership was a party to a
Facilities, Research and Development Agreement with the Charlotte-Mecklenburg
Hospital Authority, an affiliate of the Foundation, under which the partnership
and the Authority jointly funded research at the James G. Cannon Research
Center in Charlotte, North Carolina. On January 1, 1999, Reprogenesis and the
Foundation decided to dissolve the partnership. In connection with this
dissolution, the Facilities, Research and Development Agreement between
Reprogenesis and the Authority was terminated, and the Authority paid $1.5
million to the partnership to settle all obligations under that agreement.
Thereafter, Reprogenesis purchased the Foundation's interest in the partnership
for 500,000 shares of Reprogenesis' common stock, upon which the partnership
was dissolved. In connection with the dissolution of the partnership,
Reprogenesis entered into a sponsored research agreement with the Authority.
Under terms of the sponsored research agreement, Reprogenesis agreed to provide
a total of $762,000 in funding for research at the Cannon Research Center
through June 2000, of which approximately $516,000 was paid in 1999.
In addition to Reprogenesis' initial $1.0 million funding upon its formation,
it raised approximately $5.9 million through the issuance of series A preferred
stock and warrants to purchase common stock in 1997 and approximately $10.4
million through the issuance of series B preferred stock and warrants to
purchase common stock in 1999. Reprogenesis also borrowed approximately $1.8
million in July 1998 to fund a portion of the construction costs of its current
facility.
In November 1999, Reprogenesis was awarded a financial assistance award from
the Advanced Technology Program of the National Institute of Standards and
Technology. This award provides $2 million over a three-year period in cost
reimbursement funding of its cardiovascular cell therapy product. In
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September 1998, Reprogenesis was awarded a grant from the Department of Health
and Human Services under its Orphan Drug Program. Reprogenesis' award provides
$221,000 in cost reimbursement funding to assist with Phase III clinical trial
costs for Chondrogel.
Results of Operations
Year ended December 31, 1999 compared to year ended December 31, 1998
Revenues for the year ended December 31, 1999 were $2,348,000 compared to
$4,425,000 for the same period in 1998, a decrease of $2,077,000 or 47%.
Research and development contract revenues for the year ended December 31, 1999
were $518,000 compared to $4,254,000 for the same period in 1998, a decrease of
$3,736,000 or 88%. The decrease in research and development contract revenues
resulted primarily from the termination of Reprogenesis' research collaboration
with AMS. This decrease was partially offset by $137,000 in government funds
earned under the terms of the grant award from the Advanced Technology Program
of the National Institute of Standards and Technology, and $76,000 earned from
the Department of Health and Human Services grant under its Orphan Drug
Program.
Interest income for the year ended December 31, 1999 was $274,000 compared to
$171,000 for the same period in 1998, an increase of $103,000 or 60%. The
increase in interest income resulted from higher average balances in cash and
marketable securities resulting from the investment of the proceeds of the
series B preferred stock offering.
Other income for the year ended December 31, 1999 was $1,556,000. There was
no such income in 1998. The other income in 1999 resulted from a $1,500,000
gain recorded in connection with the dissolution of the partnership with the
Charlotte-Mecklenburg Health Services Foundation.
Total costs and expenses for the year ended December 31, 1999 were $9,977,000
compared to $8,140,000 for the same period in 1998, an increase of $1,837,000
or 23%. Research and development expenses for the year ended December 31, 1999
were $6,973,000 compared to $6,339,000 for the same period in 1998, an increase
of $634,000 or 10%. The increase resulted primarily from increased spending on
preclinical product candidates. Personnel additions contributed approximately
$260,000 of the increase. During 1999, research and development expenses
included the following activities:
. Phase II and Phase III clinical trial and regulatory costs for
Chondrogel, including costs such as clinical trial management, product
manufacturing, process development, device development, and Food and
Drug Administration and other regulatory filings;
. fees associated with licensed technologies;
. patent application and defense costs;
. preclinical studies for cardiovascular, soft tissue and maxillofacial
reconstruction indications; and
. research into urological therapies and other indications proprietary to
Reprogenesis.
General and administrative expenses for the year ended December 31, 1999 were
$1,221,000 compared to $1,694,000 for the same period in 1998, a decrease of
$473,000 or 28%. The decrease resulted partially from incurring one-time
charges such as relocation costs incurred in connection with the hiring of key
employees in 1998 that were not incurred in 1999. In addition, Reprogenesis
entered into a new lease in 1998 and incurred other business expansion costs.
These costs included maintaining two facility locations for five months in
1998.
Interest expense for the year ended December 31, 1999 was $1,229,000 compared
to $107,000 for the same period in 1998, an increase of $1,122,000 or 1049%.
The increase resulted primarily from non-cash interest expense incurred
relating to a bridge financing in January 1999. The remaining increase resulted
from term note liabilities existing for the entire year in 1999 compared to six
months in 1998.
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Other expense of $554,000 was incurred in 1999. No such expense was incurred
in 1998. The expense resulted primarily from a charge of $500,000 that was
recorded in April 1999 in connection with the termination of the collaboration
with AMS.
As a result of the above items, net loss for the year ended December 31, 1999
was $8,004,000 compared to $3,617,000 for the same period in 1998, an increase
of $4,387,000 or 1213%.
Year ended December 31, 1998 compared to year ended December 31, 1997
Revenues for the year ended December 31, 1998 were $4,425,000 compared to
$6,158,000 for the same period in 1997, a decrease of $1,733,000 or 28%.
Research and development contract revenues for the year ended December 31, 1998
were $4,254,000 compared to $5,957,000 for the same period in 1997, a decrease
of $1,703,000 or 29%. The decrease in research and development contract
revenues resulted from a decrease in Reprogenesis' reimbursement rate under the
agreements with AMS and the receipt of a milestone payment from AMS in 1997.
Interest income for the year ended December 31, 1998 was $171,000 compared to
$201,000 for the same period in 1997, a decrease of $30,000 or 15%. The
decrease in interest income resulted from higher average balances in cash and
marketable securities in 1997 due to the investment of the proceeds of the
series A preferred stock offering.
Total costs and expenses for the year ended December 31, 1998 were
$8,140,000 compared to $6,337,000 for the same period in 1997, an increase of
$1,803,000 or 28%. Research and development expenses for the year ended
December 31, 1998 were $6,339,000 compared to $5,697,000 for the same period in
1997, an increase of $642,000 or 11%. The increase resulted primarily from
personnel increases of approximately $300,000. In addition, Reprogenesis
entered into a new lease in 1998 and incurred other business expansion costs
such as maintaining two facility locations for five months in 1998. During
1998, research and development expenses included the following activities:
. Phase II clinical trials and regulatory costs for Chondrogel, including
costs such as clinical trial management, product manufacturing, process
development, device development, and Food and Drug Administration and
other regulatory filings;
. fees associated with licensed technologies;
. patent application and defense costs;
. preclinical studies for cardiovascular, soft tissue and maxillofacial
reconstruction indications; and
. research into urological therapies and other indications proprietary to
Reprogenesis.
General and administrative expenses for the year ended December 31, 1998
were $1,694,000 compared to $637,000 for the same period in 1997, an increase
of $1,057,000 or 166%. The increase resulted primarily from personnel increases
of approximately $250,000. In addition, Reprogenesis entered into a new lease
in 1998 and incurred other business expansion costs. These costs included
maintaining two facility locations for five months in 1998 and one-time charges
such as relocation costs incurred in connection with the hiring of key
employees in 1998.
Interest expense for the year ended December 31, 1998 of $107,000 compared
to $3,000 for the same period in 1997, an increase of $104,000. The increase in
interest expense resulted from obligations under term note agreements entered
into in July 1998 in connection with the construction of Reprogenesis' current
facility.
As a result of the above items, net loss for the year ended December 31,
1998 was $3,617,000 compared to $121,000 for the same period in 1997, an
increase of $3,496,000 or 2889%.
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Liquidity and Capital Resources
Historically, Reprogenesis has financed its operations primarily through
equity financings and revenues received under its collaboration agreements. In
addition, Reprogenesis has borrowed funds for its facility construction and
received government awards.
At December 31, 1999, Reprogenesis' principal sources of liquidity consisted
of cash and cash equivalents of $6,492,000. Net cash used in operating
activities was $5,115,000 in 1999 compared to $2,666,000 and $793,000 in 1998
and 1997, respectively. The increases primarily represents increases in net
losses each year. In 1999, Reprogenesis invested $65,000 in property, equipment
and leasehold improvements versus $2,045,000 and $122,000 in 1998 and 1997,
respectively. Reprogenesis currently plans to spend approximately $1,100,000
during 2000 on capital expenditures as follows:
. approximately $700,000 in connection with the initial phase of
construction of a commercial manufacturing facility for Chondrogel;
. approximately $300,000 in connection with expansion of its existing
clinical manufacturing facility; and
. approximately $100,000 on equipment and computer purchases to upgrade
its research and development capabilities.
In 1997, Reprogenesis issued 2,702,702 shares of series A convertible
preferred stock and warrants for the purchase of 1,351,352 shares of
Reprogenesis common stock in exchange for approximately $6,000,000.
In July 1998, Reprogenesis received approximately $1,770,000 under the terms
of an equipment loan agreement with Transamerica Business Credit Corporation.
Those funds were used by Reprogenesis to finance construction of its research
facility.
In January 1999, Reprogenesis entered into bridge loan agreements (the
Notes) with certain of its series A stockholders for a total of $2,950,000. The
Notes and approximately $118,000 of accrued interest were converted into series
B preferred stock in August 1999 (see below).
In April 1999, Reprogenesis received $1,500,000 upon the dissolution of its
general partnership with the Charlotte-Mecklenburg Health Services Foundation.
In August 1999, Reprogenesis issued 4,729,134 shares of series B convertible
preferred stock and warrants for the purchase of 2,364,562 shares of
Reprogenesis common stock in exchange for approximately $10,500,000. The
purchase price consisted of approximately $7,430,000 in cash and the conversion
of $2,950,000 of bridge notes and $118,000 of accrued interest thereon.
During 2000, Reprogenesis has contractual commitments to third parties for
sponsored research and consulting services that aggregate approximately
$1,150,000, and payments on its facilities indebtedness aggregating
approximately $525,000. Reprogenesis anticipates that its existing capital
resources should enable it to maintain its current and planned operations
through August 2000. Additionally, Reprogenesis has received a letter of
support from certain investors in the amount of $1,500,000 to fund operations
in 2000.
Reprogenesis' ability to continue funding planned operations beyond August
2000 is dependent upon its ability to generate sufficient funds in the near
term from potential collaborative arrangements and equity (pursuant to the
investor letter of support or otherwise) or debt financings, and in the long
term from the sale of its products. Reprogenesis is currently seeking
additional collaborative arrangements and expects to raise additional funds
through one or more financing transactions, if conditions permit. If
substantial additional funding is not available, its business will be
materially and adversely affected. There can be no assurance that Reprogenesis
be able to obtain substantial additional funding.
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New Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133, which defers the effective
date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, issued in June 1998, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Reprogenesis
does not anticipate the adoption of this statement will have a material impact
on its financial position or results of operations.
In March 1999, the FASB issued a proposed interpretation, Accounting for
Certain Transactions Involving Stock Compensation--An Interpretation of APB
Opinion No. 25. The proposed interpretation would clarify the application of
Opinion 25 in certain situations, as defined. The proposed interpretation would
be effective upon issuance (expected to be early 2000) but would cover certain
events having occurred after December 15, 1998. To the extent that events
covered by this proposed interpretation occur during the period after December
15, 1998, but before issuance of the final interpretation, the effects of
applying this proposed interpretation would be recognized on a prospective
basis from the effective date. Accordingly, upon initial application of the
final Interpretation, (a) no adjustments would be made to financial statements
for periods before the effective date and (b) no expense would be recognized
for any additional compensation cost measured that is attributable to periods
before the effective date. Reprogenesis expects that the adoption of this
Interpretation would not have any effect on the accompanying financial
statements.
Quantitative and Qualitative Disclosure about Market Risk
Reprogenesis' investments in high quality, short-term money market funds are
subject to interest rate movements, but the time to maturity is very short and,
therefore, the Company does not believe these exposures are material.
Year 2000 Compliance
Reprogenesis did not experience any difficulties related to the Year 2000
problem on December 31, 1999 and has not experienced any such difficulties that
it is aware of since that date. Reprogenesis' operations have not, to date,
been adversely affected by any difficulties experienced by any of its suppliers
or customers in connection with the Year 2000 problem. Reprogenesis' management
will continue to monitor its systems for potential difficulties through the
remainder of calendar year 2000.
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REGULATORY MATTERS AFFECTING CURIS, CREATIVE, ONTOGENY AND REPROGENESIS
Regulation by governmental agencies in the United States and other countries
is a significant factor in the clinical evaluation and licensing of our
potential products as well as in the development and research of new products.
All of our products currently under development will require regulatory
approval by the U.S. Food and Drug Administration ("FDA") under the Food, Drug,
and Cosmetic Act ("FD&C Act"), as a drug or device, or under the Public Health
Service Act as a biological, to be marketed in the United States and by similar
governmental agencies outside the United States (collectively, "Regulatory
Authorities"). Regardless of the classification assigned to our products, all
human diagnostic and therapeutic products are subject to rigorous testing to
demonstrate their safety and efficacy. Generally, considerable time and expense
are required to demonstrate safety for use in humans, to design an acceptable
clinical trial to enroll patients and to clinically evaluate the safety and
efficacy of a new product. Moreover, even after extensive preclinical testing,
unanticipated side effects can arise during clinical trials and in the course
of related or unrelated research (within or outside the Company's control) that
can halt or substantially delay the regulatory process at any point. Seeking
and obtaining regulatory approval for a new therapeutic or diagnostic product
is likely to take several years and will require the expenditure of substantial
resources. No assurance can be given that any product which enters pre-clinical
or clinical development will be approved for sale by the FDA or any other
Regulatory Authorities.
Products developed through genetic engineering, such as ours, are relatively
new, and state and local regulation may increase, as genetically engineered
products become more common. The federal government oversees certain
recombinant DNA research activity through the National Institutes of Health
Guidelines for Research Involving Recombinant DNA Molecules (the "NIH
Guidelines"). We believe that our activities comply with the NIH Guidelines,
which prohibit or restrict certain recombinant experiments, set forth levels of
biological and physical containment of recombinant DNA molecules to be met for
various types of research, and require that institutional biosafety committees
approve certain experiments before they are initiated. Compliance with the NIH
Guidelines has not had, and we do not foresee that it will have, a material
effect on our competitive position or cash flow. Discussions have been underway
since 1996 between the NIH and the FDA regarding alternative models for
regulation of recombinant DNA research and the products resulting from such
research, and the appropriateness of any continued NIH role. It is not possible
to predict the effect of such potential regulatory changes on us or our
potential competitors.
Cellular and tissue-based (tissue engineering) medicinal products have been
even more recently developed than genetically engineered products. No
regulations and only minimal guidance (e.g., Proposed Approach to Regulation of
Cellular and Tissue-Based Products) have been published by the FDA specific to
products of this type. The FDA's Center for Biologics Evaluation and Review
(CBER) currently has the primary review responsibility for all cell therapy
products regardless of whether they are, according to established definitions,
considered to be biologicals, medical devices or combination products. The
relative inexperience of regulatory authorities with the review and approval of
tissue engineered products may lead to increased review times or to significant
changes in local, state and national requirements which could have a
significant impact on the progress of these programs.
Our ability to conduct preclinical research is also subject to new and
evolving regulations governing the use of human and embryonic tissues for
isolating new growth factors and genes which may be useful in identifying and
developing new therapeutic product candidates. Our ability to conduct critical
research on which our development activities are based could be restricted or
delayed depending on the outcome of pending rulemaking proceedings governing
the use of these tissues and the collection of related genetic information.
Pharmaceutical and Biological Products
We expect that certain of our potential products will be regulated by the
FDA or other Regulatory Authorities as pharmaceuticals or biologicals. The
regulatory approval of pharmaceutical and biological products in the United
States intended for therapeutic use in humans involves many steps and is
described as
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follows. Similar requirements are imposed by other Regulatory Authorities in
major market countries. The initial phase of the FDA approval process involves
preclinical testing to demonstrate that the product would not be an
unreasonable hazard in clinical studies with human subjects. Preclinical tests
must typically meet the FDA's good laboratory practices regulations if they are
to be used for the purpose of an application to the agency. Upon completion of
preclinical testing, an IND application must be filed with the FDA. The
application must include the following distinct sets of information:
. information on the composition of the product including pharmacology and
toxicology;
. chemistry, manufacturing, and control information;
. results of all the preclinical safety and efficacy investigations
including in vivo and in vitro studies;
. information on any previous human experience with the product;
. a clinical development plan and protocol;
. information on the investigators;
. the necessary agreements among parties involved in the testing; and
. approval of an Institutional Review Board at the center(s) conducting the
study or studies.
If the application has not been denied or if additional information has not
been requested by the FDA within 30 days of filing, the applicant may then
begin clinical studies.
Clinical testing usually occurs in three phases to demonstrate safety and
efficacy of the product:
. Phase I clinical trials consist of testing for the safety and tolerance
of the product with a small group of subjects and may also yield
preliminary information about the efficacy and dosage levels of the
product;
. Phase II clinical trials involve testing for efficacy, determination of
optimal dosage and identification of possible side effects in a larger
patient group; and
. Phase III clinical trials consist of additional testing for efficacy and
safety with an expanded patient group.
Currently, the FDA requires the filing of new information for each distinct
clinical study. After product approval, the FDA may request or require an
additional phase (Phase IV) of clinical studies to provide additional
information on safety and/or efficacy.
Upon successful completion of Phase III testing, either a New Drug
Application ("NDA") or Biologics License Application ("BLA") must be filed,
depending upon whether the product is designated as a drug or a biological,
respectively. The FDA generally requires at least two adequate and well-
controlled clinical trials for product approval. All approvals require a
detailed review of all data collected from clinical studies, the composition of
the drug or biological, non-clinical pharmacology and toxicology data,
environmental impact data, human pharmacokinetics and bioavailability data,
patient information, certain case report data and forms, the labeling that will
be used, information on chemistry, manufacturing, and controls, and samples of
the product. After the FDA completes its review of the application, the product
is typically reviewed by a panel of independent medical experts, and the
applicant is required to answer questions on the product's safety and efficacy.
The FDA considers the recommendation of the panel, and may at its own
discretion approve an NDA or BLA. Based on the data filed, the FDA regulates
the indications or uses for which the product is approved and the precautions,
and warnings, if any, applicable to the product. If so approved, the product
may then be marketed for the indications set forth in the FDA approved
labeling.
Many of the biomaterials, cell types, and ingredients used in Curis'
products and product candidates have not previously been used as components in
medicinal products. Historically, neither the FDA nor other regulatory
authorities have determined the safety and effectiveness of these materials for
pharmaceutical or
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other medical use. Therefore, the acceptability or approvability of these
materials has not been demonstrated. Furthermore, any FDA approval of
Chondrogel has increased uncertainty because Chondrogel is Curis' first product
using certain novel materials in a non-traditional manner.
Devices
We expect that certain of our potential products will be regulated by the
FDA as Class III devices and as regulated devices by other Regulatory
Authorities. Preclinical evaluations of Class III devices are similar to those
of pharmaceuticals and biologicals, with additional emphasis on implant
persistence, implant sensitization, and carrier characterization and
specifications. Upon completion of preclinical testing, an IDE application is
filed with the Center for Devices and Radiological Health in the FDA. Similar
requirements are imposed by other Regulatory Authorities in major market
countries. An FDA PMA application consists of the following distinct sets of
information:
. identifying information on the sponsor;
. complete reports of prior investigations of the device;
. summary of the investigational plan (or the complete plan);
. description of the methods, facilities, and controls used for
manufacturing, processing, packing, storage, and installation of the
device;
. example investigator agreements;
. list of investigators;
. certifications concerning investigators and Investigational Review
Boards;
. copies of labeling; and
. materials relating to environmental impact and informed consent.
If the application has not been denied by the FDA within 30 days of filing,
the applicant may then begin clinical studies. The FDA may notify the applicant
of approval before the end of the 30 day period, in which case the applicant
may begin clinical studies immediately.
The clinical testing of a device may consist of a preliminary feasibility
study leading to a much larger pivotal safety and effectiveness study, or it
may consist of only one or more larger pivotal safety and effectiveness
studies. Upon successful completion of the clinical testing and compilation of
the data, a PMA application can be filed. This application consists of the
following:
. indications for use;
. product description;
. discussion of alternatives to use of the device;
. marketing history (worldwide);
. review of clinical studies and results;
. methods, facilities and controls (as in an IDE);
. non-clinical data;
. if only one clinical study is used, a justification of that approach;
. identification and bibliography of any information relevant to the safety
and effectiveness of the device;
. product samples;
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. product labeling; and
. certain environmental information.
The FDA is required to respond to the PMA submission within 180 days,
although the FDA may not adhere to this schedule and further review may take
additional time. After the FDA completes its review of the application, the
product is typically reviewed by a panel of medical experts, and the applicant
is required to answer questions on the product's safety and effectiveness.
Following the recommendation of the panel, a PMA may be granted by the FDA
based on the PMA submission. Based on the data filed, the FDA regulates the
indications or uses for which the product is approved and the precautions, and
warnings, if any, applicable to the product. If so approved, the product may
then be marketed for the indications set forth in the FDA approved labeling.
The product may then be marketed.
Treatment IND Status
Before the completion of clinical trials for a specific product, a company
may file for Treatment IND status with the FDA under provisions of the IND
regulations. These regulations apply to products for patients with serious or
life-threatening diseases and are intended to facilitate the availability of
new products to desperately ill patients after clinical trials have shown
convincing evidence of efficacy, but before general marketing approval has been
granted by the FDA. Under these regulations, it may be possible for us to
recover some of the costs of research, development and manufacture of qualified
products before commercial marketing begins. We may seek Treatment IND status
for qualified products, although the decision whether to grant such status lies
with the FDA. Similar regulations permitting compassionate use and treatment
investigational studies also exist under the regulations of other Regulatory
Authorities.
The FDA Modernization Act of 1997 ("FDAMA") codifies many of the FDA's
previous treatment IND regulations. In addition, it creates new authority for
expanded access to investigational therapies for serious diseases, if the
request is performed through a physician, the product shows sufficient evidence
of safety and efficacy, and provision of the product would not interfere with
ongoing clinical research.
The FDA has also adopted regulations intending to accelerate the approval of
therapeutic products for serious and life threatening diseases under certain
circumstances. We may seek to utilize these regulations for qualified products.
Approvals under these regulations may be conditioned on further studies, may
include restrictions on marketing, may require prior submission of promotional
materials, and may be subject to expedited withdrawal of approval.
In addition to existing FDA regulations, the FDAMA added new "fast track"
authority allowing the FDA to expedite the approval of drugs for serious or
life-threatening conditions. Requirements for fast track drugs are similar to
those for accelerated approval, including FDA authority to require post-
approval studies, presubmission of promotional materials, and enhanced NDA
withdrawal authority.
User Fees
The FDAMA amended existing laws to continue the FDA authorization to charge
user fees for prescription drug products. The purpose of the user fee
provisions of the FDAMA is to reduce the time that the FDA takes to act on
completed applications. Under an informal letter arrangement, the FDA has
committed to act on priority applications within 6 months, regular applications
within 12 months (reducing to 10 months over the next 5 years), manufacturing
supplements within 6 months (reducing to 4 months over the next 5 years), and
resubmissions with relatively minor new information within 6 months (reducing
to 2 months over the next 5 years). The user fee provisions of the FDAMA
contemplate that the fees will be used to fund additional resources at the FDA
to enable it to meet these informal review deadlines. However, the law itself
does not impose an affirmative obligation on the FDA to meet these deadlines or
any overall approval goals. Some companies may receive an exemption from user
fees, either because they qualify as small businesses, because their products
are used for rare diseases or conditions, or because they meet other technical
exceptions
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contained in the law. The FDAMA continues FDA authority to grant waivers to
protect the public health, if fees would exceed costs, on equitable grounds, or
for small businesses. Because the FDAMA changed the existing waiver provisions
of the previous user fee law, it is not clear whether existing FDA draft
guidances on waiver criteria apply or will have to be redrafted. We may seek
exceptions or waivers for our products as appropriate, although given the
current uncertainty of the law, we can not predict whether such exceptions or
waivers will be granted. The user fee provisions of the FD&C Act, as modified
by the FDAMA, do not currently apply to medical devices.
Facilities Inspection
In addition to product approval prior to marketing, we must also obtain
approval of the facility in which our products will be manufactured from the
FDA and the other Regulatory Authorities. In the case of a pharmaceutical,
biological or a device, we must be in compliance with cGMP requirements. The
FDA and other Regulatory Authorities may inspect our facilities to determine
such compliance as part of the overall NDA, BLA, or PMA approval process. Since
any NDA, BLA or PMA approved by the FDA or other Regulatory Authority is both
site and process specific, any material change in our manufacturing process,
equipment or location would necessitate additional review and approval.
Recently, the FDA promulgated new regulations concerning cGMPs for medical
devices. These new regulations include elements drawn from existing
international standards and a new emphasis on design control of medical devices
(in addition to the existing focus on manufacturing). Until these new
regulations are better understood by industry, compliance with medical device
cGMPs may prove more difficult than in the past, and may require the use of
additional resources or even the redesign of some existing devices or
facilities.
Other
Federal laws regulate the export of investigational and therapeutic products
and biological materials and technology. The laws have been amended to permit
the export of products not yet approved in the United States but approved by a
Regulatory Authority in certain foreign countries. We may choose to conduct
such exports of our products to certain countries prior to obtaining FDA
marketing approval in the United States.
In addition, we are subject to regulation under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Research Conservation and Recovery Act, regulations administered by the
Nuclear Regulatory Commission, national restrictions on technology transfer,
import, export and customs regulations and certain other local, state or
federal regulation. From time to time, other federal agencies and congressional
committees have indicated an interest in implementing further regulation of
biotechnology applications. We are not able to predict whether any such
regulations will be adopted or whether, if adopted, such regulations will
adversely affect our business.
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DESCRIPTION OF CURIS CAPITAL STOCK
This section of the joint proxy statement-prospectus describes the material
terms of the capital stock of Curis, Inc. under the certificate of
incorporation and by-laws that will be in effect immediately after the merger
is completed. This section also summarizes relevant provisions of the Delaware
General Corporation Law, which we refer to as "Delaware law." The terms of the
Curis certificate of incorporation and the Curis by-laws, as well as the terms
of Delaware law, are more detailed than the general information provided below.
Therefore, you should carefully consider the actual provisions of these
documents. The Curis certificate of incorporation is attached as Annex E to
this joint proxy statement-prospectus.
Authorized Capital Stock
Curis is authorized to issue 125,000,000 shares of common stock, $0.01 par
value per share, and 5,000,000 shares of preferred stock, $0.01 par value per
share.
Common Stock
Under Curis' certificate of incorporation, holders of common stock are
entitled to one vote for each share held on matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, the holders
of a majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
shares of common stock are entitled to receive proportionately any dividends
that may be declared by Curis' board of directors, subject to any preferential
dividend rights of outstanding preferred stock. Upon the liquidation,
dissolution or winding up of Curis, the holders of shares of common stock are
entitled to receive proportionately Curis' net assets after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of shares of common stock have no preemptive,
subscription, redemption or conversion rights. Curis' outstanding shares of
common stock that are issued in connection with the merger will be, when
issued, fully paid and nonassessable. The rights, preferences and privileges of
the holders of shares of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which Curis may designate and issue in the future.
Undesignated Preferred Stock
Under its certificate of incorporation, Curis' board of directors is
authorized to issue one or more series of preferred stock without stockholder
approval. The Curis board of directors has the discretion to determine
designations, rights, preferences, privileges and restrictions, including
voting rights, conversion rights, redemption privileges and liquidation
preferences of each series of preferred stock, all to the fullest extent
permissible under Delaware law and subject to any limitations set forth in
Curis' certificate of incorporation.
The purpose of authorizing Curis' board of directors to issue preferred
stock and to determine the rights and preferences applicable to such preferred
stock is to eliminate delays associated with a stockholder vote on specific
issuances. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or could discourage a third party from acquiring, a majority of our
outstanding voting stock.
Anti-Takeover Measures
The board of directors has the authority to issue shares of preferred stock
with rights and preferences, including dividend and liquidation rights, senior
to those of the common stock without further action by Curis' stockholders. In
addition, Curis' certificate of incorporation and by-laws contain certain
provisions that could have the effect of making it more difficult for a third
party to acquire, or discouraging a third party from attempting to acquire,
control of Curis. Such provisions could limit future prices that certain
investors might be willing to pay for shares of common stock. These provisions,
which include classification of the board of
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directors, could also make it more difficult for stockholders to change Curis'
management or to effect certain transactions. Certain provisions of Delaware
corporate law also may have the effect of deterring a hostile takeover or
delaying or preventing changes in Curis' control or management.
Transfer Agent and Registrar
The transfer agent and registrar for Curis' common stock is ChaseMellon
Shareholder Services.
Nasdaq National Market Quotation
Under the merger agreement, Curis has agreed to use its commercially
reasonable best efforts prior to the merger to cause the shares of its common
stock that are to be issued in the merger to be listed on the Nasdaq National
Market under the symbol "CRIS".
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF CURIS,
CREATIVE, ONTOGENY AND REPROGENESIS
Curis, Creative and Ontogeny, are all organized under the laws of the State
of Delaware. Reprogenesis is organized under the laws of the State of Texas.
Any differences, therefore, in the rights of holders of Curis, Creative,
Ontogeny and Reprogenesis capital stock arise primarily from differences in
their respective certificates or articles of incorporation, by-laws, rights
agreements and laws of organization. Upon completion of the merger, holders of
Creative capital stock, holders of Ontogeny capital stock and holders of
Reprogenesis capital stock will become holders of Curis capital stock and their
rights will be governed by Delaware law, the Curis certificate of incorporation
and the Curis by-laws.
This section of the proxy statement-prospectus describes the material
differences between the rights of Creative, Ontogeny and Reprogenesis
stockholders and Curis stockholders. This section also includes a brief
description of the material rights that Creative, Ontogeny and Reprogenesis
stockholders will have following completion of the merger. This section does
not include a complete description of all differences among the rights of these
stockholders, nor does it include a complete description of the specific rights
of these stockholders. In addition, the identification of some of the
differences in the rights of these stockholders as material is not intended to
indicate that other differences that are equally important do not exist. All
Creative stockholders, Ontogeny stockholders and Reprogenesis stockholders are
urged to read carefully the relevant provisions of Delaware law and all
Reprogenesis stockholders are urged to read carefully the relevant provisions
of Texas law, as well as the certificates or articles of incorporation and by-
laws of each of Creative, Ontogeny and Reprogenesis. Copies of the form of
certificate of incorporation for Curis is attached to this joint proxy
statement-prospectus as Annex E. Copies of the certificates or articles of
incorporation and by-laws of Creative, Ontogeny and Reprogenesis will be sent
to stockholders, as applicable, upon request. See "Where You Can Find More
Information."
Creative v. Curis
Upon the closing of the merger, Creative stockholders will become
stockholders of Curis. Both Creative and Curis are corporations organized under
the laws of Delaware and are therefore subject to the Delaware corporation
statute. There are, however, differences between the certificate of
incorporation and by-laws of Creative and the certificate of incorporation and
by-laws of Curis. The following is a summary of some of the similarities and
differences between the rights of the Creative stockholders and the rights of
Curis stockholders. The following is not intended to be complete and is
qualified in its entirety by reference to the Delaware General Corporation Law,
Creative's certificate of incorporation and by-laws and Curis' certificate of
incorporation and by-laws.
Capitalization
Creative is authorized to issue 50,000,000 shares of common stock, $0.01 par
value per share, and 10,000,000 shares of preferred stock, $0.01 par value per
share, of which 1,500,000 shares are designated Series 1994/A Convertible
Preferred Stock, and 25,000 shares are designated Series 1998/A Convertible
Preferred Stock. As of March 9, 2000, Creative had 38,231,502 shares of common
stock issued and outstanding and no shares of preferred stock issued and
outstanding.
Curis is authorized to issue 125,000,000 shares of common stock, $0.01 par
value per share, and 5,000,000 shares of undesignated preferred stock, $0.01
par value per share. Immediately prior to the closing of the merger, Curis will
have 300 shares of common stock and no shares of preferred stock issued and
outstanding.
Voting Rights
Each holder of Creative common stock is entitled one vote for each share of
Creative common stock held. Holders of Creative common stock have no cumulative
voting rights.
Each holder of Curis common stock is entitled to one vote for each share of
Curis common stock held. Holders of Curis common stock have no cumulative
voting rights.
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Election, Number, Classification and Removal of Directors
Creative's certificate of incorporation and by-laws provide that the number
of directors will be set by resolution adopted by a majority vote of the entire
board of directors. The current number of directors is eight. Creative's by-
laws provide for three classes of directors, each class elected for a three
year term. At each annual meeting of stockholders, one class of directors is
elected to serve a three-year term.
Curis' by-laws provide that the number of directors will be set by
resolution of the board of directors, provided, however, that in no event shall
the number of directors be less than three. Curis' by-laws provide for three
classes of directors, each consisting as nearly as possible, of one-third of
the total number of directors constituting the entire board of directors. At
each annual meeting of stockholders, one class of directors is elected to serve
for a three-year term.
Generally, any director or the entire board of directors of a Delaware
corporation may be removed with or without cause by the vote of the holders of
a majority of such corporation's outstanding shares entitled to vote thereon,
provided, however, unless the certificate of incorporation otherwise provides,
in the case of a corporation whose board is classified, stockholders may only
remove directors for cause. Both Creative and Curis have classified boards.
Creative's certificate of incorporation provides that a director may be removed
from office, at any time, with cause, by affirmative vote of the holders of a
majority of the shares of Creative's capital stock outstanding and entitled to
vote. Curis' by-laws provide that a director may only be removed from office at
any time, with cause, by the affirmative vote of the holders of more than 75%
of the shares of Curis' capital stock outstanding and entitled to vote. The
Curis by-laws further provide that, subject to Delaware law, the amendment or
repeal of the by-laws pertaining to the removal of directors for cause requires
either the approval of the board of directors or the affirmative vote of more
than 75% of Curis' capital stock outstanding and entitled to vote.
Filling Vacancies on the Board of Directors
Creative's certificate of incorporation and by-laws provide that its board
of directors may fill a vacancy on the board, including a vacancy from an
increase in the size of the board, by an affirmative vote of the majority of
the directors then in office, although less than a quorum, or by a sole
remaining director, except as may be required by law. A director so elected
will hold office until the next election of such director's class and until a
successor is elected and qualified.
Curis' by-laws provide that its board of directors may fill a vacancy,
including a vacancy resulting from an increase in the size of the board, by an
affirmative vote of the majority of the directors then in office, although less
than a quorum, or by a sole remaining director, except as may be required by
law. A director so elected will hold office until the next election of such
director's class and until a successor is elected and qualified.
Charter Amendments
Creative's certificate of incorporation provides that the affirmative vote
of at least 80% of the shares of Creative capital stock outstanding and
entitled to vote generally in the election of directors, voting as a single
class, is required to amend, repeal or adopt a provision that is inconsistent
with the following provisions of the certificate of incorporation:
. reduce or eliminate the number . the authority of the board of
of authorized shares of common directors to manage and
or preferred stock; conduct Creative's affairs or
the manner in which directors
are elected;
. the authority and powers of
its board of directors,
including the authority to . the classification of the board
amend the by-laws and provide of directors and the ability of
for the issuance of preferred the board of directors to fill
stock without stockholder vacancies;
approval;
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. the authority of the board of . the indemnification and
directors to amend or repeal reimbursement of directors
the by-laws and the and officers;
limitations on the
stockholders' ability to . the release of directors and
amend or repeal the by-laws; stockholders from personal
liability for breach of
. the requirement that the fiduciary duty to Creative
affirmative vote of 80% of except in certain limited
the shares of Creative circumstances; and
capital stock outstanding and
entitled to vote approve . the reservation by Creative
certain fundamental corporate of its right to amend or
changes and business repeal any provision of its
combinations; certificate of incorporation.
Curis' certificate of incorporation provides that the affirmative vote of at
least 75% of the shares of Curis capital stock outstanding and entitled to vote
is required to amend, repeal or adopt a provision that is inconsistent with the
following provisions of the certificate of incorporation:
. stockholder action and . the reservation by Curis of
special meetings of its right to amend or repeal
stockholders; and any provision of the
certificate of incorporation.
Amendments to By-Laws
Creative's certificate of incorporation and by-laws provide that its board
of directors may amend the by-laws. The Creative certificate of incorporation
provides that, in addition to any vote of the holders of any class or series of
stock required by Delaware law or Creative's certificate of incorporation,
Creative's stockholders may only amend or repeal the by-laws by an affirmative
vote of at least 80% of the shares of Creative capital stock outstanding and
entitled to vote in an election of directors, voting together as a single
class.
Curis' certificate of incorporation and by-laws provide that its board of
directors may amend the by-laws. Curis' by-laws provide, generally, that Curis'
stockholders may amend the by-laws by an affirmative vote of the majority of
shares outstanding and entitled to vote. Curis' by-laws, however, do provide
that the affirmative vote of 75% of the shares of Curis capital stock
outstanding and entitled to vote is required to amend, repeal or adopt a
provision inconsistent with the following provisions of the by-laws:
. special meetings of . the authority, procedures or
stockholders; composition of the board of
directors; and
. the nomination of directors;
. the amendment of the by-laws
. notice of business at annual by the board of directors and
meetings; the stockholders.
. actions of stockholders
without meetings;
Notice of Stockholder Actions
Creative's by-laws provide that in order to nominate directors or bring
business before an annual meeting, stockholders must provide written notice to
the secretary of Creative at least 60 days, but not more that 90 days, before
the date of the first anniversary of the previous year's annual meeting.
However, if the annual meeting date changes to a date that is more than 30 days
before or 60 days after the anniversary date, then a stockholder must provide
notice not earlier than 90 days before the new annual meeting date and not
later than the later of 60 days before the new meeting date or on the tenth day
following the date on which Creative publicly announces the annual meeting
date.
In the event that Creative's board of directors increases the number of
directors to be elected, Creative's stockholders may nominate persons for the
new directorships if Creative has not made a public announcement specifying the
size of the increased board or naming all director nominees at least 70 days
prior to the
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anniversary date of the previous year's annual meeting. In such an event, a
stockholder must provide written notice of the nominations to the secretary of
Creative by the close of business on the tenth day following the date on which
Creative makes such a public announcement.
Curis' by-laws provide that in order to nominate directors or bring business
before an annual meeting, stockholders must provide written notice to the
secretary of Curis at least 60 days, but not more that 90 days, before the
first anniversary of the previous year's annual meeting, provided however, that
in the event that less than 70 days' notice or public disclosure of the date of
the meeting is given or made, a stockholder must provide written notice of the
nominations to the secretary of Curis by the close of business on the tenth day
following the date on which Curis makes such a public announcement.
Right to Call Special Meeting of Stockholders
Creative's by-laws provide that a special meeting of Creative's stockholders
may be called by the president, the board of directors or by the president on
behalf of the Creative stockholders in response to the written request of
holders of at least 40% of the shares of Creative capital stock outstanding and
entitled to vote. The business to be conducted at any special meeting of
Creative stockholders is limited to matters related to the purpose set forth in
the notice of the meeting.
Curis' certificate of incorporation and by-laws provide that a special
meeting of Curis' stockholders may be called for any purpose at any time by the
chairman of the board, the chief executive officer or the board of directors.
The business to be conducted at any such special meeting of Curis stockholders
will be limited to matters related to the purpose set forth in the notice of
the meeting.
Dividends and Distributions
Creative's certificate of incorporation provides that its board of
directors, at its discretion, may declare and pay dividends out of funds
legally available for dividends to the holders of Creative common stock,
subject to any preferential dividend rights of any series of preferred stock
then outstanding.
Curis' certificate of incorporation provides that its board of directors, at
its discretion, may declare and pay dividends out of funds legally available
for dividends to the holders of Curis common stock, subject to any preferential
dividend rights of any series of preferred stock then outstanding.
Redemption
The Creative common stock is not subject to redemption.
The Curis common stock is not subject to redemption.
Liquidation
Upon a liquidation, dissolution or winding-up of Creative, the assets
legally available for distribution to stockholders will be distributed ratably
among the holders of Curis common stock and any participating preferred stock
outstanding at that time after payment of liquidation preferences, if any, on
any outstanding preferred stock.
Upon a liquidation, dissolution or winding-up of Curis, the assets legally
available for distribution to stockholders will be distributed ratably among
the holders of Curis common stock and any participating preferred stock
outstanding at that time after payment of liquidation preferences, if any, on
any outstanding preferred stock.
Ontogeny v. Curis
Upon the closing of the merger, the rights of former Ontogeny stockholders
will be governed by the certificate of incorporation and by-laws of Curis. Both
Ontogeny and Curis are corporations organized under
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the laws of Delaware and are therefore subject to the Delaware corporation
statute. There are, however, differences between the certificate of
incorporation and by-laws of Ontogeny and the certificate of incorporation and
by-laws of Curis. The following is only a summary of similarities and
differences between the rights of Ontogeny's stockholders and the rights of
Curis' stockholders and is qualified in its entirety by reference to the
Delaware General Corporation Law and Ontogeny's and Curis' certificates of
incorporation and by-laws.
Capitalization
The authorized capital stock of Ontogeny consists of 50,000,000 shares of
common stock and 38,922,299 shares of preferred stock, of which 3,800,000
shares are undesignated preferred stock, 4,922,299 shares are designated Series
A convertible preferred stock, 8,000,000 shares are designated Series B
convertible preferred stock, 400,000 shares are designated Series C convertible
preferred stock, 800,000 shares are designated Series C-1 convertible preferred
stock, 600,000 shares are designated Series D convertible preferred stock,
10,000,000 shares are designated Series E convertible preferred stock,
10,000,000 shares are designated Series F convertible preferred stock and
400,000 shares are designated Series G convertible preferred stock. As of March
9, 2000, Ontogeny had issued and outstanding:
. 2,684,690 shares of common stock;
. 4,853,334 shares of Series A convertible preferred stock (convertible
into an aggregate of 4,853,334 shares of common stock);
. 7,447,223 shares of Series B convertible preferred stock (convertible
into an aggregate of 7,447,223 shares of common stock);
. 400,000 shares of Series C convertible preferred stock (convertible into
an aggregate of 400,000 shares of common stock);
. 800,000 shares of Series C-1 convertible preferred stock (convertible
into an aggregate of 800,000 shares of common stock);
. 600,000 shares of Series D convertible preferred stock (convertible into
an aggregate of 600,000 shares of common stock);
. 10,000,000 shares of Series E convertible preferred stock (convertible
into an aggregate of 10,000,000 shares of common stock);
. 8,379,593 shares of Series F convertible preferred stock (convertible
into an aggregate of 8,379,593 shares of common stock); and
. 400,000 shares of Series G convertible preferred stock (convertible into
an aggregate of 400,000 shares of common stock).
Ontogeny holds 268,100 shares of common stock as treasury shares.
Curis is authorized to issue 125,000,000 shares of common stock, $0.01 par
value per share, and 5,000,000 shares of undesignated preferred stock, $0.01
par value per share. Immediately prior to the closing of the merger, Curis will
have issued 300 shares of common stock and no shares of preferred stock.
Voting Rights
Under Delaware Law, each stockholder is entitled to one vote per share of
stock, unless the certificate of incorporation provides otherwise. In addition,
the certificate of incorporation or the by-laws may specify the number of
shares and/or the amount of other securities that must be represented at a
meeting in order to constitute a quorum, but in no event will a quorum consist
of less than one-third of the shares entitled to vote at a meeting.
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Each holder of Ontogeny common stock is entitled to one vote for each share
but is not entitled to cumulative voting rights. Holders of each series of
Ontogeny preferred stock are entitled to the number of votes equal to the
number of whole shares of common stock into which such shares of preferred
stock are convertible with respect to any and all matters brought to Ontogeny's
stockholders for their consideration.
Ontogeny's certificate of incorporation also gives the holders of Series A,
Series B, Series E and Series F preferred stock (the "Senior Preferred Stock")
special rights to vote on enumerated actions that if taken by Ontogeny would
impair their rights, preferences and privileges. Accordingly, Ontogeny must
first obtain the affirmative vote or written consent of the holders not less
than 66 2/3% of the then outstanding shares of the Senior Preferred Stock,
before taking such action as:
. changing the rights, preferences or privileges of the Senior Preferred
Stock;
. authorizing or issuing any new class of securities senior or equal to the
Senior Preferred Stock;
. reclassifying any shares of common stock into shares having any
preference or priority to dividends or assets senior or equal to the
Senior Preferred Stock;
. paying or declaring any dividend or distribution on any shares of its
capital stock, except for dividends payable solely in shares of common
stock;
. redeeming, retiring or otherwise acquiring shares of Ontogeny capital
stock, except for the repurchase of shares from employees, officers or
directors upon their termination; and
. merging or consolidating with or into any other company.
Each holder of Curis common stock is entitled to one vote for each share and
may not cumulate votes for the election of directors.
Election, Number, Classification and Removal of Directors
Ontogeny's by-laws provide that its board of directors will consist of at
least one person and that the board of directors will designate the authorized
number of directors. Ontogeny's board of directors is not classified. Directors
serve until the next annual meeting of stockholders or until their successors
are elected and qualified.
Curis' by-laws indicate that the number of directors will be set by
resolution of the board of directors, provided, however, that in no event shall
the number of directors be less than three. Curis' by-laws provide for three
classes of directors, each consisting as nearly as possible, of one-third of
the total number of directors constituting the entire board of directors. At
each annual meeting of stockholders, one class is elected to serve for a three
year term. Classification of the board of directors has the effect of making it
more difficult to change the membership of the board of directors even if the
reason for such a change may be dissatisfaction with the performance of the
incumbent directors. At least two annual stockholder meetings would ordinarily
be required to effect a change of control of Curis' board of directors.
Any director or the entire board of directors of a Delaware corporation may
be removed with or without cause by the vote of the holders of a majority of
such corporation's outstanding shares entitled to vote thereon, provided,
however, unless the certificate of incorporation otherwise provides, in the
case of a corporation whose board is classified, stockholders may only remove
directors for cause. Ontogeny's by-laws provide that any or all of the board of
directors may be removed at any time, with or without cause, by the holders of
a majority of the shares of Ontogeny's capital stock entitled to vote. Curis'
by-laws provide that a director may only be removed from office at any time,
with cause, by the affirmative vote of the holders of more than 75% of Curis'
outstanding shares entitled to vote. The Curis by-laws further provide that,
subject to Delaware law, the amendment or repeal of the by-laws pertaining to
the removal of directors for cause requires either the approval of the board of
directors or the affirmative vote of more than 75% of Curis' capital stock
outstanding and entitled to vote.
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Filling Vacancies on the Board of Directors
Ontogeny's certificate of incorporation and by-laws provide that its board
of directors may fill a vacancy on the board, including a vacancy from an
increase in the size of the board, by an affirmative vote of the majority of
the directors then in office, although less than a quorum, or by a sole
remaining director, except as may be required by law. A director so elected
will hold office until the next election of such director's class and until a
successor is elected and qualified.
Curis' by-laws provide that its board of directors may fill a vacancy,
including a vacancy resulting from an increase in the size of the board, by an
affirmative vote of the majority of the directors then in office, although less
than a quorum, or by a sole remaining director, except as may be required by
law. A director so elected will hold office until the next election of such
director's class and until a successor is elected and qualified.
Stockholder Action By Written Consent
Under Ontogeny's certificate of incorporation and by-laws, any action
required or permitted to be taken by Ontogeny's stockholders may be taken
without a meeting if a written consent setting forth the action to be taken is
signed by the holders of shares of outstanding stock having the requisite
number of votes that would be necessary to authorize such action at a meeting
of stockholders, except as specifically prohibited by the certificate of
incorporation. Curis intends to amend its certificate of incorporation to
prohibit action by written consent of Curis' stockholders.
Charter Amendments
Ontogeny's certificate of incorporation provides that so long as at least
5,000,000 shares of Senior Preferred Stock remain outstanding, as adjusted for
stock splits, recapitalizations and the like, Ontogeny may not take any action
with respect to the certificate of incorporation or by-laws that would
adversely affect the holders of such shares without the affirmative vote or
prior written consent of at least two-thirds of the then outstanding shares of
Senior Preferred Stock. In addition, so long as at least 200,000 shares of each
of the Series C, Series C-1, Series D and Series G preferred stock remains
outstanding, as adjusted for stock splits, recapitalizations and the like,
Ontogeny may not take any action with respect to the certificate of
incorporation or by-laws that would adversely affect the holders of such shares
without the affirmative vote or prior written consent of a majority of the then
outstanding shares of Series C and Series D preferred stock.
Curis' certificate of incorporation provides that the affirmative vote of
75% of the shares of Curis capital stock outstanding and entitled to vote is
required to amend, repeal or adopt a provision that is inconsistent with the
following provisions of the certificate of incorporation:
. stockholder action and . the reservation by Curis of
special meetings of its right to amend or repeal
stockholders; and any provision of the
certificate of incorporation.
Amendments to By-Laws
Ontogeny's certificate of incorporation and by-laws provide that its board
of directors may amend the by-laws by a majority vote of the directors present
at any meeting provided a quorum is present. In addition, Ontogeny's by-laws
provide that the Ontogeny stockholders may amend the by-laws by an affirmative
vote of a majority of the shares of Ontogeny capital stock outstanding and
entitled to vote at a regular meeting of the stockholders.
Curis' certificate of incorporation and by-laws provide that its board of
directors may amend the by-laws. Curis' by-laws provide, generally, that Curis'
stockholders may amend the by-laws by an affirmative vote of the majority of
shares outstanding and entitled to vote. Curis' by-laws, however, do provide
that the affirmative
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vote of 75% of the shares of Curis capital stock outstanding and entitled to
vote is required to amend, repeal or adopt a provision inconsistent with the
following provisions of the by-laws:
. the authority, procedures or
. special meetings of stockholders; composition of the board of
directors; and
. the nomination of directors;
. the amendment of the by-laws
. notice of business at annual by the board of directors and
meetings; the stockholders.
. actions of stockholders
without meetings;
Notice of Stockholder Actions
Ontogeny's certificate of incorporation and by-laws are silent as to whether
and how much notice is required to nominate directors or bring business before
an annual meeting of Ontogeny's stockholders.
Curis' by-laws provide that in order to nominate directors or bring business
before an annual meeting, stockholders must provide written notice to the
secretary of Curis at least 60 days, but not more that 90 days, before the date
of the first anniversary of the previous year's annual meeting, provided
however, that in the event that less than seventy days' notice or public
disclosure of the date of the meeting is given or made, a stockholder must
provide written notice of the nominations to the secretary of Curis by the
close of business on the tenth day following the date on which Curis makes such
a public announcement.
Right to Call Special Meeting of Stockholders
Ontogeny's by-laws provide that a special meeting of Ontogeny's stockholders
may be called for any purpose at any time by the president or the board of
directors. The business to be conducted at any such special meeting of
stockholders will be limited to matters related to the purpose set forth in the
notice of the meeting.
Curis' certificate of incorporation and by-laws provide that a special
meeting of Curis' stockholders may be called for any purpose at any time by the
chairman of the board, the chief executive officer or the board of directors.
The business to be conducted at any such special meeting of stockholders will
be limited to matters related to the purpose set forth in the notice of the
meeting.
Dividends and Distributions
Ontogeny's certificate of incorporation provides that its board of
directors, at its discretion, may declare and pay dividends out of funds
legally available for dividends to the holders of Ontogeny common stock, Series
C, Series C-1, Series D and Series G preferred stock, subject to any
preferential dividend rights of any then outstanding Senior Preferred Stock.
The holders of shares of Series A preferred stock are entitled to receive
dividends of $0.069 per share per annum, the holders of the Series B preferred
stock are entitled to receive dividends of $0.09 per share per annum, the
holders of the Series E preferred stock are entitled to receive dividends of
$0.20 per share per annum and the holders of the Series F preferred stock are
entitled to receive dividends of $0.244 per share per annum. The right to
receive dividends on Senior Preferred Stock is not cumulative and will not
accrue simply because no dividend has been declared on Senior Preferred Stock
in a prior year. Ontogeny may not, however, declare or pay dividends to any of
the other classes of stock until the senior preferred stockholders have
received dividends at the rates set forth above.
Ontogeny's certificate of incorporation provides that Series C and Series C-
1 preferred stockholders are on a parity with Series D preferred stockholders
as to dividend rights. The Series G preferred stock is junior to the Series C,
Series C-1 and Series D preferred stock as to dividends.
Curis' certificate of incorporation provides that its board of directors, at
its discretion, may declare and pay dividends out of funds legally available
for dividends to the holders of Curis common stock, subject to any preferential
dividend rights of any series of preferred stock then outstanding.
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Redemption
Unless the funds legally available to Ontogeny are insufficient to do so,
Ontogeny will on December 1, 2002 and on each of the first and second
anniversary thereafter redeem one-third of the shares of Senior Preferred Stock
held by each holder of shares of Senior Preferred Stock, at a per share
purchase price of approximately $0.87, in the case of Series A preferred stock,
$1.125, in the case of Series B preferred stock, $2.50, in the case of Series E
preferred stock and $3.05, in the case of Series F preferred stock, subject to
certain adjustments, according to certain fixed percentages each year.
Ontogeny's Series C, C-1, D and G preferred stock are not subject to
redemption.
The Curis common stock is not subject to redemption.
Conversion
Under Ontogeny's certificate of incorporation, the holders of the Senior
Preferred Stock may convert their shares of Ontogeny senior preferred stock
into the same number of shares of Ontogeny common stock. The rates at which
Ontogeny's Senior Preferred may be converted into Ontogeny common stock are
subject to adjustment over time due to factors including stock splits, stock
dividends and other dilutive distributions.
Ontogeny's certificate of incorporation provides that upon the closing of a
sale of Ontogeny common stock pursuant to an effective registration statement
under the Securities Act of 1933, at a purchase price of $5.00 per share
(adjusted for dilution) and resulting in at least $10,000,000 in gross proceeds
to Ontogeny, the outstanding shares of Senior Preferred Stock will
automatically be converted into shares of Ontogeny common stock at the then
applicable conversion rate.
Likewise, Ontogeny's certificate of incorporation provides for similar
optional and mandatory conversion rights to the holders of Series C, Series C-
1, Series D and Series G preferred stock.
Curis does not have any issued securities that are subject to conversion.
Liquidation
Ontogeny's certificate of incorporation provides that upon a liquidation,
winding up or dissolution of Ontogeny, holders of Ontogeny common stock will be
entitled to receive any assets available to Ontogeny's stockholders, subject to
any preferential rights of any then outstanding preferred stock.
Ontogeny's certificate of incorporation provides that upon a liquidation,
winding up or dissolution of Ontogeny, before any payment or distribution is
made to the Series C, Series C-1, Series D or Series G preferred stockholders
or the common stockholders, the senior preferred stockholders must be paid
approximately $0.87, in the case of Series A preferred stock, $1.125, in the
case of Series B preferred stock, $2.50, in the case of Series E preferred
stock and $3.05, in the case of Series F preferred stock. In the event that
Ontogeny's assets are insufficient to pay each senior preferred stockholder in
full, the senior preferred stockholders shall share ratably in any distribution
that is made. After the payment of all preferential amounts to the senior
preferred stockholders have been made, the holders of Series C, Series C-1 and
Series D preferred stock will be entitled to be paid out of Ontogeny's
available assets in an amount equal to $2.50 per share for Series C and Series
D and $5.00 per share for Series C-1. Thereafter, the holders of the Series G
preferred stock will be entitled to be paid out of Ontogeny's available assets,
before any payment is made to common stockholders, an amount equal to $5.00 per
share.
Upon a liquidation, dissolution or winding-up of Curis, the assets legally
available for distribution to stockholders will be distributed ratably among
the holders of Curis common stock and any participating preferred stock
outstanding at that time after payment of liquidation preferences, if any, on
any outstanding preferred stock and payment of other claims of creditors.
Reprogenesis v. Curis
Reprogenesis is a Texas corporation. On the closing of the merger,
Reprogenesis' stockholders will become stockholders of Curis. The following is
a summary of some similarities and certain differences between the rights of
Reprogenesis' stockholders and the rights of Curis' stockholders.
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The following discussion is not intended to be complete and is qualified in
its entirety by reference to the Texas Business Corporation Act and the
Delaware General Corporation Law, Reprogenesis' articles of incorporation and
by-laws and Curis' certificate of incorporation and by-laws.
Capitalization
Reprogenesis is authorized to issue 30,084,501 shares of common stock, par
value $0.01 per share, and 7,747,153 shares of preferred stock, par value $0.01
per share, of which 2,702,702 shares are designated Series A preferred stock
and 5,044,451 shares are designated Series B preferred stock. The Reprogenesis
board of directors has the authority, without stockholder approval, to issue
shares of authorized preferred stock from time to time in one of more series
and to fix the rights and preferences, including voting rights, of each series
of preferred stock, which rights and preferences may be superior to that of
Reprogenesis common stock. On March 9, 2000, Reprogenesis had issued and
outstanding:
. 14,744,524 shares of common stock;
. 2,702,702 shares of Series A convertible preferred stock (convertible
into an aggregate of 2,702,702 shares of common stock); and
. 4,729,134 shares of Series B preferred stock (convertible into an
aggregate of 4,729,134 shares of common stock).
Curis is authorized to issue 125,000,000 shares of common stock, $0.01 par
value per share, and 5,000,000 shares of undesignated preferred stock, $0.01
par value per share. Immediately prior to the closing of the merger, Curis will
have issued 300 shares of common stock and no shares of preferred stock.
Voting Rights
Under the Texas Business Corporation Act, the holder of each outstanding
share of stock, regardless of class, is entitled to one vote per share on each
matter submitted to a stockholder vote, except as limited or expanded by the
articles of incorporation. Reprogenesis' articles of incorporation provide for
one vote for each share of Reprogenesis' common stock. Holders of Reprogenesis
preferred stock are entitled to that number of votes equal to the number of
whole shares of Reprogensis common stock into which such shares of preferred
stock are convertible with respect to any and all matters brought to the
holders of Reprogensis common stock for their consideration. The Texas Business
Corporation Act and Reprogenesis' articles of incorporation provide holders of
outstanding shares of preferred stock rights to vote as a class on specified
matters.
Under Delaware law, the holder of each outstanding share of stock,
regardless of class, is entitled to one vote per share on each matter submitted
to a stockholder vote, except as limited or expanded by the certificate of
incorporation. Curis' certificate of incorporation provides for one vote for
each share of Curis common stock.
Preemptive Rights And Cumulative Voting
Delaware law provides that a corporation's certificate of incorporation may
grant preemptive rights to stockholders. The Texas Business Corporation Act
grants preemptive rights to stockholders, except to the extent limited or
denied by the Texas Business Corporation Act or the corporation's articles of
incorporation. Under Delaware law, a corporation may provide in its certificate
of incorporation for cumulative voting rights in the election of directors.
Texas law provides that stockholders are entitled to cumulative voting rights
in the election of directors, unless the articles of incorporation do not allow
cumulative voting. Neither Reprogenesis stockholders nor Curis stockholders
have preemptive rights or cumulative voting rights.
Election, Number, Classification And Removal Of Directors
The number of directors of Reprogenesis is fixed by Reprogenesis' by-laws
and is at least one. The Amended and Restated Stockholders Agreement dated as
of April 25, 1997 among Reprogenesis and certain of
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its stockholders, as amended, provides that the number of directors of
Reprogenesis will not be greater than eight. Reprogenesis' board consists of
eight directors and is not divided into separate classes. Directors serve until
the next annual meeting of stockholders and until their successors are elected
and qualified or until their earlier resignation or removal.
Pursuant to the Reprogenesis stockholders agreement, the stockholders agree
to vote to elect three directors designated by certain stockholders. In
addition, the stockholders agree to vote to remove, with or without cause, any
of these designated directors upon notice from the stockholders designating
such director of their desire to remove such director.
At any meeting of Reprogenesis' stockholders at which a quorum of
stockholders is present, called expressly for the purpose of removing one or
more directors, any Reprogenesis director or the entire board of directors may
be removed from office by a vote of the holders of a majority of the shares
then entitled to vote at an election of directors. The Reprogenesis
stockholders agreement provides that, except as set forth above, such removal
can only be for cause. Reprogenesis' by-laws do not require advance notice of
nominations by stockholders for election of directors or other business brought
before an annual meeting by a stockholder.
Curis' certificate of incorporation is silent with respect to the number of
directors that will constitute the board of directors. Curis' by-laws indicate
that the number of directors will be set by resolution of the board of
directors, provided, however, that in no event shall the number of directors be
less than three. Curis' by-laws provide for three classes of directors, each
consisting as nearly as possible, of one-third of the total number of directors
constituting the entire board of directors. At each annual meeting of
stockholders, one class is elected to serve for a three-year term.
Classification of the board of directors has the effect of making it more
difficult to change the membership of the board of directors even if the reason
for such a change may be dissatisfaction with the performance of the incumbent
directors. At least two annual stockholder meetings would ordinarily be
required to effect a change of control of Curis' board of directors.
Curis' by-laws provide that advance notice of nominations by stockholders
for the election of directors must be given in the manner and to the extent
provided in the by-laws. In addition, Curis' by-laws provide for advance notice
of any other business to be properly brought before an annual meeting by a
stockholder.
Any director or the entire board of directors of a Delaware corporation may
be removed with or without cause by the vote of the holders of a majority of
such corporation's outstanding shares entitled to vote thereon, provided,
however, unless the certificate of incorporation otherwise provides, in the
case of a corporation whose board is classified, stockholders may only remove
directors for cause. Curis' by-laws provide that a director may only be removed
from office at any time, with cause, by the affirmative vote of the holders of
more than 75% of Curis' outstanding shares entitled to vote. The Curis by-laws
further provide that, subject to Delaware law, the amendment or repeal of the
by-laws pertaining to the removal of directors for cause requires either the
approval of the board of directors or the affirmative vote of more than 75% of
Curis' capital stock issued, outstanding and entitled to vote.
Certain Director Voting Requirements
Pursuant to the Reprogenesis' by-laws, certain of the directors can veto
certain matters, including:
. any amendment to the Reprogenesis' articles of incorporation or by-laws;
. the declaration or payment of any dividend or distribution;
. any repurchase by Reprogenesis of equity securities of Reprogenesis;
. the issuance of equity securities of Reprogenesis or of securities of any
kind convertible into or exchangeable or exercisable for equity
securities of Reprogenesis;
. the payment of any compensation to, or any other transaction with, any
director, scientific advisory board member, officer, stockholder or
employee of Reprogenesis or any partner, advisor, director, committee
member, officer, stockholder, member, manager or any affiliate of the
foregoing, where the aggregate of all payments made to any such person
during any calendar year shall exceed $150,000;
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. any reorganization, consolidation or merger involving Reprogenesis or
other transaction in which 50% or more of the voting power of
Reprogenesis is transferred; and
. any liquidation, dissolution or sale, disposition or other transfer of
assets of Reprogenesis not in the ordinary course of business.
Curis by-laws do not provide similar veto rights.
Voting Rights On Business Combinations; Transactions With Interested
Stockholders; Delaware General Corporation Law Section 203 And Texas Business
Corporation Act Article 13
The Texas Business Corporation Act generally requires the affirmative vote
of the holders 66 2/3% of each class of outstanding stock entitled to vote to
approve a merger or the sale, lease or disposition of all or substantially all
of a corporation's property and assets, or if any class of shares is entitled
to vote as a class on the approval, the affirmative vote of the holders of at
least 66 2/3% of the shares in each such class and the affirmative vote of the
holders of at least 66 2/3% of the shares otherwise entitled to vote. Under the
Reprogenesis articles of incorporation, the vote required for the approval of
the merger is the affirmative vote of 66 2/3% of the Series A preferred stock
outstanding, voting separately as a class; 66 2/3% of the Series B preferred
stock outstanding, voting separately as a class; and 66 2/3% of the
Reprogenesis common stock and preferred stock outstanding, voting together.
Reprogenesis is not subject to Part 13 of the Texas Business Corporation
Act, which prohibits a Texas corporation from engaging in a business
combination with an affiliated stockholder, defined generally as a person
owning 20% or more of a corporation's outstanding voting stock, for three years
after becoming an affiliated stockholder unless:
. the board approved the business combination or the transaction in which
the affiliated stockholder became an affiliated stockholder before the
person became an affiliated stockholder; or
. holders of 66 2/3% of the outstanding voting stock of the corporation not
owned by the affiliated stockholder approve the business combination at
least six months after the person became an affiliated stockholder.
Curis is subject to Section 203 of the Delaware General Corporation Law.
Under Section 203, an interested stockholder, defined generally as a person
owning 15% or more of a corporation's outstanding voting stock, is prevented
from engaging in a business combination with the corporation for three years
after becoming an interested stockholder unless:
. the board approved the transaction in which the interested stockholder
became an interested stockholder;
. the interested stockholder owns more than 85% of the stock after the
consummation of the transaction in which the stockholder became
interested; or
. the board approves the business combination and two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder approves the business combination.
Right To Call Special Meetings
Under the Texas Business Corporation Act, the holders of not less than 10%
of all shares entitled to vote have the right to call for a special
stockholder's meeting, unless the articles of incorporation provide for a
number of shares greater than or less than 10%. If so specified, special
meetings of the stockholders may be called by holders of at least the
percentage of shares so specified in the articles of incorporation, but the
articles of incorporation may not provide for a number of shares greater than
50% to call a special stockholders' meeting. Additionally, a special meeting of
stockholders may be called by the president, the board of directors,
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or any other person authorized in the articles of incorporation or by-laws.
Reprogenesis' by-laws authorize each of the president, the board of directors,
and the chairman of the board to call a special meeting and require that such a
special stockholders' meeting be called at the written request of holders of
not less than 15% of all the shares entitled to vote at such meeting.
Curis' certificate of incorporation provides that special meetings of
stockholders may be called at any time by the chairman of the board, the chief
executive officer or the board of directors.
Stockholder Action By Written Consent
Under the Texas Business Corporation Act, any action which is required to be
taken or may be taken at a meeting of stockholders may be taken by a written
consent signed by the holder or holders of all the shares entitled to vote with
respect to the action that is the subject of the consent. If the articles of
incorporation provide, any action which is required to be taken or may be taken
at a meeting of stockholders may be taken by a written consent signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting if notice of the
action is provided to the holders not consenting in writing. Reprogenesis'
articles of incorporation provide for a written consent to be signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting.
Delaware law allows any action required or permitted to be taken by the
stockholders of a corporation to be taken without a meeting and without a
stockholder vote if a written consent setting forth the action to be taken is
signed by the holders of shares of outstanding stock having the requisite
number of votes that would be necessary to authorize such action at a meeting
of stockholders, except as specifically prohibited by the certificate of
incorporation. Curis intends to amend its certificate of incorporation to
prohibit action by written consent of Curis' stockholders.
Amendment Of Certificate/Articles Of Incorporation And By-laws
The Texas Business Corporation Act provides that a corporation's articles
may be amended upon receiving the affirmative vote of the holders of at least
66 2/3% of the outstanding shares entitled to vote on such amendment.
Reprogenesis' articles of incorporation provide for amendment in some instances
upon receiving the affirmative vote required by law and the vote of a majority
of the outstanding shares of each class of preferred stock entitled to vote on
the amendment. The power to amend Reprogenesis' by-laws has been delegated to
the board of directors, subject to repeal or change by the vote of 80% of the
outstanding shares of stock entitled to vote upon the election of directors.
Curis' certificate of incorporation provides that, except for provisions
pertaining to who may call special meetings of stockholders and provisions
pertaining to how the certificate of incorporation may be amended, any
provision contained in the certificate of incorporation may be repealed,
altered, amended or rescinded in the manner prescribed by statute. Under the
Delaware General Corporation Law, amendments to the certificate of
incorporation may be adopted by the board of directors and the affirmative vote
of a majority of the outstanding stock of each class entitled to vote thereon
as a class. With respect to provisions specified above, the affirmative vote of
the holders of 75% of the shares of Curis' outstanding capital stock entitled
to vote on the amendment is required.
Under Delaware law, the power to adopt, amend or repeal by-laws is vested in
the stockholders provided that the certificate of incorporation of a Delaware
corporation may contain provisions conferring upon directors the power to
amend, alter or repeal by-laws. Under the provisions of Curis' certificate of
incorporation and by-laws, the power to amend, alter or repeal the by-laws is
conferred on the board of directors, in addition to the stockholders. Curis'
by-laws, however, do provide that the affirmative vote of 75% of the shares of
Curis
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capital stock outstanding and entitled to vote is required to amend, repeal or
adopt a provision inconsistent with the following provisions of the by-laws:
. the authority, procedures or
. special meetings of stockholders; composition of the board of
directors; and
. the nomination of directors;
. the amendment of the by-laws
. notice of business at annual by the board of directors and
meetings; the stockholders.
. actions of stockholders
without meetings;
Conversion
Reprogenesis' certificate of incorporation provides that the holders of the
Reprogenesis preferred stock may convert each share of Reprogenesis preferred
stock into one share of Reprogenesis common stock. The rate at which the
Reprogenesis preferred stock may be converted into Reprogenesis common stock is
subject to adjustment over time due to factors including stock splits, stock
dividends and other dilutive distributions.
Reprogenesis' certificate of incorporation provides that upon the election
of the holders of a majority of the shares of Reprogenesis preferred stock or
the closing of a firmly underwritten public offering of Reprogenesis common
stock pursuant to an effective registration statement under the Securities Act
of 1933, at a purchase price of $5.00 per share and resulting in at least $20
million in gross proceeds to Reprogenesis, the outstanding shares of preferred
stock will automatically be converted into shares of Reprogenesis common stock
at the then applicable conversion rate.
Curis does not have any issued securities that are subject to conversion.
Liquidation
Reprogenesis' certificate of incorporation provides that upon a liquidating
event, holders of Reprogenesis capital stock will be entitled to receive any
assets available to Reprogenesis' stockholders, based on the following:
. The holders of the series A preferred stock are entitled to a liquidation
preference equal to $2.22 per share plus any declared but unpaid
dividends on such shares in the event of the liquidation, dissolution or
winding up of Reprogenesis. The rights of the holders of the Reprogenesis
series A preferred stock, series B preferred stock and common stock after
this liquidation preference is paid are as follows:
. If (a) the liquidating event occurs prior to January 1, 2002 and, on
a pro forma basis, the series B preferred stockholders would have
received an amount per share of series B preferred stock in excess of
$3.30 plus all declared and unpaid dividends had all the assets
legally available for distribution (excluding those assets
distributed to satisfy the liquidation preference of the series A
preferred stock) been distributed ratably to the holders of
Reprogenesis' common stock, the series A preferred stock and the
series B preferred stock on an as if converted to common stock basis,
or (b) the liquidating event occurs and all stockholders of
Reprogenesis are entitled to receive securities as a result of such
liquidating event, then all remaining assets of Reprogenesis shall be
distributed ratably to the holders of Reprogenesis' common stock and
the series A preferred stock and the series B preferred stock on an
as if converted to common stock basis.
. In all other cases, the remaining assets will be distributed to the
holders of series A and series B preferred stock on a basis whereby
the series B stockholders will receive that portion of the total
assets equal to (x) the total number of shares of Reprogenesis common
stock that would be outstanding if the outstanding shares of series B
preferred stock were converted into shares of Reprogenesis common
stock divided by (y) the total number of shares of Reprogenesis
common stock that would be outstanding if the outstanding shares of
both series A preferred stock and series B preferred stock were
converted into Reprogenesis common stock (the "Total Shares"), and
series A preferred stockholders will receive that portion of the
total assets equal to (x) the total number of shares of Reprogenesis
common stock into which the outstanding shares of series
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A preferred stock are then convertible divided by (y) the Total
Shares; with such distribution to be made until the holders of the
series B preferred stock receive an amount per share of series B
preferred stock equal to $2.22 plus all declared and unpaid
dividends. Any remaining assets will then be distributed on a pro
rata basis to all stockholders.
Upon a liquidation, dissolution or winding-up of Curis, the assets legally
available for distribution to stockholders will be distributed ratably among
the holders of Curis common stock and any participating preferred stock
outstanding at that time after payment of liquidation preferences, if any, on
any outstanding preferred stock and payment of other claims of creditors.
Dissenters' Rights
Under the Texas Business Corporation Act, stockholders of a Texas
corporation have the right to dissent from mergers and the sales, leases,
exchanges or other dispositions of all or substantially all of the property
and assets of such corporation that require stockholder consent, or from any
plan of exchange in which the stockholders' shares are to be acquired.
However, a stockholder of a Texas corporation does not have dissenters' rights
with respect to any plan of merger when there is a single surviving or new
domestic or foreign corporation, or from any plan of exchange, if:
. the shares held by the stockholder are part of a class or series of
shares which are listed on a national securities exchange, listed on the
Nasdaq National Market, designated as a national market security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not less than 2,000 holders, on the
record date fixed to determine the stockholders entitled to vote on the
plan of merger or plan of exchange;
. the stockholder is not required by the terms of the plan of merger or
exchange to accept for the stockholder's shares any consideration that is
different than the consideration to be provided to any other holder of
shares of the same class or series; and
. the stockholder is not required by the terms of the plan of merger or
exchange to accept for his or her shares any consideration other than:
(a) shares of a corporation that, immediately after the merger or
exchange, will be a part of a class or series of shares which are
listed, or authorized for listing upon official notice of issuance,
on a national securities exchange, approved for quotation as a
national market security on an interdealer quotation system by the
National Association of Securities Dealers, Inc., or held of record
by not less than 2,000 holders;
(b) cash in lieu of fractional shares; or
(c) a combination of (a) and (b) above.
Stockholders of a Delaware corporation have the right to dissent and demand
appraisal of the fair value of their shares in some business combination
transactions. These rights are not available for shares of stock of Delaware
corporations which are either listed on a national securities exchange or
quoted on the Nasdaq National Market or held by more than 2,000 stockholders
unless the corporation's stockholders are required to accept for such stock
anything other than (i) stock of the surviving corporation, (ii) stock of any
company either listed on a national securities exchange or quoted on the
Nasdaq National Market or held by more than 2,000 stockholders, (iii) cash in
lieu of fractional shares of corporations described in (i) and (ii) above, or
(iv) a combination of the foregoing. Delaware law does not provide dissenters'
rights in connection with sales of substantially all the assets of a
corporation, reclassification of stock or other amendments to the certificate
of incorporation which adversely affect a class of stock.
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MANAGEMENT OF CURIS AFTER THE MERGER
Curis' Board of Directors and Executive Officers
As of the closing, Curis' board of directors and executive officers will be
comprised of the following persons:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Doros Platika, M.D...... 47 Chief Executive Officer and President, Class I Director
Lynn G. Baird, Ph.D..... 52 Vice President of Regulatory Affairs,
QA/QC and Preclinical Development
George A. Eldridge...... 36 Vice President, Chief Financial Officer and Treasurer
Bruce A. Leicher........ 44 Vice President, General Counsel and Secretary
Lee L. Rubin, Ph.D...... 47 Vice President of Research
James S. Sigler......... 39 Vice President of Manufacturing
James R. McNab, Jr...... 56 Class I Director
James R. Tobin.......... 55 Class I Director
Douglas A. Melton,
Ph.D. ................. 46 Class II Director
Michael Rosenblatt...... 52 Class II Director
Martyn D. Greenacre..... 58 Class III Director
Ruth B. Kunath.......... 48 Class III Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Election Of Directors. Curis' by-laws provide for three classes of
directors, each consisting of, as nearly as possible, one-third of the total
number of directors constituting the entire board of directors. At each annual
meeting of stockholders, one class will be elected to serve for a three-year
term. Newly created directorships resulting from an increase in the number of
directors or the departure of existing directors may be filled by a vote of a
majority of directors then in office. A director elected to fill such a vacancy
shall hold office until the next election of the class of directors for which
he or she was chosen, subject to the election and qualification of his or her
successor, or until his or her earlier resignation of removal. The relevant
terms of the Class I Directors expire in 2003, of the Class II Directors in
2001, and of the Class III Directors in 2002.
Election of Executive Officers. Curis' by-laws provide that each executive
officer shall serve at the discretion of Curis' board of directors and shall
hold office until his or her successor is elected and qualified or until his or
her earlier resignation or removal.
Biographies of Directors and Executive Officers. The name, business address,
present principal occupation or employment and five-year employment history of
each of the directors and executive officers of Curis, together with the names
and principal businesses of any corporations or other organizations in which
such principal occupations are conducted, are set forth below. Unless otherwise
indicated, each occupation set forth refers to Curis and each individual's
business address is 45 Moulton Street, Cambridge, MA 02138. Unless otherwise
indicated, to the knowledge of Curis, no director or executive officer of Curis
has been convicted in a criminal proceeding during the last five years (except
for any matters that were dismissed without sanction or settlement) that
resulted in a judgement, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or state
securities laws, or a finding of any violation of federal or state securities
laws.
Doros Platika, M.D. Dr. Platika has served as president and chief
executive officer and as a member of the board of
directors of Ontogeny since July 1996. From June
1993 to June 1996, Dr. Platika was employed by
Progenitor, Inc., a biotechnology company, most
recently as Executive Vice President
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responsible for research and development. Dr.
Platika completed residencies in medicine and
neurology at Massachusetts General Hospital, where
he became Chief Resident. He did post-doctoral
study at the Whitehead Institute, Massachusetts
Institute of Technology and at Massachusetts
General Hospital in association with Harvard
Medical School. Dr. Platika served on the faculties
of Harvard Medical School and Albert Einstein
College of Medicine, where he was the head of gene
therapy. Dr. Platika completed his M.D. at the
State University of New York at Stony Brook School
of Medicine and received his B.A. from Reed
College.
Lynn G. Baird, Ph.D. Dr. Baird joined Reprogenesis as Vice President of
Regulatory Affairs and Quality in June 1998. From
June 1995 through June 1998, Dr. Baird was employed
by CytoTherapeutics, Inc., a biotechnology company
involved in the development of encapsulated
cellular therapeutics, most recently as Vice
President of Regulatory, Quality and Clinical
Development. Prior to that, Dr. Baird held various
positions in development and regulatory affairs at
R. W. Johnson Pharmaceutical Research Institute, a
Johnson & Johnson company, and in regulatory
affairs and technical management at Creative. Dr.
Baird directed basic research in immunology at the
Wistar Institute and Massachusetts General Hospital
prior to moving to industry. She holds a Ph.D. in
microbiology/immunology from the Medical College of
Virginia, a M.S. in chemistry from Virginia
Polytechnic Institute and a B.S. in psychology also
from Virginia Polytechnic Institute.
George A. Eldridge Mr. Eldridge joined Ontogeny in April 1996 as Vice
President of Finance. From April 1993 to April
1996, Mr. Eldridge was employed by Boston Life
Sciences, Inc. where he was Vice President,
Corporate Development and Finance. Prior to that,
he worked with the investment banking firm, Kidder,
Peabody & Co., Incorporated for a total of five
years in their New York and Boston offices. A
graduate of Dartmouth College, Mr. Eldridge
received his M.B.A. from the University of Chicago
Graduate School of Business.
Bruce A. Leicher Mr. Leicher joined Ontogeny in January 2000 as Vice
President and General Counsel. Prior to joining
Ontogeny, he was employed by Genetics Institute,
Inc. for ten years in various legal positions, and
for the last two years as Vice President, Law.
Prior to that he served as General Counsel to BBN
Communications Corporation and in several other
legal positions prior to that at its parent, Bolt,
Beranek and Newman Inc. from 1984 to 1990. Prior to
these corporate positions, Mr. Leicher was
associated with the law firms of Hale and Dorr and
Butler & Binion in Boston and Washington, D.C.,
respectively. Mr. Leicher received his J.D. from
Georgetown University Law Center following receipt
of his bachelor's degree in psychology from the
University of Rochester.
Lee L. Rubin, Ph.D.
Dr. Rubin joined Ontogeny in October 1997 as vice
president of Research. Prior to joining Ontogeny,
Dr. Rubin spent six years at Eisai London
Laboratories at University College London, where he
was
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director and professor of neurobiology. Prior to
that, he worked for four years with Athena
NeuroSciences, Inc. as senior scientist and head of
the blood-brain barrier program. He and his
colleagues have published over 50 papers in leading
scientific journals. Dr. Rubin completed his Ph.D. at
Rockefeller University and his B.A. at Cornell
University.
James S. Sigler Mr. Sigler joined Reprogenesis in May 1998, as Vice
President of Manufacturing. Prior to coming to
Reprogenesis, Mr. Sigler was Director of
Manufacturing for Genzyme Tissue Repair, a
biotechnology company specializing in the development
and commercialization of cellular therapies. His
primary responsibility at Genzyme Tissue Repair was
the manufacture of two different commercial-scale
autologous cell therapies, Carticel and Epicel. He
was also involved in the production of xenogeneic
material for the NeuroCell -PD and NeuroCell -HD
clinical trials, in conjunction with Genzyme Tissue
Repair's joint venture partner, Diacrin, Inc., a
biotechnology company. Prior to coming to BioSurface
Technology, Inc., Genzyme Tissue Repair's
predecessor, in 1990, Mr. Sigler was an officer in
the US Navy serving as a nuclear propulsion plant
watch officer on board the USS Enterprise, CVN 65. He
also spent time supporting the Navy's engineering and
logistics command. Mr. Sigler received his B.S. from
Cornell University, and his M.B.A. from Harvard
Business School.
James R. McNab, Jr. Mr. McNab is a co-founder and serves as the chairman
of the board of directors of Reprogenesis. In
addition, Mr. McNab is a co-founder of several
additional companies, including Parker Medical
Associates, a manufacturer and worldwide supplier of
orthopaedic and sports-related products which was
sold to Smith and Nephew, Inc. in 1995, Sontra
Medical, Inc., a drug delivery company, and eNOS
Pharmaceuticals, Inc., a drug discovery company
working in the field of stroke therapy. Mr. McNab is
chairman and chief executive officer of Sontra
Medical and eNOS. Mr. McNab received a B.A. in
Economics from Davidson College and an M.B.A. from
the University of North Carolina.
James R. Tobin Mr. Tobin has been a member of our Board of Directors
since January 1995. He is currently Chief Executive
Officer and President of Boston Scientific
Corporation. He served as President and Chief
Executive Officer from February 1997 to December 1998
and President and Chief Operating Officer of Biogen
from February 1994 to February 1997. Prior to joining
Biogen, Mr. Tobin was with Baxter International Inc.,
a health care products company, where he served as
President and Chief Operating Officer from 1992 to
1994 as Executive Vice President from 1988 to 1992
and in various management positions prior to 1988. He
also serves as a director of Pathogenesis
Corporation, Boston Scientific Corporation and PE
Corporation.
Douglas A. Melton, PhD. Dr. Melton was the scientific founder of Ontogeny and
has served on Ontogeny's board of directors since
August 1994. Dr. Melton is the Thomas Dudley Cabot
Professor of Natural Sciences at Harvard University
and an Investigator of the Howard Hughes Medical
Institute. His work has focused on vertebrate
embryogenesis and the molecular biology of embryonic
induction. He holds an appointment as biologist at
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the Massachusetts General Hospital. His Ph.D. work
was carried out at Trinity College at Cambridge
University and the Medical Research Council
Laboratory of Molecular Biology in Cambridge,
England. He completed a B.S. at the University of
Illinois and a B.A. at Cambridge University.
Michael Rosenblatt, M.D. Dr. Rosenblatt has been a member of our Board of
Directors since June 1993. From 1992-1998, Dr.
Rosenblatt served as the Robert H. Ebert Professor
of Molecular Medicine at the Harvard Medical School
and the director of the Harvard-MIT Division of
Health Sciences and Technology. He has served since
1992, and currently serves as Chief of the Division
of Bone and Mineral Metabolism at Beth Israel
Deaconess Medical Center. Since 1993, he has also
been a faculty member in the department of
Biological Chemistry and Molecular Pharmacology,
Division of Medical Sciences at Harvard University.
From 1996-1999, he was the executive director of
the Carl J. Shapiro Institute for Education and
Research at Harvard Medical School and Beth Israel
Deaconess Medical Center. Since 1996, he has been
Harvard faculty dean for academic programs at the
Beth Israel Deaconess Medical Center. He is now the
President (interim) of Beth Israel Deaconess
Medical Center and the George R. Minot Professor of
Medicine at Harvard Medical School. Prior to 1992,
Dr. Rosenblatt was the Senior Vice President for
Research at Merck Research Laboratories, a
pharmaceutical company. He also serves as a
director of ArQule, Inc.
Martyn D. Greenacre Mr. Greenacre has been a member of Creative's board
of directors since June 1993. He is currently Chief
Executive Officer and President of Delsys
Pharmaceutical Corporation, a drug formulation
company. From 1993 to 1996, Mr. Greenacre was
President and Chief Executive Officer of Zynaxis,
Inc., a biopharmaceutical company. Prior to
Zynaxis, from 1973 through 1992, he was with
SmithKline Beecham where he held several senior
management positions, most recently as chairman of
European operations. He also serves as a director
of Delsys Pharmaceutical Corp. and GENSET, S.A., a
genomics company.
Ruth B. Kunath Ms. Kunath has served as a member of the board of
directors of Ontogeny since December 1998. Ms.
Kunath has been biotechnology portfolio manager
since 1992 for Vulcan Ventures, Incorporated, a
venture capital firm founded by Paul G. Allen.
Prior to her employment at Vulcan Ventures, Ms.
Kunath spent nine years managing Seattle Capital
Management Equity assets and eight years as the
Senior Portfolio Manager for the healthcare sector
of Bank of America Capital Management. Ms. Kunath
has served as a director of Vaxgen, Inc., a
biotechnology company, since June 1999 and Dendreon
Corporation, a biotechnology company, since
December 1999. Ms. Kunath received a B.A. from
DePaul University and is a Certified Financial
Analyst.
In January 2000, Dr. Platika consented to a retroactive suspension beginning
in June 1999 of his license to practice medicine by the Massachusetts Board of
Registration in Medicine (the "Board"). Dr. Platika became eligible to apply
for a stay of the suspension in December 1999. The Board found that Dr. Platika
had violated
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various provisions of Massachusetts law by writing prescriptions which "were
not issued in the usual course of his professional practice and without the
appropriate Massachusetts registrations." Dr. Platika had undergone back
surgery with associated back pain, and had been supplementing prescriptions
written by his treating physician. In February 1999, related charges were filed
against Dr. Platika in Waltham District Court in Massachusetts. In June 1999,
Dr. Platika was placed on unsupervised pre-trial probation. The charges are
scheduled to be dismissed in June 2000, providing he remains compliant with the
conditions of his pre-trial probation and his monitoring contract with
Physician Health Services.
Board Committees
Initially, the board of directors will have an audit committee and a
compensation committee. The following is a brief description of Curis' board
committees.
The audit committee will report to the board of directors regarding the
appointment of Curis' independent auditors, the scope and results of Curis'
annual audits, compliance with Curis' accounting and financial policies and
management's procedures and policies relative to the adequacy of Curis'
internal accounting control. As of the closing, the audit committee will
consist of Messrs. , and .
The compensation committee will review and make recommendations to the board
of directors regarding Curis' compensation policies and all forms of
compensation to be provided to Curis' executive officers and directors. In
addition, the compensation committee will review bonus and stock compensation
arrangements for all of Curis' employees. As of the closing, the compensation
committee will consist of Messrs. , and .
Compensation of Directors
Under Curis' by-laws, the board of directors has the authority to fix from
time to time the compensation of the directors. For their services to Curis,
non-employee directors of Curis will receive cash payments in the amount of an
annual retainer of $10,000, $1,000 for each board of directors meeting attended
in person and $500 for board meetings held by telephone conference call. Non-
employee directors who are members of a committee of the board of directors
will receive $1,000 for each committee meeting attended on a day other than a
day on which a board of directors meeting is held. Directors who are employed
by the Company will not receive compensation for attendance at board of
directors or committee meetings. In addition, Curis will reimburse its
directors for reasonable out-of-pocket expenses incurred in attending meetings
of the board of directors and any meetings of the board committees. Non-
employee directors of Curis are also eligible to participate in Curis' 2000
Director Stock Option Plan. See "--Employee Benefit Plans--2000 Director Stock
Option Plan."
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Compensation of Executive Officers
The following summary compensation table sets forth the compensation paid to
Curis' named executive officers, who are our Chief Executive Officer and each
of our four other most highly compensated executive officers, during the fiscal
years ended December 31, 1997, 1998 and 1999. Because Curis is a newly formed
corporation and has not paid compensation to any of the executive officers
listed below, the table reflects compensation paid to the executive officers by
the three constituent corporations which merged to form Curis.
In accordance with Securities and Exchange Commission rules, the
compensation set forth in the table below does not include medical, group life
or other benefits which are available to all of Curis' salaried employees and
perquisites and other benefits, securities or property which do not exceed the
lesser of $50,000 or 10% of the person's salary and bonus shown in the table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
-------------- -----------------
Shares Underlying All Other
Name and Principal Position Year Salary($) Options Compensation($)
--------------------------- ---- --------- ----------------- ---------------
<S> <C> <C> <C> <C>
Doros Platika, M.D.,
President and Chief
Executive Officer.......... 1999 300,000 25,640(1) 333,927(2)
1998 280,000 -- 118,119(2)
1997 265,000 38,460(1) 184,654(2)
Lynn G. Baird, Ph.D, Vice
President of Regulatory
Affairs, QA/QC
and Preclinical
Development................ 1999 170,598 4,796(4) --
1998 90,010(3) 14,391(4) 31,074(5)
George A. Eldridge, Vice
President, Chief Financial
Officer and Treasurer...... 1999 135,000 6,410(1) --
1998 120,000 19,230(1) --
1997 100,000 15,384(1) --
Lee L. Rubin, Ph.D, Vice
President of Research...... 1999 210,000 25,640(1) --
1998 185,000 28,204(1) --
1997 37,000(6) 44,870(1) 1,776(7)
James S. Sigler, Vice
President of
Manufacturing.............. 1999 150,500 4,796(4) --
1998 96,667(8) 14,391(4) --
</TABLE>
- --------
(1) Based on the Ontogeny exchange ratio, which is 0.2564 shares of Curis
common stock per share of Ontogeny common stock. Options were originally
granted under Ontogeny's 1995 Stock Option Plan and were exercisable for
Ontogeny common stock. Following the merger, these options are exercisable
for shares of Curis common stock.
(2) The amount of other compensation for Dr. Platika for 1999 includes
forgiveness of a loan made on June 17, 1996 and related interest in the
amount of $108,634 (interest of $8,634) and related tax reimbursement in
the amount of $91,909, as well as forgiveness of a loan made on June 17,
1996 and related interest in the amount of $71,634 (interest of $11,634)
and related tax reimbursement in the amount of $60,605. The amount of
other compensation for Dr. Platika for 1998 includes forgiveness of a loan
made on June 17, 1996 and related interest in the amount of $63,060
(interest of $3,060) and related tax reimbursement in the amount of
$53,351. The amount of other compensation for Dr. Platika for 1997
includes forgiveness of a loan made on June 17, 1996 and related interest
in the amount of $99,296 (interest of $9,296) and related tax
reimbursement in the amount of $84,008. These amounts also include
premiums of $1,145, $1,708 and $1,350 for 1999, 1998 and 1997,
respectively, paid by Ontogeny on an additional life insurance policy in
the amount of $1 million with a beneficiary other than Ontogeny or Curis.
(3) Dr. Baird joined Reprogenesis on June 15, 1998. Therefore, 1998 salary
represents the salary earned from that date forward.
(4) Calculated using the formula on page 54 and an exchange ratio of 0.1919
based on the average daily market price for Creative common stock on the
20 consecutive business days ending March 9, 2000.
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Options were originally granted under Reprogenesis' 1996 Long-Term Incentive
Plan and were exercisable for Reprogenesis common stock. Following the
merger, their options are exercisable for shares of Curis common stock.
(5) Represents a relocation allowance paid to Dr. Baird.
(6) Dr. Rubin joined Ontogeny on October 21, 1997. Therefore 1997 salary
represents the salary earned from that date forward.
(7) Other income for Dr. Rubin for 1997 includes interest forgiven on a loan
originated in October 1997 in the principal amount of $68,000 and a loan
originated in December 1997, in the principal amount of $85,000 as well as
tax reimbursement related thereto. Both loans were repaid in full by Dr.
Rubin in December 1997.
(8) Mr. Sigler joined Reprogenesis on May 1, 1998. Therefore, 1998 salary
represents the salary earned from that date forward.
Bruce A. Leicher joined Ontogeny, as its Vice President and General Counsel,
on January 17, 2000, and earned no compensation from Ontogeny in the fiscal
year ended 1999. For this reason Mr. Leicher has been omitted from the above
table. Mr. Leicher's annualized salary for fiscal year 2000 is $220,000. As of
March 9, 2000, Mr. Leicher's salary would make him one of Curis' four most
highly compensated executive officers.
The following table sets forth information with respect to stock options
granted during the fiscal year ended December 31, 1999 to each of the named
executive officers (as converted into option grants of Curis using the
applicable exchange ratios and formulas as discussed on page 54):
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term(1)
---------------------------------------------- ----------------------------
% of
Total Options
Number of Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year Per Share date 0% 5% 10%
---- --------- ------------- --------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Doros Platika, M.D...... 25,640(2) 3.5% $3.90 12/01/09 -- $385,308 $672,771
Lynn G. Baird, Ph.D..... 4,796(3) * $0.52 07/01/09 $22,500(3) $ 37,661 $ 61,889
George A. Eldridge...... 6,410(2) * $3.90 12/01/09 -- $ 96,327 $168,193
Lee L. Rubin, Ph.D...... 25,640(2) 3.5% $3.90 12/01/09 -- $385,308 $672,771
James S. Sigler ........ 4,796(3) * $0.52 07/01/09 $22,500(3) $ 37,661 $ 61,889
</TABLE>
- --------
* Less than 1%.
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 0%, 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. Actual gains, if any, on stock option exercises
will depend on the future performance of the Curis common stock and the
date on which the options are exercised.
(2) Stock options were granted under the Ontogeny 1995 Stock Option Plan at an
exercise price equal to the fair market value of Ontogeny common stock on
the date of grant as determined by the board of directors. Options become
exercisable as to 20% of the shares covered on the first anniversary of
the date of grant and 5% per quarter thereafter.
(3) Stock options were granted under the Reprogenesis 1996 Long-Term Incentive
Plan at an exercise price below the fair market value of Reprogenesis
common stock, which was determined by the board of directors of
Reprogenesis to be $1.00 per share as of the date of grant (equivalent to
$5.21 per share of Curis common stock). All options will become fully
vested as of the consummation of the merger.
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The following table sets forth certain information regarding exercised stock
options during the fiscal year ended December 31, 1999 and unexercised options
held as of December 31, 1999 by each of the named executive officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired on Value Options at Fiscal in-the-Money Options
Exercise (#) Realized($) Year-End at Fiscal Year-End($)
------------ ----------- ------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Doros Platika, M.D...... -- -- 90,808 144,224 260,153 336,481
Lynn G. Baird, Ph.D..... -- -- 5,756 13,431 -- 22,500
George A. Eldridge...... 3,525 27,225 7,435 30,063 -- 6,748
Lee L. Rubin, Ph.D...... -- -- 23,588 75,126 34,997 52,496
James S. Sigler......... -- -- 6,476 12,712 -- 22,500
</TABLE>
EMPLOYEE BENEFIT PLANS
2000 Stock Option Plan
As of the closing of the merger, Curis' 2000 Stock Option Plan will provide
for the granting to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, and for the
granting to employees, directors and consultants of nonstatutory stock options.
Unless terminated sooner, the 2000 Plan will terminate automatically in 2010. A
total of 9 million shares of common stock will initially be reserved for
issuance pursuant to the 2000 Plan. Each year, the number of shares authorized
for issuance under the 2000 Plan will increase by the lesser of 1 million
shares or 4% of the total number of outstanding shares of Curis.
The board of directors or a committee of the board of directors may serve as
administrator of the 2000 Plan. The administrator has the power to determine
the terms of the options granted, including the exercise price, the number of
shares subject to each option, the exercisability thereof, and the form of
consideration payable upon such exercise. The board of directors has the
authority to amend, suspend or terminate the 2000 Plan, provided that no such
action may affect any share of common stock previously issued and sold or any
option previously granted under the 2000 Plan.
Options granted under the 2000 Plan are not generally transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by such optionee. Options granted under the 2000 Plan must generally be
exercised within three months of the optionee's separation of service from
Curis, or within twelve months after such optionee's termination by death or
disability, but in no event later than the expiration of the option's ten year
term. The exercise price of all incentive stock options granted under the 2000
Plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of all nonstatutory stock options granted
under the 2000 Plan is as determined by the board of directors. Under the 2000
Plan, the board of directors may grant options entitling the optionee to
acquire shares of Curis common stock subject to the right of Curis to
repurchase the shares at their issue price or other stated or formula price
under same conditions.
The 2000 Plan provides that in the event of a merger of Curis with or into
another corporation or a sale of substantially all of Curis' assets, 50% of the
then unvested options of each optionee shall vest and become immediately
exercisable and the remaining options shall be assumed or an equivalent option
substituted by the
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successor corporation. The outstanding options which are assumed or substituted
as described in the preceding sentence shall vest and become immediately
exercisable if, prior to the date which is one year after such merger or sale,
the optionee is terminated without cause.
2000 Employee Stock Purchase Plan
A total of 1 million shares of common stock have been reserved for issuance
under Curis' 2000 Employee Stock Purchase Plan (the "2000 Purchase Plan").
The 2000 Purchase Plan, which is intended to qualify under Section 423 of
the Code contains successive six-month offering periods. The offering periods
generally start on the first trading day on or after May 15 and November 15 of
each year, except for the first such offering period which commenced on July
15, 2000.
Employees are eligible to participate if they are customarily employed by
Curis or any participating subsidiary for at least twenty hours per week and
more than five months in any calendar year. However, any employee who: (1)
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of Curis, or (2)
whose rights to purchase stock under all employee stock purchase plans of Curis
accrues at a rate which exceeds $25,000 worth of stock for each calendar year
may be not be granted an option to purchase stock under the 2000 Purchase Plan.
The 2000 Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 15% of the participant's compensation. Compensation
is defined as the participant's base straight time gross earnings, commissions,
incentive compensation and bonuses, but exclusive of payments for overtime,
profit sharing payments, shift premium payments and incentive payments.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the 2000 Purchase Plan is 85% of the lower of the fair market
value of the common stock at the beginning or end of the offering period.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with Curis.
Rights granted under the 2000 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 2000 Purchase Plan. The 2000 Purchase Plan
provides that, in the event of a merger of Curis with or into another
corporation or a sale of substantially all of Curis' assets, each outstanding
option may be assumed or substituted for by the successor corporation. The
board of directors has the authority to amend or terminate the 2000 Purchase
Plan, except that no such action may adversely affect any outstanding rights to
purchase stock under the 2000 Purchase Plan.
401(k) Retirement/Savings Plan
Curis' 401(k) plan covers its full-time employees located in the United
States. The 401(k) plan is intended to qualify under Section 401(k) of the
Code. Consequently, contributions to the 401(k) plan by employees or by Curis,
and the investment earnings thereon, are not taxable to employees until
withdrawn from the 401(k) plan. Further, contributions by Curis, if any, will
be deductible by Curis when made. Employees may elect to contribute up to 15%
of their current compensation to the 401(k), plan up to the statutorily
prescribed annual limit, which is $10,500 in 2000. The 401(k) plan permits, but
does not require, additional matching contributions to the 401(k) plan by Curis
on behalf of all participants in the 401(k) plan. To date, Curis has not made
any contributions to the 401(k) plan but plans to consider this option
following the merger.
2000 Director Stock Option Plan
Curis intends to adopt its 2000 Director Stock Option Plan prior to the
closing of the merger. Under the plan, directors who are not employees of Curis
or one of its subsidiaries receive options to purchase shares of
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<PAGE>
common stock. A total of 500,000 shares of common stock have been reserved for
issuance under the plan.
Pursuant to the plan, each non-employee director who first becomes a non-
employee director after the closing of the merger will be granted an option to
purchase 25,000 shares of common stock on the date of his or her initial
election to Curis' board of directors and upon the first anniversary of such
election, which will vest ratably over four years on each anniversary of the
date of grant. In addition, each non-employee director will receive an option
to purchase 5,000 shares of common stock on the date of each annual meeting of
stockholders commencing with the 2001 Annual Meeting of Stockholders (other
than a director who was initially elected to the board of directors at any such
annual meeting or, if previously, at any time after the prior year's annual
meeting). The options granted annually vest immediately upon the date of grant.
The exercise price per share of all such options will be the fair market value
of a share of common stock on the date of grant.
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Principal Stockholders
The following table sets forth information regarding the beneficial
ownership of our common stock as of the closing of the merger, based on stock
ownership as of March 9, 2000 by:
.each person who beneficially owns more than 5% of our common stock;
.each named executive officer;
.each of our directors; and
.all of our executive officers and directors as a group.
Unless otherwise indicated, the address of each of our officers and
directors is c/o Curis, Inc., 45 Moulton Street, Cambridge, Massachusetts
02138.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission. The
information is not necessarily indicative of beneficial ownership for any other
purpose. Under these rules beneficial ownership includes any shares as to which
the individual or entity has sole or shared voting or investment power and any
shares as to which the individual or entity has the right to acquire beneficial
ownership within 60 days after March 9, 2000 through the exercise of any stock
option, warrant or other right. Except as noted below, each entity or person
listed below has sole voting or investment power over all shares listed beside
its name. The inclusion of the following table of those shares, however, does
not constitute an admission that the named stockholder is a direct or indirect
beneficial owner of those shares. As of March 9, 2000, assuming conversion of
all Creative, Ontogeny and Reprogenesis shares into shares of Curis pursuant to
the merger we had outstanding 24,842,000 shares of common stock.
<TABLE>
<CAPTION>
Name of Beneficial Owner Total %(1)
------------------------ --------- ----
<S> <C> <C>
5% Stockholders
Vulcan Ventures Incorporated(2)
110 110th Avenue NE, Suite 550
Bellevue, WA 98004.......................................... 1,568,663 6.3%
Directors:
Doros Platika(3)............................................ 132,117 *
Martyn D. Greenacre(4)...................................... 15,000 *
Ruth B. Kunath(5)........................................... 1,571,868 6.3%
James R. McNab, Jr.(6)...................................... 613,507 2.5%
Douglas A. Melton(7)........................................ 134,802 *
Michael Rosenblatt(8)....................................... 18,000 *
James R. Tobin(9)........................................... 15,000 *
Officers:
Lynn G. Baird(10)........................................... 7,556 *
George A. Eldridge(11)...................................... 28,396 *
Bruce A. Leicher............................................ -- *
Lee L. Rubin(12)............................................ 29,486 *
James S. Sigler(13)......................................... 7,915 *
--------- ----
All Directors and Executive Officers as a Group............ 2,573,647 10.2%
========= ====
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of common stock.
(1) Shares of Curis common stock subject to options that are exercisable as of
the date of this joint proxy statement-prospectus or exercisable within 60
days of the date of this joint proxy statement-prospectus are deemed
outstanding for purposes of computing the percentage ownership of such
person, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person.
(2) The number of shares held by Vulcan Ventures Incorporated has been
determined by using the Ontogeny exchange ratio.
171
<PAGE>
(3) Includes 97,930 shares subject to stock options exercisable within 60 days
of March 9, 2000. The number of shares beneficially held by Dr. Platika
has been determined by using the Ontogeny exchange ratio.
(4) Consists solely of 15,000 shares subject to options exercisable within 60
days of March 9, 2000. The number of shares beneficially held by Mr.
Greenacre has been determined by using the Creative exchange ratio.
(5) Includes 1,568,663 shares held by Vulcan Ventures Incorporated. Ms. Kunath
manages the Vulcan Venture Biotechnology Portfolio as an employee of
Vulcan Ventures Incorporated. Ms. Kunath disclaims beneficial ownership of
these shares except to the extent of her pecuniary interest therein. Also
includes 3,205 shares subject to options exercisable within 60 days of
March 9, 2000. The number of shares beneficially held by Ms. Kunath has
been determined by using the Ontogeny exchange ratio.
(6) Includes 449,293 shares held directly, 110,702 held indirectly through the
JR and MW McNab Family L.L.C., 8,644 shares issuable upon the conversion
of Reprogenesis' series B preferred stock, 4,322 shares issuable upon the
conversion and exercise of warrants to purchase Reprogenesis' common stock
and 40,546 shares subject to options exercisable within 60 days of March
9, 2000. The number of shares beneficially held by Mr. McNab has been
calculated using the formula on page 54 and an exchange ratio of 0.1919
based on the average daily market price for Creative Common Stock on the
20 consecutive business days ending March 9, 2000.
(7) Includes 56,600 shares subject to stock options exercisable within 60 days
of March 9, 2000. The number of shares beneficially held by Dr. Melton has
been determined by using the Ontogeny exchange ratio.
(8) Consists solely of 18,000 shares subject to options exercisable within 60
days of March 9, 2000. The number of shares beneficially held by Dr.
Rosenblatt has been determined by using the Creative exchange ratio.
(9) Consists solely of 15,000 shares subject to options exercisable within 60
days of March 9, 2000. The number of shares beneficially held by Mr. Tobin
has been determined by using the Creative exchange ratio.
(10) Consists solely of 7,556 shares subject to options exercisable within 60
days of March 9, 2000. The number of shares beneficially held by Dr. Baird
has been calculated using the formula on page 54 and an exchange ratio of
0.1919 based on the average daily market price for Creative Common Stock
on the 20 consecutive business days ending March 9, 2000.
(11) Includes 9,486 shares subject to stock options exercisable within 60 days
of March 9, 2000. The number of shares beneficially held by Mr. Eldridge
has been determined by using the Ontogeny exchange ratio.
(12) Consists solely of 29,486 shares subject to options exercisable within 60
days of March 9, 2000. The number of shares beneficially held by Dr. Rubin
has been determined by using the Ontogeny exchange ratio.
(13) Consists solely of 7,915 shares subject to options exercisable within 60
days of March 9, 2000. The number of shares beneficially held by Mr.
Sigler has been calculated using the formula on page 54 and an exchange
ratio of 0.1919 based on the average daily market price for Creative
Common Stock on the 20 consecutive business days ending March 9, 2000.
172
<PAGE>
LEGAL MATTERS
The validity of the shares of Curis, Inc. stock offered by this joint proxy
statement-prospectus will be passed upon for Curis, Inc. by Hale and Dorr LLP,
Boston, Massachusetts.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel for Creative,
Foley, Hoag & Eliot LLP, counsel for Ontogeny and Baker Botts L.L.P., counsel
for Reprogenesis, will pass upon certain federal income tax consequences of the
merger for Creative, Ontogeny and Reprogenesis, respectively.
STOCKHOLDER PROPOSALS
Creative will hold a 2000 Annual Meeting of Stockholders only if the merger
is not consummated before the time of that meeting. In the event that the 2000
Annual Meeting of Stockholders is to be held, any proposals of stockholders
intended to be presented at that meeting must be received not later than April
9, 2000 in order to be considered for inclusion in the Creative proxy materials
relating to that meeting.
EXPERTS
The consolidated financial statements of Creative as of December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999
included and incorporated by reference in this joint proxy statement-prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and incorporated by reference in this joint proxy
statement-prospectus (which report expresses an unqualified opinion and
includes an emphasis paragraph referring to the merger agreement with Ontogeny
and Reprogenesis to form Curis), and have been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of Ontogeny at December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 included in this
joint proxy statement-prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Reprogenesis as of December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999 included in this joint proxy statement-prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
OTHER MATTERS
None of Creative, Ontogeny or Reprogenesis presently intends to bring any
matters other than those described in this document before its special meeting.
Further, none of Creative, Ontogeny or Reprogenesis has any knowledge of any
other matters that may be introduced by other persons. If any other matters do
properly come before any company's special meeting or any adjournment or
postponement of any company's special meeting, the persons named in the
enclosed proxy forms of Creative, Ontogeny or Reprogenesis, as applicable, will
vote the proxies in keeping with their judgment on such matters.
173
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This joint proxy statement-prospectus incorporates documents by reference
which are not presented in or delivered with this joint proxy statement-
prospectus.
You should rely only on the information contained in this document or that
which we have referred you to. We have not authorized anyone to provide you
with any additional information.
All documents filed by Creative pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this joint proxy statement-
prospectus and before the date of the Creative's special meeting are
incorporated by reference into and are deemed to be a part of this joint proxy
statement-prospectus from the date of filing of those documents.
The following documents, which have been filed by Creative with the
Securities and Exchange Commission (SEC file number 000-19910), are
incorporated by reference into this joint proxy statement-prospectus:
Creative's Annual Report on Form 10-K for the fiscal year ended December 31,
1999 (filing date March 13, 2000)
Creative's Proxy Statement on Schedule 14A (filing date May 6, 1999)
Creative's Current Report on Form 8-K dated February 14, 2000 (filing date
of February 18, 2000)
Creative's Current Report on Form 8-K dated February 15, 2000 (filing date
of February 15, 2000)
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this joint proxy statement-prospectus will be
deemed to be modified or superseded for purposes of this joint proxy statement-
prospectus to the extent that a statement contained in this joint proxy
statement-prospectus or any other subsequently filed document that is deemed to
be incorporated by reference into this joint proxy statement-prospectus
modifies or supersedes the statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this joint proxy statement-prospectus.
The documents incorporated by reference into this joint proxy statement-
prospectus are available from Creative upon request. Creative will provide a
copy of any and all of the information that is incorporated by reference in
this joint proxy statement-prospectus to any person, without charge, upon
written or oral request. If exhibits to the documents incorporated by reference
in this joint proxy statement-prospectus are not themselves specifically
incorporated by reference in this joint proxy statement-prospectus, then the
exhibits will not be provided. Any request for documents should be made by
, 2000 to ensure timely delivery of the documents.
Requests for documents relating to Creative BioMolecules, Inc. should be
directed to:
Creative BioMolecules, Inc., 101 Huntington Avenue, Suite 2400, Boston,
Massachusetts 02199, Attention: Investor Relations, Telephone (617) 912-2955;
Facsimile (617) 912-2994; E-mail: [email protected].
174
<PAGE>
Creative and we file reports, proxy statements and other information with
the SEC. Copies of these reports, proxy statements and other information may
be inspected and copied at the public reference facilities maintained by the
SEC at:
Judiciary Plaza Citicorp Center Seven World Trade
Room 1024 500 West Madison StreetCenter
450 Fifth Street, N.W. Suite 1400 13th Floor
Washington, D.C. 20549 Chicago, Illinois 60661 New York, New York
10048
Reports, proxy statements and other information concerning Creative
BioMolecules, Inc. may be inspected at:
Nasdaq Stock Market, Inc.
1735 K Street, N.W.
Washington, D.C. 20006
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549 or by calling the SEC at l-800-SEC-0330. The SEC maintains a
website that contains reports, proxy statements and other information
regarding each of us. The address of the SEC website is http://www.sec.gov.
Requests for documents relating to Ontogeny, Inc. should be directed to:
Ontogeny, Inc., 45 Moulton Street, Cambridge, Massachusetts 02138.
Attention: Cynthia Clayton, Telephone (617) 876-0086; Facsimile (617)
876-0866; E-mail: [email protected]
Requests for documents relating to Reprogenesis, Inc. should be directed
to:
Reprogenesis, Inc., 21 Erie Street, Cambridge, Massachusetts 02139.
Attention: Michael P. Gray, Telephone (617) 499-2928; Facsimile (617)
499-2927; E-mail: [email protected]
Curis, Inc. has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to
Curis, Inc.'s stock to be issued in the merger. This joint proxy statement-
prospectus constitutes the prospectus of Curis, Inc. filed as part of the
registration statement. This joint proxy statement-prospectus does not contain
all of the information set forth in the registration statement because certain
parts of the registration statement are omitted in accordance with the rules
and regulations of the SEC. The registration statement and its exhibits are
available for inspection and copying as set forth above.
If you have any questions about the merger or this joint proxy statement-
prospectus, please call:
Curis, Inc. 45 Moulton Street, Cambridge, Massachusetts 02138.
Attention: Cynthia Clayton, Telephone (617) 876-0086; Facsimile (617)
876-0866.
This joint proxy statement-prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered by this
joint proxy statement-prospectus, or the solicitation of a proxy, in any
jurisdiction to or from any person to whom or from whom it is unlawful to make
such offer, solicitation of an offer or proxy solicitation in such
jurisdiction. Neither the delivery of this joint proxy statement-prospectus
nor any distribution of securities pursuant to this joint proxy statement-
prospectus shall, under any circumstances, create any implication that there
has been no change in the information set forth or incorporated into this
joint proxy statement-prospectus by reference or in our affairs since the date
of this joint proxy statement-prospectus. The information contained in this
joint proxy statement-prospectus with respect to Creative was provided by
Creative, the information contained in this joint proxy statement-prospectus
with respect to Ontogeny was provided by Ontogeny, the information contained
in this joint proxy statement-prospectus with respect to Reprogenesis was
provided by Reprogenesis and the information contained in this joint proxy
statement-prospectus with respect to Curis was provided by Curis.
175
<PAGE>
INDEX TO FINANCIAL PAGES
<TABLE>
<S> <C>
Creative BioMolecules, Inc. and Subsidiary:
Financial Statements:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets............................................. F-3
Consolidated Statements of Operations and Comprehensive Loss............ F-4
Consolidated Statements of Stockholders' Equity......................... F-5
Consolidated Statements of Cash Flows................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Ontogeny, Inc.
Financial Statements:
Report of Independent Accountants....................................... F-16
Balance Sheets as of December 31, 1999 and 1998......................... F-17
Statements of Operations for the years ended December 31, 1999, 1998 and
1997................................................................... F-18
Statements of Stockholders' Deficit for the years ended December 31,
1999, 1998 and 1997.................................................... F-19
Statements of Cash Flows for the years ended December 31, 1999, 1998 and
1997................................................................... F-20
Notes to Financial Statements........................................... F-21
Reprogenesis, Inc.
Financial Statements:
Report of Independent Public Accountants................................ F-33
Consolidated Balance Sheets as of December 31, 1999 and 1998............ F-34
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997.................................................... F-35
Consolidated Statements of Owners in Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997................................. F-36
Statements of Cash Flows for the years ended December 31, 1999, 1998 and
1997................................................................... F-37
Notes to the Consolidated Financial Statements.......................... F-38
</TABLE>
F-1
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Creative BioMolecules, Inc.
We have audited the accompanying consolidated balance sheets of Creative
BioMolecules, Inc. and its subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, comprehensive loss,
stockholders' equity, and cash flows for each of the three years in the period
ended 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its subsidiary
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999,
in conformity with generally accepted accounting principles.
As discussed in Note 13 to the Consolidated Financial Statements, on
February 15, 2000, the Company entered into a merger agreement with Ontogeny,
Inc. and Reprogenesis, Inc. to form Curis, Inc.
/s/ Deloitte & Touche LLP
- -------------------------------
Deloitte & Touche LLP
Boston, Massachusetts
February 15, 2000
F-2
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 2,751,069 $ 17,738,044
Marketable securities......................... 18,619,516 40,197,407
Accounts receivable........................... 60,296 669,232
Inventory..................................... -- 28,733
Prepaid expenses and other.................... 146,764 272,168
------------- -------------
Total current assets........................ 21,577,645 58,905,584
------------- -------------
PLANT AND EQUIPMENT--net........................ 2,130,158 1,925,602
------------- -------------
OTHER ASSETS:
Notes receivable--officers.................... -- 116,668
Patents and licensed technology--net.......... 951,198 375,000
Deferred patent application costs--net........ 4,124,716 4,732,629
Deposits and other............................ 108,574 108,574
------------- -------------
Total other assets.......................... 5,184,488 5,332,871
------------- -------------
TOTAL........................................... $ 28,892,291 $ 66,164,057
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lease obligations--current portion............ $ 347,323 $ 165,934
Accounts payable.............................. 612,811 1,621,417
Accrued liabilities........................... 1,895,634 2,508,161
Accrued compensation.......................... 944,270 1,335,692
Deferred revenue.............................. 661,279 3,661,279
------------- -------------
Total current liabilities................... 4,461,317 9,292,483
------------- -------------
LEASE OBLIGATIONS............................... 1,009,388 713,459
------------- -------------
COMMITMENTS
SERIES 1998/A PREFERRED STOCK, $.01 par value
23,414 shares issued and outstanding at
December 31, 1998, liquidation preference of
$24,113,598 at December 31, 1998............... -- 23,052,787
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000
shares authorized, 23,414 issued and
outstanding at December 31, 1998
Common Stock, $.01 par value, 50,000,000
shares authorized, 36,665,115 shares and
34,457,469 shares issued and outstanding at
December 31, 1999 and 1998, respectively..... 366,651 344,575
Additional paid-in capital.................. 148,062,906 143,127,113
Accumulated other comprehensive income...... (30,801) 105,461
Accumulated deficit......................... (124,977,170) (110,471,821)
------------- -------------
Total stockholders' equity................ 23,421,586 33,105,328
------------- -------------
TOTAL........................................... $ 28,892,291 $ 66,164,057
============= =============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Research and development
contracts........................ $ 3,159,460 $ 10,419,071 $ 12,692,475
Manufacturing contracts........... -- -- 393,926
License fees and royalties........ 52,400 10,000 --
Interest.......................... 1,924,313 2,183,472 2,330,743
Other............................. 1,777 12,391 15,615
------------ ------------ ------------
Total revenues.................. 5,137,950 12,624,934 15,432,759
------------ ------------ ------------
COSTS AND EXPENSES:
Research and development.......... 10,434,560 24,856,147 25,122,039
Cost of manufacturing contracts... -- -- 273,757
General and administrative........ 6,396,094 7,474,372 6,472,821
1999 reorganization and 1998 sale
of manufacturing operations...... 255,701 1,362,249 --
Interest.......................... 161,385 327,304 215,815
------------ ------------ ------------
Total costs and expenses........ 17,247,740 34,020,072 32,084,432
------------ ------------ ------------
NET LOSS............................ (12,109,790) (21,395,138) (16,651,673)
------------ ------------ ------------
ACCRETION AND REPURCHASE COSTS ON
SERIES 1998/A PREFERRED STOCK...... (2,395,559) (986,587) --
------------ ------------ ------------
NET LOSS APPPLICABLE TO COMMON
STOCKHOLDERS....................... $(14,505,349) $(22,381,725) $(16,651,673)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON
SHARE.............................. $ (0.40) $ (0.66) $ (0.50)
============ ============ ============
COMMON SHARES FOR BASIC AND DILUTED
LOSS COMPUTATION................... 36,665,115 33,672,105 33,078,120
============ ============ ============
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
NET LOSS............................ $(12,109,790) $(21,395,138) $(16,651,673)
UNREALIZED GAIN/(LOSS) ON MARKETABLE
SECURITIES......................... (136,262) 105,461 --
------------ ------------ ------------
COMPREHENSIVE LOSS.................. $(12,246,052) $(21,289,677) $(16,651,673)
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------
Accumulated
Additional Other
Paid-In Accumulated Comprehensive
Shares Amount Capital Deficit Income/(Loss) Total
---------- -------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1997................... 32,769,553 $327,696 $138,371,802 $ (71,438,423) $ -- $ 67,261,075
Stock based
compensation........... 254,350 254,350
Other issuances of
Common Stock........... 623,029 6,230 1,839,360 1,845,590
Net loss................ (16,651,673) (16,651,673)
---------- -------- ------------ ------------- --------- ------------
BALANCE, DECEMBER 31,
1997................... 33,392,582 333,926 140,465,512 (88,090,096) -- 52,709,342
Conversions of Series
1998/A Preferred Stock
into Common Stock...... 732,370 7,324 1,544,842 1,552,166
Stock based
compensation........... 48,000 480 321,520 322,000
Other issuances of
Common Stock........... 284,517 2,845 795,239 798,084
Unrealized gain on
marketable securities.. 105,461 105,461
Accretion on Series
1998/A Preferred
Stock.................. (986,587) (986,587)
Net loss................ (21,395,138) (21,395,138)
---------- -------- ------------ ------------- --------- ------------
BALANCE, DECEMBER 31,
1998................... 34,457,469 344,575 143,127,113 (110,471,821) 105,461 33,105,328
Conversions of Series
1998/A Preferred Stock
into Common Stock...... 1,311,395 13,114 2,964,885 2,977,999
Warrant exercises into
Common Stock........... 397,326 3,973 943,649 947,622
Other issuances of
Common Stock........... 498,925 4,989 963,259 968,248
Stock based
compensation........... 64,000 64,000
Unrealized loss on
marketable securities.. (136,262) (136,262)
Accretion and repurchase
costs on Series 1998/A
Preferred Stock........ (2,395,559) (2,395,559)
Net loss................ (12,109,790) (12,109,790)
---------- -------- ------------ ------------- --------- ------------
BALANCE, DECEMBER 31,
1999................... 36,665,115 $366,651 $148,062,906 $(124,977,170) $ (30,801) $ 23,421,586
========== ======== ============ ============= ========= ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $(12,109,790) $(21,395,138) $(16,651,673)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash used:
Gain on disposal of manufacturing related assets............ -- (600,839) --
Depreciation and amortization............................... 989,490 2,485,753 2,103,906
Compensation expense........................................ 64,000 371,999 254,350
Deferred patent and application costs....................... 537,781 -- 188,055
Increase (decrease) in cash from:
Accounts receivable....................................... 608,936 3,903,286 (3,117,822)
Inventory and prepaid expenses............................ 154,137 (104,428) 16,821
Accounts payable and accrued liabilities.................. (2,012,555) 1,266,115 (653,619)
Deferred contract revenue................................. (3,000,000) 3,661,279 --
------------ ------------ ------------
Total adjustments....................................... (2,658,211) 10,983,165 (1,208,309)
------------ ------------ ------------
Net cash provided by (used for) operating activities...... (14,768,001) (10,411,973) (17,859,982)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities............................. (9,359,549) (30,021,298) (28,254,756)
Sale of marketable securities................................. 30,903,094 18,368,193 11,642,181
Expenditures for plant and equipment.......................... (610,013) (2,849,288) ( 2,810,611)
Expenditures for patents...................................... (776,586) (1,120,609) (1,131,303)
Note receivable from officer.................................. -- (10,000) (40,000)
Repayment of note receivable from officer..................... 116,668 116,667 116,666
Decrease in deposits and other................................ -- 12,549 113,020
Proceeds from sale of manufacturing related assets............ -- 17,092,322 --
------------ ------------ ------------
Net cash provided by (used for) for investing activities.. 20,273,614 1,588,536 (20,364,803)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of equity:
Series 1998/A Preferred Stock............................... -- 25,000,000 --
Warrant exercises........................................... 947,622 -- --
Common Stock--other......................................... 968,248 798,084 1,880,590
Costs of raising equity....................................... -- (1,381,634) (35,000)
Repurchase of Series 1998/A Preferred Stock................... (22,470,347) -- --
Increase in obligations under capital leases.................. 311,031 193,524 346,766
Repayments of obligations under capital leases................ (249,142) (207,402) (57,650)
------------ ------------ ------------
Net cash provided by (used for) financing activities.......... (20,492,588) 24,402,572 2,134,706
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS......................................... (14,986,975) 15,579,135 (36,090,079)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................ 17,738,044 2,158,909 38,248,988
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR........................ $ 2,751,069 $ 17,738,044 $ 2,158,909
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING
ACTIVITIES:
Property and equipment purchased under capital lease
obligations.................................................. $ 313,512 $ 1,089,164 $ 135,361
------------ ------------ ------------
Capital leases assumed by buyer in connection with sale of
manufacturing operations..................................... $ -- $2,437,802 $ --
------------ ------------ ------------
Conversion of Series 1998/A Preferred Stock................... $ 2,978,000 $ 1,552,166 $ --
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business--Creative BioMolecules, Inc. ("the Company") is a
discovery and development company focused on proprietary protein-based
therapeutics for human tissue regeneration and restoration. The Company's
therapeutics are based on proteins that act as signals in initiating and
regulating the cellular events involved in tissue regeneration and organ
formation. The Company operates in one segment.
Use of Estimates--The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosure of certain assets and liabilities at the balance sheet date.
Such estimates include the collectability of receivables, the carrying value of
property and equipment and intangible assets and the value of certain
liabilities. Actual results may differ from such estimates.
Reclassifications--Certain amounts in prior years have been reclassified to
conform to the current year presentation.
Consolidation--The accompanying consolidated financial statements include
the Company and its wholly owned subsidiary, California Medicinal Chemistry
Corporation (the "Subsidiary"). Intercompany balances are eliminated in
consolidation. The Subsidiary has been inactive since 1985.
Revenue Recognition--The Company's research agreements with collaborative
partners have typically provided for the partial or complete funding of
research and development for specified projects and royalties payable to the
Company in exchange for licenses to market resulting products or sales of
products. Revenue is earned and recognized based upon work performed, upon the
sale or licensing of product rights, upon shipment of product for use in
preclinical and clinical testing or upon attainment of benchmarks specified in
the related agreements.
The Company's manufacturing contracts provided for technical collaboration
and manufacturing for third parties. Revenue was earned and recognized based
upon work performed. The Company sold its manufacturing facilities to Stryker
Corporation in November 1998 (Note 2).
During the years ended December 31, 1999, 1998 and 1997, total revenues from
major customers as a percent of total revenues of the Company were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
Customer 1999 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C>
Biogen, Inc.............................. 95% 28% 50%
Stryker Corporation...................... 3% 55% 34%
</TABLE>
Research and Development--Research and development costs are charged to
operations as incurred. Certain research and development projects are partially
funded by research and development contracts, and the expenses related to these
activities are included in research and development costs.
Cash Equivalents and Marketable Securities--Cash equivalents consist of
short-term, highly liquid investments purchased with remaining maturities of
three months or less. All other liquid investments are classified as marketable
securities. Marketable securities have been designated as "available for sale"
and are stated at market value with any unrealized holding gains or losses
included as a component of stockholders' equity.
The Company's marketable securities portfolio included approximately
$18,620,000 and $40,197,000 in corporate bonds and notes as of December 31,
1999 and 1998, respectively, all with maturities ranging from one to fifty-
eight months.
F-7
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1999, 1998 and 1997, gross realized gains
and losses were not material. In computing gross realized gains and losses, the
Company computes the cost of its investments on a specific identification
basis. Such cost includes the direct cost to acquire the securities, adjusted
for the amortization of premiums or accretion of discounts. At December 31,
1999, gross unrealized losses were $30,801. At December 31, 1998, gross
unrealized gains and losses were $126,000 and $21,000, respectively.
At December 31, 1997, gross unrealized gains and losses were not material.
Fair Value of Financial Instruments--The estimated fair value of financial
instruments has been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting data to develop the estimates of fair
value.
The estimated fair value of cash, accounts and notes receivable and accounts
payable approximates fair value due to the short-term nature of these
instruments. The fair value of marketable securities is based on current market
values. The carrying amounts of the Company's lease obligations also
approximate fair value (Note 7).
Inventory--Inventory consists principally of raw materials and laboratory
supplies. Inventories are stated at the lower of cost (first-in, first-out) or
market.
Equipment--Purchased equipment is recorded at cost. Leased equipment is
recorded at the lesser of cost or the present value of the minimum lease
payments. Depreciation and amortization are provided on the straight-line
method over the estimated useful lives of the related assets (three to twenty-
five years) or the remaining terms of the leases.
Patents and Licensed Technology--The Company has filed applications for
United States and foreign patents covering aspects of its technology. Costs
related to pending patent applications have been deferred. Costs related to
successful patent applications and costs related to pending applications from
which the Company is currently deriving economic benefit, are amortized over
the estimated useful life of the patent, generally 16 to 20 years, using the
straight-line method. Costs related to licensed technology also have been
deferred and are amortized over the estimated useful life of the underlying
technology, generally 10 to 17 years, using the straight-line method.
Accumulated amortization was approximately $912,000 and $669,000 at
December 31, 1999 and 1998, respectively.
Long-lived Assets--The Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate that carrying
amount of such assets may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to
the future undiscounted net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of are reported at the lower of
the carrying amount of fair value, less cost to sell.
Basic and Diluted Loss Per Common Share--Basic loss per common share is
computed after giving effect to accretion and repurchase costs on Series 1998/A
Preferred Stock using the weighted average number of common shares outstanding
during each year. Diluted loss per common share reflects the effect of the
Company's outstanding options and warrants, except where such items would be
anti-dilutive. In 1999, 1998 and 1997, the effect of stock options and warrants
was anti-dilutive and, therefore, not included in the computation of diluted
loss per share.
F-8
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SFAS No. 128, "Earnings Per Share," provides that if there is a loss from
continuing operations, a company should not include potential common shares in
the denominator of a dilutive per share computation, even if including those
potential common shares in other dilutive per share computations may be
dilutive to their comparable basic per share amounts. Therefore, earnings per
share excludes the dilutive effect of options, warrants and preferred stock of
4,426,000, 8,404,000 and 2,525,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
Stock-Based Compensation--The Company's stock options and purchase plans are
accounted for under APB No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees" (Note 9).
New Accounting Standards--In June 1998, the Financial Accounting Standards
Board ("FASB") released Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which the
Company will be required to adopt effective January 1, 2001. SFAS No. 133
establishes standards for reporting and accounting for derivative instruments,
and conforms the requirements for treatment of hedging activities across the
different types of exposures hedged. The Company has not yet completed its
evaluation of SFAS No. 133, and is, therefore unable to disclose the impact
adoption will have on its consolidated financial position or results of
operations.
2.SALE OF MANUFACTURING OPERATIONS AND REORGANIZATION CHARGES
In November 1998, the Company sold certain of its OP-1 manufacturing rights
and facilities to Stryker. In addition to cash consideration in exchange for
the manufacturing facility, the transaction is expected to provide the Company
with increased royalties on Stryker products, if approved for commercial sale,
in lieu of the manufacturing revenue anticipated under the prior agreement.
Proceeds and expenses associated with this transaction include the following:
<TABLE>
<S> <C>
Total proceeds.............................................. $19,530,000
Less:
Net book value of manufacturing related assets............ 18,929,000
Employee termination costs................................ 1,438,000
Legal, accounting and consulting costs.................... 525,000
-----------
Loss on sale of manufacturing operations.................... $(1,362,000)
===========
</TABLE>
As a result of this transaction, the Company recorded a charge of $1,362,000
in the quarter ended December 31, 1998. The charge included $885,000 related
primarily to employee termination benefits and $548,000 related to estimated
health insurance claims on the terminated employees, which $903,000 remained to
be paid as of December 31, 1998. During the quarter ended December 31, 1999,
the Company determined that health insurance claims were less than originally
estimated. This resulted in a reduction in the loss on sale of manufacturing
operations and the related accrual of approximately $255,000.
In addition, the Company recorded a charge of $64,000 and $205,000 related
to a change in the exercise terms of stock option agreements in connection with
the sale of manufacturing operations for the years ended December 31, 1999 and
1998, respectively.
Effective October 19, 1999, the Company was reorganized and the Board
approved a plan in order to focus its operations and financial resources on the
development of its morphogenic protein-based clinical candidates for the
treatment of stroke and renal disease. The reorganization charge included
$511,000 related primarily to termination benefits in the reduction of
employees from 70 to 43. Salaries and termination benefits, either in the form
of one-time or periodic payments, were made when the employee ceased
employment. These employees were in management, research and development and
administrative support. As of December 31, 1999, there
F-9
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
was approximately $95,503 of accrued costs, principally representing future
cash outlays for employee termination costs. The Company expects to pay these
accrued costs by June 2000.
<TABLE>
<CAPTION>
1999 1998 Sale of
Reorganization Manufacturing
Charges Operations
-------------- -------------
<S> <C> <C>
Expensed..................................... $1,362,000
Paid......................................... (459,000)
----------
Accrued at December 31, 1998................. 903,000
Expensed..................................... $511,000
Paid......................................... (415,000) $ (648,000)
Reversed..................................... (255,000)
-------- ----------
Accrued at December 31, 1999................. $ 96,000 $ --
======== ==========
</TABLE>
The following table summarizes the effect to the income statement for
Reorganization Charges and Sale of Manufacturing Operations for the year ended
December 31, 1999:
<TABLE>
<S> <C>
Salaries and termination benefits............................ $ 511,000
Salaries and termination benefits settled for amounts less
than anticipated............................................ (255,000)
---------
Total...................................................... $ 256,000
=========
</TABLE>
3.COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
In December 1996, the Company entered into a Research Collaboration and
License Agreement with Biogen to collaborate on the development of novel
therapeutics based on OP-1 for the treatment of renal disorders. The initial
focus of the collaboration was on advancing the development of the Company's
morphogenic protein, OP-1, for the treatment of acute and chronic renal
failure. Under the agreement, the Company granted to Biogen exclusive worldwide
rights to manufacture, market and sell OP-1 and OP-1 products developed through
the collaboration for the treatment of renal disease. The agreement provided
for $10,500,000 in research funding over a three-year period ending December
31, 1999, of which $7,500,000 had been recognized through December 31, 1998. In
December 1998, Biogen and the Company signed an Amendment Agreement and Biogen
paid $3,000,000 in research support for the year ending December 31, 1999. The
$3,000,000 has been recognized through December 31, 1999. Under the Biogen
Amendment, the Company has assumed primary responsibility for the development
of the Company's morphogenic protein, OP-1, for the treatment of renal
disorders and Biogen retained an option through 1999 to resume responsibility
for development of OP-1 as a therapy for chronic renal failure. As of
December 31, 1999 Biogen did not exercise its option and the Company has
assumed all rights to OP-1 renal therapies.
4.NOTES RECEIVABLE--OFFICERS
In July 1997, the Company loaned $40,000 to an officer of the Company. The
loan was evidenced by a fully secured promissory note bearing interest at the
annual rate of 6.65%. Twenty-five percent of the principal and accrued interest
was forgiven on February 7, 1998 and then an equal portion of the principal sum
and accrued interest was to have been forgiven monthly over the remaining term
of thirty-six months, provided the officer was employed by the Company. In July
1998, the Company loaned an additional $10,000 to the officer. In December
1998, as part of a severance agreement, the Company agreed to forgive the
remaining principal of $31,700 plus accrued interest. Accordingly, there was a
charge of approximately $39,000 in the 1998 statement of operations.
In September 1996, the Company loaned $350,000 to an officer of the Company.
The loan was evidenced by a fully secured promissory note bearing interest at
the annual rate of 6.02% and payable in three equal annual installments, plus
accrued interest. As of December 31, 1999, the loan has been paid in full.
F-10
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On February 8, 2000, Creative loaned to two executive officers an aggregate
of $1,131,380, which was equal to the aggregate exercise price of incentive
stock options exercised by them on the same date. The officers immediately used
these funds to pay Creative the exercise price of such incentive stock options.
These full recourse loans each bear interest at an annual rate of 7.0% and the
principal is due and payable on the earlier of May 8, 2002 or 30 days following
the sale of the stock purchased with these funds.
5.PLANT AND EQUIPMENT
Plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Laboratory equipment and
furniture................ $ 5,564,575 $ 4,954,427
Leasehold improvements.... 764,021 572,319
Office furniture and
equipment................ 2,296,666 2,174,991
----------- -----------
8,625,262 7,701,737
Less accumulated
depreciation and
amortization............. (6,495,104) (5,776,135)
----------- -----------
Total................... $ 2,130,158 $ 1,925,602
=========== ===========
Amounts included in plant and equipment applicable to capital leases were as
follows:
<CAPTION>
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Laboratory equipment and
furniture................ $ 1,471,454 $ 913,176
Office furniture and
equipment................ 374,683 312,024
----------- -----------
1,846,137 1,225,200
Less accumulated
amortization............. (519,766) (201,094)
----------- -----------
Total................... $ 1,326,371 $ 1,024,106
=========== ===========
6.ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<CAPTION>
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Research collaboration
costs.................... $ 1,469,473 $ 1,332,291
Severance and related
costs.................... 95,503 903,330
Other..................... 330,658 272,540
----------- -----------
Total................... $ 1,895,634 $ 2,508,161
=========== ===========
</TABLE>
7.LEASE OBLIGATIONS
In October 1997, the Company entered into a master lease agreement to
provide for the lease financing for up to $2,000,000 of laboratory and office
equipment. In May 1999, the Company extended the master lease agreement, that
provides for the sale and leaseback or lease of up to $750,000 of laboratory
and office equipment. The lease agreements expire in 2002 and in 2003. The
lease commitment expired on December 31, 1999.
The Company has noncancelable operating lease agreements for office and
laboratory space and certain office and laboratory equipment. Rent expense for
all operating leases was approximately $841,000, $1,037,000 and $775,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
F-11
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease obligations at December 31, 1999, were as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Capital Operating
------------------------ ---------- ----------
<S> <C> <C>
2000................................................ $ 503,395 $ 735,642
2001................................................ 503,395 558,489
2002................................................ 460,110 274,558
2003................................................ 224,867 8,483
Thereafter.......................................... -- --
---------- ----------
Total minimum lease payments........................ 1,691,767 $1,577,172
==========
Less amount representing interest................... 335,056
----------
Present value of net minimum lease payments......... 1,356,711
Less current portion................................ 347,323
----------
Long-term obligations under capital leases.......... $1,009,388
----------
</TABLE>
8.SERIES 1998/A PREFERRED STOCK AND WARRANTS
On May 27, 1998 (the "Issue Date"), the Company completed a private
placement with three institutional investors (the "Investors") for the sale of
25,000 shares of Series 1998/A Preferred Stock, $.01 par value per share (the
"Series 1998/A Preferred Stock"), with a stated value of $1,000 per share
resulting in gross proceeds of $25,000,000. Issuance costs totaled
approximately $1,382,000 (offset against the Series 1998/A Preferred Stock
proceeds in the accompanying balance sheet at December 31, 1998), resulting in
net proceeds of approximately $23,618,000. Accretion on Series 1998/A Preferred
Stock for the year ended December 31, 1998 was $987,000 and includes $733,000,
calculated at the rate of 5% per annum of the stated value of the outstanding
Series 1998/A Preferred Stock from May 27, 1998 and $254,000 of accretion of
issuance costs related to the sale of Series 1998/A Preferred Stock.
Through May 7, 1999 the holders converted a total of 4,514 shares of Series
1998/A Preferred Stock into 2,043,765 shares of Common Stock. On May 7, 1999,
we repurchased 20,486 shares, which represented all of the then outstanding
Series 1998/A Preferred Stock following final conversions, for approximately
$22,470,000 in cash. Accretion and Repurchase Costs on Series 1998/A Preferred
Stock was $21,396,000 for the year ended December 31, 1999, and included the
following: $385,000 calculated at the rate of 5% per annum of the stated value
of the outstanding Series 1998/A Preferred Stock; $144,000 of accretion of
issuance costs related to the sales of Series 1998/A Preferred Stock; and as a
result of the repurchase of the Series 1998/A Preferred Stock on May 7, 1999, a
one-time charge of approximately $1,867,000 recorded in the second quarter of
1999 which represents accretion of the Series 1998/A Preferred Stock up to its
repurchase amount and accretion of all remaining issuance costs. As a result of
this transaction, the Series 1998/A Preferred Stock has been retired and there
will be no subsequent conversions into Common Stock.
Warrants--In connection with a private placement offering in 1994 and 1995,
the Company sold 1,130,000 warrants, each to purchase one share of Common
Stock. Each warrant is exercisable for a period of five years from the date of
issuance at an exercise price of $2.385. During the year ended December 31,
1999, 397,326 warrants were exercised. Proceeds to the Company were
approximately $948,000. At December 31, 1999, warrants to purchase 414,270
shares of Common Stock are outstanding, while 30,000 warrants expired
unexercised in 1999.
9.STOCK PLANS
Stock Option Plans--In May 1987, the Company established the 1987 Stock Plan
("1987 Plan") and terminated the 1983 Incentive Stock Option Plan ("1983 Plan")
such that no further grants of options could be
F-12
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
made thereunder. The 1987 Plan was subsequently amended to increase the number
of shares of Common Stock authorized for issuance thereunder. A total of
6,800,000 shares of Common Stock had been reserved for issuance under the 1987
Plan upon the exercise of options or in connection with awards or direct
purchases of stock. On June 30, 1999, the 1987 Plan expired. At December 31,
1999, there were no shares available for grant under the 1987 Plan.
In April 1998, the Board of Directors adopted and in June 1998, the
stockholders of the Company approved the 1998 Stock Plan ("1998 Plan") which
permits the granting of incentive and non-qualified stock options. The number
of shares of Common Stock subject to issuance under the 1998 Plan is 3,000,000.
At December 31, 1999, 1,651,300 shares were available for grant under the 1998
Plan.
Both the 1987 Plan and the 1998 Plan permit the granting of incentive and
nonqualified stock options to consultants, employees or officers of the Company
and its subsidiaries at prices determined by the Board of Directors. Awards of
stock may be made to consultants, employees or officers of the Company and its
subsidiaries, and direct purchases of stock may be made by such individuals
also at prices determined by the Board of Directors. Options become exercisable
as determined by the Board of Directors and expire up to ten years from the
date of grant.
Director Plan--The 1992 Non-Employee Director Non-Qualified Stock Option
Plan ("Director Plan") provides for the granting of options to non-employee
directors. The Director Plan was amended and approved by the stockholders of
the Company in June 1999 increasing the number of shares of Common Stock
authorized for issuance under the Plan from 300,000 to 500,000 shares. At
December 31, 1999, 260,000 shares were available for grant under the Director
Plan.
On February 8, 2000, the Board of Directors approved the immediate
acceleration of vesting of certain unvested stock options held by the Company's
executive officers and outside directors and the extension of the exercise
period for one year.
Activity under the stock option and director plans is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise Price
of Shares Per Share
--------- --------------
<S> <C> <C>
Outstanding, January 1, 1997.................... 4,490,407 $4.29
Granted......................................... 964,500 8.72
Exercised....................................... (301,176) 3.42
Canceled........................................ (137,384) 6.61
---------
Outstanding, December 31, 1997 (2,593,897
exercisable at a weighted average price of
$4.04 per share)............................... 5,016,347 5.13
Granted......................................... 1,391,675 4.70
Exercised....................................... (211,923) 2.04
Canceled........................................ (431,294) 7.78
---------
Outstanding, December 31, 1998 (3,505,894
exercisable at a weighted average price of
$4.53 per share)............................... 5,764,420 4.94
Granted......................................... 1,161,450 3.07
Exercised....................................... (433,804) 1.80
Canceled........................................ (791,294) 6.78
---------
Outstanding, December 31, 1999 (3,535,297
exercisable at a weighted average price of
$4.64 per share)............................... 5,700,772 4.54
=========
</TABLE>
F-13
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The table below summarizes options outstanding and exercisable at December
31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------ ---------------------
Weighted
Average Weighted Exercisable Weighted
Remaining Average As of Average
Number of Contractual Exercise December 31, Exercise
Range of Exercise Price Options Life Price 1999 Price
----------------------- --------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0.35--$2.25............... 1,185,489 4.8 $2.01 872,739 $1.94
$2.26--$4.50............... 2,502,400 7.1 2.96 1,348,740 2.86
$4.51--$6.75............... 452,000 6.6 5.50 263,650 5.54
$6.76--$9.00............... 698,818 6.3 7.74 367,218 7.83
Over $9.00................. 862,025 5.2 9.55 682,950 9.54
--------- --- ----- --------- -----
Total.................... 5,700,772 6.2 $4.54 3,535,297 $4.64
========= === ===== ========= =====
</TABLE>
Employee Stock Purchase Plan--The Employee Stock Purchase Plan permits
eligible employees to purchase Common Stock of the Company up to an aggregate
of 750,000 shares. During the year ended December 31, 1999, 65,121 shares were
issued under this plan at the fair market value prices of $2.84 and $2.95 per
share; during the year ended December 31, 1998, 105,815 shares were issued
under this plan at prices of $3.90 and $2.90 per share and during the year
ended December 31, 1997, 62,950 shares were issued under this plan at prices of
$6.08 and $5.84 per share. In June 1998, the stockholders of the Company voted
to amend the Employee Stock Purchase Plan to increase by 250,000 from 500,000
to 750,000 the aggregate number of shares of Common Stock which may be
purchased by eligible employees.
Stock-Based Compensation--As discussed in Note 1, the Company continues to
account for its stock-based awards using the intrinsic value method in
accordance with APB 25 and its related interpretations. Accordingly, no
compensation expense has been recognized in the consolidated financial
statements at the date of grant for employee stock option arrangements. The
Company recorded a charge of $64,000 and $205,000 related to a change in the
exercise terms of stock option agreements in connection with the sale of
manufacturing operations for the years ended December 31, 1999 and 1998,
respectively.
Under SFAS 123, "Accounting for Stock-Based Compensation," the fair value of
stock-based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option pricing model
with the following assumptions: expected life, six months following total
vesting; stock volatility, 94% in 1999 and 1998, and 71% in 1997; risk free
interest rates, 6.4% in 1999, 4.7% in 1998 and 5.4% in 1997; and no dividends
during the expected term. The Company's calculations are based on a multiple
option valuation approach and forfeitures for broad-based grants are estimated
at 2% per year and adjusted to actual as they occur. Forfeitures for grants to
executives are recognized as they occur. The weighted average fair value of
options granted was $2.26, $3.49 and $5.11 in 1999, 1998 and 1997 respectively.
If the computed fair values of the 1999, 1998 and 1997 awards had been
amortized to expense over the vesting period of the awards, pro forma net loss
would have been $14,804,644 or a net loss of $0.40 per share (basic and
diluted) for the year ended December 31, 1999, $25,466,000 or a net loss of
$0.79 per share (basic and diluted) for the year ended December 31, 1998 and
$19,892,000 or a net loss of $0.60 per share (basic and diluted) for the year
ended December 31, 1997.
The Company also granted stock options to non-employee consultants in 1997.
These options were valued based on the fair value of the options granted. Total
compensation expense recognized related to these options was $254,000 in 1997.
The Company did not grant stock options to non-employee consultants in 1998 and
in 1999.
F-14
<PAGE>
CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10.INCOME TAXES
No income tax provision or benefit has been provided for federal income tax
purposes as the Company has incurred losses since inception. As of December 31,
1999, the Company had available federal and state net operating loss
carryforwards of approximately $81,700,000 for income tax purposes. In
addition, the Company had approximately $1,837,000 of unused investment and
research and development tax credits. These net operating loss and tax credit
carryforwards will expire at various dates between 2000 and 2020.
The components of deferred income taxes at December 31, 1999 and 1998
consisted primarily of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards............. $ 32,916,000 $ 30,600,000
Investment credit and research and
Development tax credit carryforwards........ 1,837,000 1,600,000
Research and development expenditures........ 11,929,000 9,800,000
Other........................................ 124,000
------------ ------------
Total........................................ $ 46,806,000 $ 42,000,000
Valuation allowance.......................... (46,806,000) (42,000,000)
------------ ------------
Net deferred tax assets...................... $ -- $ --
============ ============
</TABLE>
The Company has not yet achieved profitable operations. In addition, the
future availability of the Company's tax benefits may be significantly limited
under Section 382 of the Internal Revenue Code. Section 382 limits the use of
net operating loss carryforwards, credit carryforwards and certain other tax
attributes as a result of changes in a company's ownership. Accordingly,
management believes that the tax benefits as of December 31, 1999 and 1998 do
not satisfy the realization criteria set forth in SFAS No. 109 and has recorded
a valuation allowance for the entire net asset.
11.ROYALTY AGREEMENTS
The Company has entered into various license agreements which require the
Company to pay royalties based upon a set percentage of certain product sales
and license fee revenue subject, in some cases, to certain minimum amounts.
Total royalty expense approximated $23,000 for the years ended December 31,
1999 and 1998 and $37,000 for the year ended December 31, 1997.
12.RETIREMENT SAVINGS PLAN
The Company has a 401(k) retirement savings plan covering substantially all
of the Company's employees. Matching Company contributions are at the
discretion of the Board of Directors. The Board of Directors authorized
matching contributions up to 3% of participants' salaries amounting to
approximately $160,000, $286,000 and $250,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
13.SUBSEQUENT EVENT
On February 15, 2000, the Company announced that it will merge with
Ontogeny, Inc. ("Ontogeny") and Reprogenesis, Inc. ("Reprogenesis") to form a
public company named Curis, Inc ("Curis"). Under the terms of the merger, which
is subject to shareholder approval, Creative BioMolecules' shareholders will
receive three Curis shares for every ten shares of Creative BioMolecules common
stock. Following completion of the transaction, Creative BioMolecules'
shareholders will hold approximately 43%, Ontogeny's shareholders will hold
approximately 38% and Reprogenesis' shareholders will hold approximately 19% of
Curis. Curis, the successor to the Company, will record the merger as a
purchase of Reprogenesis and Ontogeny. The merger is expected to close in June
2000, subject to shareholder approval.
F-15
<PAGE>
ONTOGENY, INC. FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 and 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Ontogeny, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of Ontogeny, Inc. at December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 2000
F-16
<PAGE>
ONTOGENY, INC.
BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
ASSETS ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 7,159,520 $ 35,492,881
Marketable securities............................ 36,140,987 13,803,562
Prepaid expenses and other current assets........ 1,089,722 454,252
Notes receivable from related parties............ 65,000 178,317
------------ ------------
Total current assets........................... 44,455,229 49,929,012
Fixed assets, net.................................. 4,691,215 3,748,771
Notes receivable from related parties.............. 230,000 301,610
Other assets....................................... 234,475 156,895
------------ ------------
Total assets................................... $ 49,610,919 $ 54,136,288
============ ============
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Current portion of capital lease obligations..... $ 1,038,840 $ 1,152,268
Accounts payable................................. 1,002,983 399,485
Accrued expenses and other....................... 1,562,044 903,577
Deferred revenue................................. 997,268 883,333
Current portion of notes payable................. 295,000 --
------------ ------------
Total current liabilities...................... 4,896,135 3,338,663
------------ ------------
Notes payable...................................... 2,599,003 6,894,003
Capital lease obligations.......................... 2,487,959 1,622,435
Redeemable convertible preferred stock, $.01 par
value: 32,922,299 and 22,922,299 shares authorized
at December 31, 1999 and 1998, respectively,
30,680,150 and 30,024,412 shares issued and
outstanding at December 31, 1999 and 1998,
respectively (liquidation preference $63,195,521
at December 31, 1999)............................. 62,395,647 60,201,089
Commitments and contingencies (Note 13)
Stockholders' deficit:
Convertible preferred stock, $.01 par value:
2,200,000 and 1,000,000 shares authorized,
issued and outstanding at December 31, 1999 and
1998, respectively (liquidation preference
$8,500,000 at December 31, 1999)................ 8,738,123 2,500,000
Preferred stock, 3,800,000 and 5,000,000 shares
authorized at December 31, 1999 and 1998,
respectively, no shares issued or outstanding
Common stock, $.01 par value; 50,000,000 shares
authorized at December 31, 1999 and 1998,
2,858,515 and 2,689,435 shares issued at
December 31, 1999 and 1998, 2,590,415 and
2,421,935 shares outstanding at December 31,
1999 and 1998, respectively..................... 28,585 26,894
Additional paid-in capital....................... 3,853,603 214,531
Accumulated deficit.............................. (32,245,454) (20,534,603)
Unrealized gains (losses) on marketable
securities...................................... (69,391) 29,639
Treasury stock, 268,100 and 267,500 shares at
cost at December 31, 1999 and 1998,
respectively.................................... (2,681) (2,675)
Deferred compensation............................ (3,070,610) (153,688)
------------ ------------
Total stockholders' deficit.................... (22,767,825) (17,919,902)
------------ ------------
Total liabilities, redeemable preferred stock
and stockholders' deficit..................... $ 49,610,919 $ 54,136,288
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
ONTOGENY, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue.............................. $ 4,469,399 $ 4,708,333 $ 3,416,677
------------ ------------ ------------
Costs and expenses:
Research and development........... 13,686,346 11,572,795 6,227,605
General and administrative......... 4,051,580 3,019,873 2,427,045
------------ ------------ ------------
17,737,926 14,592,668 8,654,650
------------ ------------ ------------
Loss from operations................. (13,268,527) (9,884,335) (5,237,973)
------------ ------------ ------------
Other income (expense):
Interest income.................... 2,474,734 1,537,369 1,472,958
Interest expense................... (917,058) (427,092) (216,449)
------------ ------------ ------------
1,557,676 1,110,277 1,256,509
------------ ------------ ------------
Net loss......................... $(11,710,851) $ (8,774,058) $ (3,981,464)
============ ============ ============
Accretion of preferred stock issuance
costs............................... (194,557) (126,730) (92,697)
------------ ------------ ------------
Net loss available to common
stockholders........................ $(11,905,408) $ (8,900,788) $ (4,074,161)
============ ============ ============
Net loss available to common
stockholders per share
(basic and diluted)................. $ (4.59) $ (3.91) $ (2.15)
============ ============ ============
Weighted average shares outstanding
(basic and diluted)................. 2,591,735 2,278,870 1,896,355
============ ============ ============
Comprehensive loss:
Net loss........................... $(11,710,851) $ (8,774,058) $ (3,981,464)
Unrealized holding gain (loss) on
available for sale securities..... (99,030) 2,927 26,712
------------ ------------ ------------
Comprehensive loss................... $(11,809,881) $ (8,771,131) $ (3,954,752)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
ONTOGENY, INC.
Statements of Stockholders' Deficit
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Unrealized
Convertible gain
preferred stock Common stock Additional Treasury stock (loss) on
-------------------- ------------------- paid-in Accumulated --------------- marketable Deferred
Shares Amount Shares Par value capital deficit Shares Amount securities compensation
--------- ---------- --------- --------- ---------- ------------ ------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ 1,000,000 $2,500,000 2,495,335 $ 24,953 $ 182,421 $ (7,779,081) 57,500 $ (575) $ (15,946)
Accretion of
Series E
redeemable
convertible
preferred stock
to redemption
value related to
stock issuance
costs........... (92,697)
Issuance of
common stock.... 85,000 850 30,650
Issuance of
warrants to
purchase common
stock........... 2,425
Exercise of
stock options... 62,850 629 9,107
Repurchase of
common stock.... 175,000 (1,750)
Compensation
related to the
grant of common
stock options... 87,064 (87,064)
Amortization of
deferred
compensation.... 12,268
Unrealized
holding gain on
marketable
securities...... $26,712
Net loss........ (3,981,464)
--------- ---------- --------- -------- ---------- ------------ ------- ------- -------- -----------
Balance at
December 31,
997............. 1,000,000 2,500,000 2,643,185 26,432 218,970 (11,760,545) 232,500 (2,325) 26,712 (90,742)
Accretion of
Series E and
Series F
redeemable
convertible
preferred stock
to redemption
value related to
stock issuance
costs... (126,730)
Exercise of
stock options 46,250 462 18,379
Repurchase of
common stock.... 35,000 (350)
Compensation
related to the
grant of common
stock options... 103,912 (103,912)
Amortization of
deferred
compensation.... 2,927
Unrealized gain
on marketable
securities...... 40,966
Net loss........ (8,774,058)
--------- ---------- --------- -------- ---------- ------------ ------- ------- -------- -----------
Balance at
December 31,
1998............ 1,000,000 2,500,000 2,689,435 26,894 214,531 (20,534,603) 267,500 (2,675) 29,639 (153,688)
Issuance of
Series C1
convertible
preferred
stock........... 800,000 4,131,756
Issuance of
Series G
convertible
preferred
stock........... 400,000 2,106,367
Accretion of
Series E and
Series F
redeemable
convertible
preferred stock
to redemption
value related to
stock issuance
costs........... (194,557)
Exercise of
stock options... 169,080 1,691 69,312
Issuance of
warrants........ 61,500
Repurchase of
common stock.... 600 (6)
Compensation
related to the
grant of common
stock options... 3,702,817 (3,702,817)
Amortization of
deferred
compensation.... 785,895
Unrealized loss
on marketable
securities...... (99,030)
Net loss........ (11,710,851)
--------- ---------- --------- -------- ---------- ------------ ------- ------- -------- -----------
Balance at
December 31,
1999............ 2,200,000 $8,738,123 2,858,515 $ 28,585 $3,853,603 $(32,245,454) 268,100 $(2,681) $(69,391) $(3,070,610)
========= ========== ========= ======== ========== ============ ======= ======= ======== ===========
<CAPTION>
Total
-------------
<S> <C>
Balance at
December 31,
1996............ $(5,088,228)
Accretion of
Series E
redeemable
convertible
preferred stock
to redemption
value related to
stock issuance
costs........... (92,697)
Issuance of
common stock.... 31,500
Issuance of
warrants to
purchase common
stock........... 2,425
Exercise of
stock options... 9,736
Repurchase of
common stock.... (1,750)
Compensation
related to the
grant of common
stock options... --
Amortization of
deferred
compensation.... 12,268
Unrealized
holding gain on
marketable
securities...... 26,712
Net loss........ (3,981,464)
-------------
Balance at
December 31,
997............. (9,081,498)
Accretion of
Series E and
Series F
redeemable
convertible
preferred stock
to redemption
value related to
stock issuance
costs... (126,730)
Exercise of
stock options 18,841
Repurchase of
common stock.... (350)
Compensation
related to the
grant of common
stock options... --
Amortization of
deferred
compensation.... 2,927
Unrealized gain
on marketable
securities...... 40,966
Net loss........ (8,774,058)
-------------
Balance at
December 31,
1998............ (17,919,902)
Issuance of
Series C1
convertible
preferred
stock........... 4,131,756
Issuance of
Series G
convertible
preferred
stock........... 2,106,367
Accretion of
Series E and
Series F
redeemable
convertible
preferred stock
to redemption
value related to
stock issuance
costs........... (194,557)
Exercise of
stock options... 71,003
Issuance of
warrants........ 61,500
Repurchase of
common stock.... (6)
Compensation
related to the
grant of common
stock options... --
Amortization of
deferred
compensation.... 785,895
Unrealized loss
on marketable
securities...... (99,030)
Net loss........ (11,710,851)
-------------
Balance at
December 31,
1999............ $(22,767,825)
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
ONTOGENY, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(11,710,851) $(8,774,058) $(3,981,464)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization......... 1,105,872 742,187 508,843
Amortization of lease discount........ 22,187 26,151 30,771
Noncash compensation expense.......... 966,139 120,966 92,268
Amortization of premiums and discounts
on marketable securities............. (837,318) 147,580 175,495
Stock issued in lieu of license fees
and other expenses................... -- -- 18,000
Notes payable issued in lieu of
license fees......................... -- 99,000 295,000
Loss on disposal of fixed asset....... 2,776 -- --
Accrued interest on long-term debt.... 237,410 -- --
Changes in assets and liabilities:
Prepaid expenses and other current
assets............................... (635,470) (335,118) 28,145
Notes receivable from related
parties.............................. 4,683 (18,317) --
Other assets.......................... (77,580) (16,041) (60,139)
Accounts payable...................... 603,498 249,983 73,987
Accrued expenses and other............ 659,180 276,240 (135,107)
Deferred revenue...................... 113,935 883,333 (666,667)
------------ ----------- -----------
Net cash used in operating activities.. (9,545,539) (6,598,094) (3,620,868)
------------ ----------- -----------
Cash flows from investing activities:
Purchases of fixed assets.............. (2,051,092) (947,058) (1,747,255)
Purchases of marketable securities..... (178,694,944) (10,483,447) (33,533,551)
Proceeds from maturities of marketable
securities............................ 157,095,807 20,550,000 9,370,000
------------ ----------- -----------
Net cash provided by (used in)
investing activities.................. (23,650,229) 9,119,495 (25,910,806)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes
payable............................... 2,000,000 6,500,003 --
Proceeds from sale leaseback
transaction........................... 1,805,203 1,476,552 423,906
Principal payments on capital lease
obligations........................... (1,013,794) (728,319) (715,917)
Proceeds from issuance of common
stock................................. 71,003 18,841 23,236
Repurchase of common stock............. (6) (350) (1,750)
Proceeds from issuance of preferred
stock, net............................ 2,000,001 23,184,799 24,218,737
------------ ----------- -----------
Net cash provided by financing
activities............................ 4,862,407 30,451,526 23,948,212
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents...................... (28,333,361) 32,972,927 (5,583,462)
Cash and cash equivalents at beginning
of year............................... 35,492,881 2,519,954 8,103,416
------------ ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 7,159,520 $35,492,881 $ 2,519,954
============ =========== ===========
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During 1997, the Company entered into capital lease obligations to purchase
fixed assets amounting to $65,000.
During 1999, the Company converted $6,238,123 of notes payable and accrued
interest into 1,200,000 shares of convertible preferred stock.
Supplemental disclosure of cash flow information:
During 1999, 1998 and 1997, the Company paid approximately $407,000,
$172,000 and $180,000 of interest, respectively.
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS
1.Nature of Operations and Basis of Presentation
Ontogeny, Inc. (the "Company") was incorporated in Delaware on May 31, 1994
and is focused on translating developmental biology insights into regenerative
medicine therapies that will significantly improve the quality of life by
activating the body's ability to repair and regenerate, or to specifically
control abnormal and malignant growth. The Company is developing therapeutics
for neurological diseases including Parkinson's and Alzheimer's diseases,
diabetes and dermatoligical disorders including skin cancer and hair growth.
The Company has incurred net losses since inception and expects to incur
substantial and increasing losses for at least the next several years as
research and development activities are expanded. To date, the Company has
funded operations primarily through the sale of equity securities, revenue and
license payments from collaborators and interest income earned on cash
invested.
The Company is subject to risks common to companies in the biotechnology
industry, including, but not limited to, development by the Company or its
competitors of new technological innovations, raising additional capital,
dependence on key personnel, protection of proprietary technology and
compliance with government regulations.
2.Summary of Significant Accounting Policies
Significant accounting policies followed by the Company in the preparation
of its financial statements are as follows:
Cash, Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with an original
purchase maturity of three months or less to be cash equivalents. The Company
maintains its cash and cash equivalents and marketable securities with three
high quality financial institutions. Excess cash is invested primarily in
corporate debt securities and money market instruments which have strong credit
ratings. The Company classifies these securities as "available-for-sale." All
available-for-sale securities are recorded at fair value based on quoted market
prices and unrealized gains and losses are included in stockholders' deficit,
net of related tax effects.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation. Depreciation
is provided using the straight-line method over the estimated useful lives.
Repair and maintenance costs are expensed as incurred. Leasehold improvements
are amortized over the shorter of the lease life or the estimated useful life
of the asset.
Accounting for Stock-Based Compensation
Stock options issued to employees under the Company's stock option plan are
accounted for in accordance with Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, no compensation expense is recorded for options issued to
employees in fixed amounts and with fixed exercise prices at least equal to the
fair market value of the Company's common stock at the date of grant. The
Company applies the provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," through disclosure
only (Note 10). All stock-based awards to nonemployees are accounted for at
their fair value in accordance with SFAS No. 123 and Emerging Issues Task Force
("EITF") Issue No. 96-18 "Accounting for Equity Instrument that are Issued to
Other than Employees".
Revenue Recognition
Revenue relates to license and research payments made pursuant to
collaborative agreements (Note 5). The Company recognizes research revenue as
the work is performed. Payments received under the agreements prior to
F-21
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
the work being performed are recorded as deferred revenue and amortized over
the project period in accordance with SEC Staff Accounting Bulletin (SAB) No.
101. Research license fees are for the use of the Company's technology during
the research period and are deferred and amortized over the initial research
period.
The Company recognizes revenue only on payments that are nonrefundable, and
defers revenue recognition until performance obligations have been completed.
None of the strategic alliances require scientific achievement as a performance
obligation.
Research and Development
Research and development costs are charged to operations as incurred.
Certain research and development projects are partially funded by research and
development contracts, and the expenses related to these activities are
included in research and development costs.
Comprehensive Income
The Company applies SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 requires that a full set of general-purpose financial statements be
expanded to include the reporting of "comprehensive income." Comprehensive
income is comprised of two components, net income and other comprehensive
income which is comprised solely of unrealized gains/(losses) on available for
sale securities.
Financial Instruments
The carrying amount of the Company's cash and cash equivalents and accounts
payable approximates their fair value at the balance sheet dates based on the
short-term nature of these accounts. Based on interest rates available to the
Company, the carrying amount of the Company's notes payable also approximates
their fair value at the balance sheet date.
Business Segments
The Company operates as a single business segment as defined in SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
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 these estimates.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities." This statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedging accounting. SFAS 133 will be effective for
the Company's year ending December 31, 2001. The Company believes the adoption
of SFAS No. 133 will not have a material effect on the financial statements.
F-22
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Reclassifications
Certain reclassifications have been made to prior years' financial
statements to conform to current year presentation.
3.Net Loss per Share
Net loss per share is computed under SFAS No. 128, "Earnings Per Share."
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted loss per share does not differ from
basic loss per share since potential common shares are antidilutive for all
periods presented and therefore are excluded from the calculation of diluted
loss per share.
The following potentially dilutive common shares were excluded because their
effect was antidilutive:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Subordinated convertible note.......... 819,673 819,673 --
Redeemable convertible preferred
stock................................. 30,680,150 30,024,412 22,300,557
Convertible preferred stock............ 2,200,000 1,000,000 1,000,000
Stock options.......................... 5,721,115 4,878,065 3,301,715
Warrants............................... 261,187 236,187 236,187
Unvested restricted stock.............. 59,500 289,000 556,000
</TABLE>
4.Cash Equivalents and Marketable Securities
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
Unrealized
Fair --------------- Amortized
Value Gains Losses cost
----------- ------- ------- -----------
<S> <C> <C> <C> <C>
December 31, 1999
Money market instruments......... $ 4,162,929 $ -- $ -- $ 4,162,929
Corporate debt securities........ 28,551,348 2,807 54,829 28,603,370
Government securities............ 8,614,681 375 17,744 8,632,050
----------- ------- ------- -----------
$41,328,958 $ 3,182 $72,573 $41,398,349
=========== ======= ======= ===========
Amounts included in cash and cash
equivalents $ 5,187,971
===========
December 31, 1998
Money market instruments......... $ 8,275,670 $ -- $ -- $ 8,275,670
Corporate debt securities........ 13,898,757 37,181 7,542 13,869,118
----------- ------- ------- -----------
$22,174,427 $37,181 $ 7,542 $22,144,788
=========== ======= ======= ===========
Amounts included in cash and cash
equivalents....................... $ 8,370,865
===========
</TABLE>
The fair value of the Company's investment in debt and governmental
securities at December 31, 1999 was comprised of $36,269,631 due in one year or
less and $758,074 due in one to two years. The Company did not realize any
gains or losses on the sale of available-for-sale securities as the securities
have been held to maturity.
F-23
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5.Significant Agreements
Collaboration Agreements
In July 1996, the Company and Biogen entered into an 18-month strategic
alliance to evaluate the applicability of certain of the Company's technology
as drug candidates. Under the terms of the agreement, Biogen was committed for
the initial 18-month period of the alliance to pay the Company a combination of
research support of $3.0 million, a research licensing fee of $1.0 million and
an equity investment of $1.0 million for Series C Preferred stock. In January
1998, Biogen exercised an option to extend the committed period of research
funding for an additional six months until July 1998 by making a one-time,
nonrefundable payment of $1 million. The agreement was also amended to (i)
increase the annual funding level to $3.0 million; (ii) extend the date to
initiate the Commercialization Phase until July 1, 2000; (iii) extend the
funding commitment until June 2001, provided, however, that if Biogen does not
initiate commercialization of at least one program by June 30, 2000, the
Research Phase will terminate and Biogen will owe the Company a $1.5 million
termination fee; and (iv) expand the Field, as defined in the agreement.
In addition to and in connection with the 1998 amendment to the Biogen
Agreement, the Company issued a convertible subordinated note, bearing interest
at the rate of 6.5% per annum, to Biogen for proceeds of $4.0 million. The note
and any accrued interest could have been paid by the Company in whole any time
prior to the conversion date without penalty. In June 1999, in accordance with
the automatic conversion features in the agreement, total principal and accrued
interest of $131,756 converted into 800,000 shares of Series C-1 preferred
stock.
Total revenues recorded under this agreement and related amendments and
extensions were approximately $3 million, $3 million and $2.7 million in 1999,
1998 and 1997, respectively.
Upon exercise of the Commercialization Phase option, Biogen will be
committed, depending on the number of development programs initiated, to (i)
purchase $3.0 to $9.0 million of preferred stock at the then-current fair
market value of the stock, (ii) make a nonrefundable development fee payment of
$3.0 to $9.0 million and (iii) provide a $4.0 to $12.0 million line of credit.
Biogen will also be required to make certain payments during the
Commercialization Phase for research funding, for the achievement of milestones
and for royalties on sales of products resulting from the Agreement.
Also, in 1996, the Company and Roche, formerly Boehringer--Manheim GmbH,
entered into a research and commercialization agreement (the "Agreement") in
certain technology fields. The initial Research Phase of the Agreement was
eighteen months for which Roche paid the Company $1.1 million of research
funding. Roche also made an equity investment of $1.5 million for Series D
Preferred Stock.
In December 1997, the Roche Agreement was amended to extend the term of the
initial Research Phase from March 1998 to September 1999 for additional
research funding. Under the agreement and the extension, the Company recorded
revenue of approximately $1.5 million, $1.7 million and $750,000 in 1999, 1998
and 1997, respectively. The Research Phase ended in 1999 and Roche has no
further commitment to the Company.
On January 13, 1999, the Company entered into a research collaboration
agreement ("BD Agreement") with Becton Dickinson ("BD") to further advance the
Company's research in the area of diabetes. The BD Agreement provides for BD to
have the right, until January 2001, to exclusively negotiate with the Company a
license for certain of the Company's diabetes-related assets. In connection
with the BD Agreement, the Company issued a subordinated note (the "BD Note"),
bearing interest at a rate of 6.5% per annum and convertible into 400,000
shares of newly designated Series G Convertible Preferred Stock, for aggregate
proceeds of $2.0 million. The BD Note, including all accrued interest of
$106,367 converted automatically on October 31, 1999. Under the terms of the BD
Agreement, BD is also obligated to purchase, at the earlier of
F-24
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
January 2001 or the Company achieving a certain preclinical milestone, an
additional $2 million of preferred stock at $10.00 per share with substantially
similar terms as provided in the Series G Preferred Stock. Should BD decide not
to license any of the Company's diabetes-related assets prior to January 2001,
all rights under the agreement return to the Company. The BD Agreement can be
terminated by BD upon three months notice to the Company.
OntoScreen Agreement and Notes Payable
During 1996, the Company entered into an agreement with Genetics Institute
("GI") for the Company's OntoScreen program pursuant to which the Company has
the right to screen certain protein libraries provided by GI. In addition, the
Company has the right to exclusively license certain proteins it selects and to
develop these proteins either on its own or, at the option of GI, on a co-
development basis with GI. During 1998 and 1997, the Company purchased plates
with an aggregate cost of $99,000 and $139,500, respectively, of which $194,000
was financed by GI with notes payable bearing interest at the prime lending
rate (8.5% at December 31, 1999). During 1997, the Company also exercised its
right to obtain an option to exclusively license a protein for a fee of
$250,000 of which $200,000 was financed by the Licensor with a note payable
bearing interest at the prime lending rate (8.5% at December 31, 1999). These
notes payable mature $295,000 in 2000 and $99,000 in 2001 and are payable at
any time at the election of the Company with either cash or common stock of the
Company discounted by 25%. Accrued interest, which totaled $87,210 at December
31, 1999, is payable upon maturity of the related note.
Note Payable
On December 29, 1998, the Company entered into a Common Stock Purchase
Agreement ("Purchase Agreement") with an unrelated party ("Lender") that
includes a provision for (i) the Company to issue to the Lender 819,673 shares
of common stock upon the earlier of December 29, 2001 or the occurrence of
certain defined events and (ii) the Company and the Lender to enter into a
subordinated convertible note for which the Company received proceeds of
$2,500,003. The note is non-interest bearing and the principal and all accrued
interest are forgiven upon the Company issuing to the Lender the 819,673 shares
of common stock as required under the Purchase Agreement. The Company is
imputing interest on the note at a rate of 8% per annum which totaled $208,283
and $1,099 at December 31, 1999 and 1998, respectively.
6.Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Useful December 31,
life ---------------------
in years 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Laboratory equipment.................... 5 $3,220,761 $1,945,584
Furniture and fixtures.................. 5 113,073 113,073
Computer equipment...................... 3 438,582 298,034
Leasehold improvements.................. Lease term 3,637,647 3,005,989
---------- ----------
7,410,063 5,362,680
Less--Accumulated depreciation and
amortization........................... 2,718,848 1,613,909
---------- ----------
$4,691,215 $3,748,771
========== ==========
</TABLE>
Property and equipment held under capital leases at December 31, 1999 and
1998 totaled approximately $3,809,000 and $4,407,000, respectively.
Amortization expense related to these assets is included in depreciation and
amortization expense.
F-25
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7.Accrued Expenses and Other
Accrued expenses and other consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
---------- --------
<S> <C> <C>
Sponsored research................................... $ 368,676 $ 93,592
Compensation......................................... 311,120 240,778
Interest............................................. 306,669 57,154
Other accrued expenses............................... 575,579 512,053
---------- --------
$1,562,044 $903,577
========== ========
</TABLE>
8.Preferred Stock
Redeemable convertible preferred stock consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Series A: 4,922,299 shares authorized, 4,853,334
shares issued and outstanding at December 31, 1999
and 1998, stated at redemption value (liquidation
preference $4,222,400)............................ $ 4,200,000 $ 4,200,000
Series B: 8,000,000 shares authorized, 7,447,223
shares issued and outstanding at December 31, 1999
and 1998, stated at redemption value (liquidation
preference $8,415,362)............................ 8,378,126 8,378,126
Series E: 10,000,000 shares authorized, issued and
outstanding at December 31, 1999 and 1998, stated
at issuance cost plus accumulated accretion of
$330,706 and $212,714 at December 31, 1999 and
1998, respectively (liquidation preference
$25,000,000)...................................... 24,549,443 24,431,451
Series F: 10,000,000 shares authorized, 8,379,593
and 7,723,855 shares issued and outstanding at
December 31, 1999 and 1998, respectively, stated
at issuance cost plus accumulated accretion of
$83,278 and $6,713 at December 31, 1999 and 1998,
respectively (liquidation preference of
$25,557,759 and $23,557,758 at December 31, 1999
and 1998, respectively)........................... 25,268,078 23,191,512
----------- -----------
$62,395,647 $60,201,089
=========== ===========
</TABLE>
F-26
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Convertible preferred stock consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Series C: 400,000 shares authorized, issued and
outstanding at December 31, 1999 and 1998, stated
at issuance cost (liquidation preference
$1,000,000)....................................... $1,000,000 $1,000,000
Series C-1: 800,000 and 0 shares authorized, issued
and outstanding at December 31, 1999 and 1998,
respectively, stated at issuance cost (liquidation
preference $4,000,000)............................ 4,131,756 --
Series D: 600,000 shares authorized, issued and
outstanding at December 31, 1999 and 1998, stated
at issuance cost (liquidation preference
$1,500,000)....................................... 1,500,000 1,500,000
Series G: 400,000 and 0 shares authorized, issued
and outstanding at December 31, 1999 and 1998,
respectively, stated at issuance cost (liquidation
preference $2,000,000)............................ 2,106,367 --
---------- ----------
$8,738,123 $2,500,000
========== ==========
</TABLE>
The preferred stock has the following characteristics:
Conversion
Each share of preferred stock is convertible into common stock at the option
of the holder based on a formula which currently would result in a 1-for-1
exchange. The preferred stock will automatically convert to common stock upon
the closing of a public offering of the Company's common stock in which gross
proceeds equal or exceed $10,000,000 and the per share price equals or exceeds
$5.00. At December 31, 1999, 32,880,150 shares of common stock have been
reserved for issuance upon conversion of the outstanding preferred stock.
Dividends
The holders of the Series A, Series B, Series E and Series F preferred stock
are entitled to receive dividends at a per annum rate of $0.07 per share, $0.09
per share, $0.20 per share and $0.24 per share, respectively, adjusted for
stock dividends or splits, when and if declared by the Board of Directors. The
holders of the Series C, Series C-1, Series D and Series G preferred stock may
receive dividends when and if declared by the Board of Directors, subject to
any preferential dividend rights of the Series A, B, E and F preferred stock.
The Series G preferred stock is junior to the Series C, Series C-1 and Series D
preferred stock in regard to dividends. Dividends on the preferred stock are
not cumulative. No dividend may be paid on the common stock until all dividends
on the preferred stock have been paid in full. Through December 31, 1999, no
dividends have been declared or paid.
Redemption
The Company is required to redeem from each holder of Series A, Series B,
Series E and Series F preferred stock up to one-third of, one-half of and the
entire then outstanding shares of preferred stock in three annual installments
beginning on December 1, 2002 at a price equal to $0.87, $1.13, $2.50 and $3.05
per share, respectively, plus any declared but unpaid dividends. The Series C,
Series C-1, Series D and Series G preferred stock is not redeemable.
F-27
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the affairs of
the Company, the holders of the Series A, Series B, Series E and Series F
preferred stock are entitled to receive, prior to and in preference to the
holders of Series C, Series C-1, Series D and Series G preferred stock and the
holders of common stock, an amount equal to $0.87, $1.13, $2.50 and $3.05 per
share, respectively, plus any declared but unpaid dividends. After all such
payments have been made, the holders of the outstanding Series C, Series C-1,
Series D and Series G preferred stock are entitled to receive, prior to and in
preference to the holders of common stock, an amount equal to $2.50, $5.00,
$2.50 and $5.00 per share, respectively, plus any declared but unpaid dividend.
The Series G preferred stock is junior to the Series C, Series C-1 and Series D
preferred stock in regard to liquidation.
Voting Rights
Each preferred stockholder is entitled to a number of votes equal to the
number of shares of common stock into which such holder's shares are
convertible. These votes are counted together with the common stockholders'
votes as a single class on all matters.
Warrants
In January 1996 and November 1994 and in connection with capital lease
agreements, warrants to purchase 142,222 and 68,965 shares of the Company's
Series B and Series A preferred stock were issued to the lessors, at an
exercise price of $1.13 and $0.87 per share, respectively, subject to certain
anti-dilution adjustments. During 1999 and 1997 and in connection with capital
lease agreements, warrants to purchase 25,000 and 25,000 shares of the
Company's common stock were issued to the lessors, at an exercise price of
$5.00 and $2.50 per share, respectively, subject to certain anti-dilution
adjustments. The warrant to purchase shares of Series B preferred stock may be
exercised at any time through the earlier of the closing of an initial public
offering or January 28, 2006. The warrant to purchase shares of Series A
preferred stock may be exercised at any time through November 2, 2004. The
warrants to purchase shares of common stock may be exercised at any time and
expire at the earlier of the closing of an initial public offering or during
the period from November 2002 through December 2009. At December 31, 1999,
68,965 and 142,222 shares of Series A and Series B preferred stock,
respectively, and 261,187 shares of common stock are reserved for issuance upon
exercise of the warrants and conversion of the related preferred stock. The
Company has accounted for the value of the warrants, totaling approximately
$169,000, as a discount on the leases. Such discount is being amortized as
interest expense over the lives of the leases.
9.Common Stock
The Company has executed stock restriction agreements with certain of its
employees. Each agreement gives the Company the right to purchase, at the
original issuance price, a certain number of shares held by each individual if
the respective stockholder ceases to be a director, employee or consultant of
the Company. The purchase option rights lapse at various dates through July 25,
2001. At December 31, 1999 59,500 shares of the Company's outstanding common
stock were subject to these purchase options.
10.Stock Option Plan
During 1995, the Company adopted the 1995 Stock Option Plan (the "Plan").
The Plan provides for the granting of incentive and non-qualified stock options
to employees, directors, consultants and advisors of the Company. The
Stockholders approved an increase to the total number of shares of common stock
issuable
F-28
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
under the plan from 4,000,000 to 5,500,000 in 1998 and then to 7,500,000 in
1999. Incentive stock options may not be granted at an exercise price less than
the fair market value of the Company's common stock at the date of grant as
determined by the Board of Directors and for a term not to the exceed ten
years. For holders of more than 10% of the Company's total combined voting
power of all classes of stock, incentive stock options may not be granted at
less than 110% of the fair market value of the Company's common stock at the
date of grant and for a term not to exceed five years. The exercise price under
each non-qualified stock option may be granted at less than fair market value
but shall in no case be less than the par value of the underlying common stock.
Upon the exercise of an option, certain restrictions are placed on the transfer
or sale of such shares. Options generally vest over a five year period.
On December 11, 1997, the Board of Directors, with the approval of
stockholders on March 12, 1998, adopted the 1997 Non-Employee Director Stock
Option Plan (the "Director Plan"). The Director Plan provides for the grant of
non-qualified stock options for the purchase of up to 300,000 shares of common
stock of the Company, at an exercise price that is not less than the fair
market value of the Company's common stock at the date of grant.
No compensation expense was recognized for options granted to employees with
exercise prices equal to or greater than the fair value of the underlying
common stock at the grant date during 1999, 1998 or 1997. The Company recorded
compensation expense of $78,990 in 1999 relating to options granted to
employees with exercise prices less than the fair value of the common stock at
the grant date (fair value of the common stock as subsequently determined for
financial reporting purposes). Had compensation cost been determined based on
the fair value of all options granted to employees at the grant date consistent
with the provisions of SFAS No. 123, the effect on the Company's net loss for
1999, 1998 and 1997 would have been as follows:
<TABLE>
<CAPTION>
Net loss
available per
common
share--basic
Net loss and diluted
------------- -------------
<S> <C> <C>
As reported:
1999....................................... $(11,710,851) $(4.59)
1998....................................... (8,774,058) (3.91)
1997....................................... (3,981,464) (2.15)
Pro forma:
1999....................................... $(11,826,457) $(4.64)
1998....................................... (8,853,183) (3.94)
1997....................................... (4,014,750) (2.17)
</TABLE>
Since options vest over several years and additional option grants are
expected to be made in future years, the above pro forma results are not
representative of pro forma results for future years.
For the purposes of pro forma disclosure, the fair value of each employee
option grant is estimated on the date of grant using the minimum valued method
with the following assumptions for grants in 1999, 1998 and 1997: no dividend
yield; risk-free interest rates of 6% for 1999 grants, 5% for 1998 grants and
6% for 1997 grants; and an expected life of 5 years for all options granted.
The weighted average fair value of options granted to employees during 1999,
1998 and 1997, was $1.88, $.22 and $.28, respectively. For financial reporting
purposes, all options granted in 1999 were deemed to be granted at less than
fair value.
During 1999, 1998 and 1997, the Company granted options in the amount of
143,000, 213,000 and 174,500, respectively, to consultants and advisors under
the Plan. The Company applies EITF No. 96-18 to non-employee grants. Under EITF
96-18, the expense that will ultimately be recognized for certain of the
F-29
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
options issued to nonemployees will be the fair value at the vesting dates of
the underlying options. As these options vest over periods of one to five
years, the Company will be required to remeasure the fair value of these
options at each reporting period prior to vesting and then finally at the
vesting date of the option. Changes in the estimated fair value of these
options will be recognized as deferred compensation and related amortization of
compensation expense in the period of the change. Accordingly, the Company
recognized $706,905, $40,966, and $12,268 of expense relating to these options
in 1999, 1998 and 1997, respectively. At December 31, 1999, the Company has
$475,000 of deferred compensation relating to these options.
A summary of the status of the Company's stock option plans as of December
31, 1999, 1998 and 1997 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 4,878,065 $0.70 3,301,715 $0.54 1,340,665 $0.20
Granted............... 1,617,000 0.99 1,777,000 1.00 2,052,000 0.74
Exercised............. (169,080) 0.42 (46,250) 0.41 (62,850) 0.15
Cancelled............. (604,870) 0.88 (154,400) 0.64 (28,100) 0.17
--------- ----- --------- ----- --------- -----
Outstanding at end of
year................... 5,721,115 $0.78 4,878,065 $0.70 3,301,715 $0.54
========= ========= =========
Options exercisable at
end of year............ 1,786,186 $0.63 1,030,163 $0.51 360,530 $0.29
========= ========= =========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding
Options Outstanding Exercisable
------------------------------------- ------------------------
Weighted-
average Weighted- Weighted-
Range of remaining average Number of average
exercise Number contractual exercise options exercise
price of options life price exercisable price
---------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.01-0.50 1,842,315 6.9 $0.31 956,261 $0.31
$1.00 3,878,800 9.0 1.00 829,925 1.00
---------- --------- --- ----- --------- -----
$.01-$1.00 5,721,115 8.3 $0.78 1,786,186 $0.63
========== ========= === ===== ========= =====
</TABLE>
At December 31, 1999, there are 1,789,905 options available for future
grant.
11. Income Taxes
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Net operating loss carryforwards............... $ 11,664,000 $ 7,893,000
Tax credit carryforwards....................... 1,427,000 987,000
Other temporary differences.................... 1,606,000 231,000
------------ -----------
Gross deferred tax assets...................... 14,697,000 9,111,000
Valuation allowance............................ (14,697,000) (9,111,000)
------------ -----------
$ -- $ --
============ ===========
</TABLE>
F-30
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company has generated taxable losses from operations since inception
and, accordingly, has no taxable income available to offset the carryback of
net operating losses. Based upon the weight of all available evidence, the
Company has provided a full valuation allowance for its deferred tax assets
since, in the opinion of management, realization of these future benefits is
not sufficiently assured (defined as a likelihood of more than 50 percent).
As of December 31, 1999, the Company has U.S. Federal net operating loss
carryforwards of approximately $28,700,000 and tax credit carryforwards of
$890,000 which may be used to offset future taxable income and liabilities and
expire at various times from 2009 through 2019. The Company also has state
research and development credits of approximately $700,000 which expire at
various times from 2010 through 2014.
Under the Internal Revenue Code, certain substantial changes in the
Company's ownership could result in an annual limitation on the amount of net
operating loss and tax credit carryforwards which can be utilized in future
years.
12. Related Party Transactions
Notes Receivable from Related Parties
In 1996 and 1994, the Company loaned two officers $500,000 and $100,000,
respectively. The $100,000 loan was forgiven over a five-year period commencing
in 1994 and $300,000 of the $500,000 loan will be forgiven over a five-year
period commencing in 1996, contingent on the respective officers' continued
employment with the Company. The remaining $200,000 of the $500,000 loan
matures in 2003. Upon forgiveness, the Company has committed to pay for any
resulting income taxes to the officers. The Company is recording compensation
expense to amortize the total of these loans over a period of five to seven
years and to accrue the related taxes. At December 31, 1999 and 1998, accrued
taxes related to this commitment totaled approximately $129,000 and $117,000,
respectively, and are included in accrued expenses and other liabilities.
In 1996, the Company also loaned an officer $100,000. During 1998, the
maturity date of this note was extended from March 31, 1998 to March 31, 2000.
In March 1999, the Company agreed to forgive all principal and accrued interest
outstanding on the loan as of January 1, 1999 and recorded such amounts as
compensation expense in 1999. The Company also agreed to pay for any resulting
income taxes to the officer associated with the forgiveness.
13.Commitments and Contingencies
Consulting Agreements
The Company has consulting agreements with terms of up to one year. Total
cash consulting expense incurred by the Company during 1999, 1998 and 1997 was
approximately $371,000, $303,000 and $336,000, respectively. Two of these
agreements provide for stock option grants for services rendered (See Note 10).
License Agreements
The Company is a party to license agreements for certain technologies.
Pursuant to these agreements, the Company has incurred license fee expense of
approximately $306,000, $820,000 and $171,000 in 1999, 1998 and 1997,
respectively, and upon the execution of these agreements has issued an
aggregate of 647,000 shares of common stock. The agreements generally require
the Company to reimburse the licensor for all patent-related costs and contain
various provisions requiring additional payments, including annual payments
ranging in the aggregate from $162,000 to $237,000 per year for terms ranging
from two years to the life of the last licensed patent to expire, royalty
payments based on a certain percentage of net sales of products developed
F-31
<PAGE>
ONTOGENY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
from the licensed technology and milestone payments ranging from $10,000 to
$5,000,000 upon the occurrence of certain events ranging from the date of
filing of a patent application on the licensed technology to the achievement of
$100 million of sales of a product related to the licensed technology.
Leases
The Company leases office space under a noncancelable operating lease which
expires in March 2006. Total rent expense (net of sublease income of $130,000,
$130,000 and $97,850 for 1999, 1998, and 1997, respectively) was approximately
$565,000, $130,000 and $162,200 for 1999, 1998 and 1997, respectively. Future
minimum lease payments under the facilities lease and under capital lease
agreements (Note 5) as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating Capital
lease lease
---------- ----------
<S> <C> <C>
Year ending December 31,
2000............................................. $ 751,107 $1,450,007
2001............................................. 715,137 1,179,417
2002............................................. 312,055 1,087,203
2003............................................. 310,575 762,840
2004............................................. 310,575 --
Thereafter....................................... 388,218 --
---------- ----------
Total.......................................... $2,787,667 4,479,467
==========
Less--Amount representing interest................. 952,668
----------
Present value of future minimum lease payments..... $3,526,799
==========
</TABLE>
14.Employee Benefit Plans
The Company has a defined Contribution 401(k) Plan in which all qualified
employees of the Company may contribute up to 15% of compensation through
salary withholdings. Company matching contributions are discretionary and to
date, there have been no matching contributions.
15.Events Subsequent to the Balance Sheet Date
On February 15, 2000, the Company announced an agreement to merge with
Creative BioMolecules, Inc. and Reprogenesis, Inc. in a tax-free exchange of
stock to form Curis, Inc. After the merger, Curis will be owned approximately
43% by the stockholders of Creative BioMolecules, approximately 38% by the
stockholders of Ontogeny and approximately 19% by the stockholders of
Reprogenesis, the separate corporate existence of each of Creative, Ontogeny
and Reprogenesis shall cease and Curis shall, as the surviving corporation in
the merger, continue its existence under the provisions of the Delaware General
Corporation Law. This merger is subject to stockholder and regulatory approval.
F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Reprogenesis, Inc.:
We have audited the accompanying consolidated balance sheets of
Reprogenesis, Inc. (a Texas corporation) and subsidiary as of December 31, 1999
and 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Reprogenesis, Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards 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 Reprogenesis, Inc. and
subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 4, 2000 (except for matters discussed in Notes 1 and 8 as to which the
date is February 14, 2000)
F-33
<PAGE>
REPROGENESIS, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
ASSETS ----------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 6,492,341 $1,692,219
Accounts receivable................................. 213,023 1,149,869
Prepaid expenses and other current assets........... 163,012 108,062
----------- ----------
Total current assets.............................. 6,868,376 2,950,150
Property and Equipment, at cost:
Leasehold improvements.............................. 1,360,201 1,356,427
Furniture and equipment............................. 903,722 842,555
----------- ----------
2,263,923 2,198,982
Less--Accumulated depreciation...................... (673,245) (299,952)
----------- ----------
1,590,678 1,899,030
Other Assets.......................................... 36,658 36,658
----------- ----------
$ 8,495,712 $4,885,838
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses............... $ 918,527 $ 854,528
Current portion of note payable..................... 353,508 341,263
----------- ----------
Total current liabilities......................... 1,272,035 1,195,791
Note Payable, net of current portion.................. 885,961 1,239,470
Commitments and Contingencies (Notes 3, 4, 5 and 6)
Minority Interest..................................... -- (54,052)
Shareholders' Equity:
Series A convertible preferred stock, $0.01 par
value--
Authorized, issued and outstanding--2,702,702
shares (liquidation preference of $6,000,000 as
of December 31, 1999)............................ 27,027 27,027
Series B convertible preferred stock, $0.01 par
value--
Authorized--5,044,451 shares; issued and
outstanding--4,729,134 shares as of December 31,
1999 (liquidation preference of $10,498,677 as of
December 31, 1999)............................... 47,291 --
Common stock, $0.01 par value--
Authorized--30,084,501 shares; issued and
outstanding--10,897,660 and 10,397,660 shares as
of December 31, 1999 and 1998, respectively...... 108,977 103,977
Additional paid-in capital............................ 18,477,131 6,586,285
Accumulated deficit................................... (12,217,012) (4,212,660)
Deferred compensation................................. (105,698) --
----------- ----------
Total shareholders' equity...................... 6,337,716 2,504,629
----------- ----------
$ 8,495,712 $4,885,838
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
REPROGENESIS, INC.
Consolidated Statements of Operations
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Research and development contracts and
government grants....................... $ 517,614 $4,253,999 $5,956,628
Interest income.......................... 274,042 170,949 201,241
Other income............................. 1,556,234 -- --
---------- ---------- ----------
Total revenues......................... 2,347,890 4,424,948 6,157,869
Costs and Expenses:
Research and development................. 6,972,647 6,338,583 5,696,974
General and administrative............... 1,221,060 1,694,219 637,363
Interest expense......................... 1,229,483 107,430 3,057
Other expense ........................... 554,052 -- --
---------- ---------- ----------
Total costs and expenses............... 9,977,242 8,140,232 6,337,394
Loss from operations....................... (7,629,352) (3,715,284) (179,525)
Minority interest in (income) losses of
CTDP...................................... (375,000) 98,174 58,378
</TABLE>
<TABLE>
<S> <C> <C> <C>
----------- ----------- ----------
Net loss................................ $(8,004,352) $(3,617,110) $ (121,147)
=========== =========== ==========
Net loss per common share:
Basic and diluted..................... $ (0.74) $ (0.35) $ (0.01)
=========== =========== ==========
Weighted average common shares
outstanding:
Basic and diluted..................... 10,762,044 10,397,660 10,397,660
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE>
REPROGENESIS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- -------------------- Additional
Number of Number Paid-in Accumulated Deferred
Shares Par Value of Shares Par Value Capital Deficit Compensation Total
--------- --------- ---------- --------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... -- $ -- 10,397,660 $103,977 $ 688,682 $ (474,403) $ -- $ 318,256
Sale of Series A
preferred stock, net
of issuance costs of
approximately
$75,000............... 2,702,702 27,027 -- -- 5,897,603 -- -- 5,924,630
Net loss............... -- -- -- -- -- (121,147) -- (121,147)
--------- ------- ---------- -------- ----------- ------------ --------- -----------
Balance, December 31,
1997................... 2,702,702 27,027 10,397,660 103,977 6,586,285 (595,550) -- 6,121,739
Net loss............... -- -- -- -- -- (3,617,110) -- (3,617,110)
--------- ------- ---------- -------- ----------- ------------ --------- -----------
Balance, December 31,
1998................... 2,702,702 27,027 10,397,660 103,977 6,586,285 (4,212,660) -- 2,504,629
Issuance of common
stock,
net of issuance costs
of approximately
$6,000................ -- -- 500,000 5,000 495,000 -- -- 500,000
Issuance of stock
options to
nonemployees.......... -- -- -- -- 12,299 -- -- 12,299
Sale of Series B
preferred stock, net
of issuance costs of
approximately
$113,000.............. 4,729,134 47,291 -- -- 10,338,393 -- -- 10,385,684
Adjustment for interest
expense in connection
with Series A warrant
repricing (see Note
9).................... -- -- -- -- 924,356 -- -- 924,356
Deferred compensation
related to common
stock options......... -- -- -- -- 120,798 -- (120,798) --
Amortization of
deferred
compensation.......... -- -- -- -- -- -- 15,100 15,100
Net loss............... -- -- -- -- -- (8,004,352) -- (8,004,352)
--------- ------- ---------- -------- ----------- ------------ --------- -----------
Balance, December 31,
1999................... 7,431,836 $74,318 10,897,660 $108,977 $18,477,131 $(12,217,012) $(105,698) $ 6,337,716
========= ======= ========== ======== =========== ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
REPROGENESIS, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net loss................... $(8,004,352) $(3,617,110) $ (121,147)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and
amortization............. 373,293 284,767 6,386
Minority interest in
income (losses) of CTDP.. 375,000 (98,174) (58,378)
Write off of acquired in-
process research and
development.............. 125,000 -- --
Non-cash interest
expense.................. 1,042,559 -- --
Compensation related to
issuance of common stock
options.................. 27,399 -- --
Changes in current assets and liabilities--
Accounts receivable...... 936,846 80,889 235,045
Interest receivable...... -- 64,688 (64,688)
Prepaid expenses and
other current assets.... (54,950) (97,082) (9,095)
Accounts payable and
accrued expenses........ 63,999 715,827 (781,545)
----------- ----------- -----------
Net cash used in
operating activities... (5,115,206) (2,666,195) (793,422)
----------- ----------- -----------
Cash Flows from Investing
Activities:
Purchase of property and
equipment................. (64,941) (2,045,455) (121,601)
Reimbursements from
minority interest ........ 54,052 -- --
Increase in other assets... -- (18,368) (17,415)
Decrease (increase) in
short-term investments.... -- 2,500,000 (2,500,000)
----------- ----------- -----------
Net cash (used in)
provided by investing
activities............. (10,889) 436,177 (2,639,016)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of
term note payable......... -- 1,771,548 --
Repayments of term note
payable................... (341,264) (190,815) --
Net proceeds from issuance
of bridge loan............ 2,950,000 -- --
Net proceeds from issuance
of Series B convertible
preferred stock........... 7,317,481 -- --
Net proceeds from issuance
of Series A convertible
preferred stock........... -- -- 5,924,630
Borrowings under line of
credit.................... -- -- 157,000
Repayments under line of
credit.................... -- -- (383,000)
Minority interest's capital
contributions............. -- -- 57,224
----------- ----------- -----------
Net cash provided by
financing activities... 9,926,217 1,580,733 5,755,854
----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 4,800,122 (649,285) 2,323,416
Cash and Cash Equivalents,
beginning of year.......... 1,692,219 2,341,504 18,088
----------- ----------- -----------
Cash and Cash Equivalents,
end of year................ $ 6,492,341 $ 1,692,219 $ 2,341,504
=========== =========== ===========
Supplemental Disclosure of
Cash Flow Information:
Cash paid for interest..... $ 186,923 $ 99,243 $ 3,057
=========== =========== ===========
Supplemental Disclosure of
Noncash Flow Information:
Conversion of bridge loan
and accrued interest into
Series B preferred stock.. $ 3,068,203 $ -- $ --
=========== =========== ===========
Issuance of 500,000 shares
of common stock for
minority interest of CTDP,
net of issuance costs..... $ 500,000 $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(1) ORGANIZATION
Reprogenesis, Inc. (the Company) is developing rapid-to-market cell-based
products for minimally invasive, in vivo tissue augmentation/repair. The
Company's proprietary and broadly applicable tissue formation technology serves
as a platform for a broad range of potential products addressing significant
clinical needs in multiple markets. The Company is developing its technology in
three specific areas: (i) the creation of structural tissue to augment or
correct an anatomical defect; (ii) the repair or restoration of a physiological
function; and, (iii) the repair or restoration of anatomical organs.
The Company's most advanced product is in the area of urology: an autologous
tissue product to treat a pediatric urologic disorder (vesicoureteral reflux)
that is currently in a Phase III clinical trial. The Company also has a number
of potential products in the areas of urology, cardiovascular biology and
plastic and reconstructive surgery.
The Company is subject to a number of risks, including dependence on key
individuals, competition from substitute products, the need to develop
commercially usable products and obtain regulatory approval for products under
development, the ability to obtain adequate financing and the market conditions
of the biotechnology industry as a whole.
The Company has substantially funded its operations through equity issuances
and funding under a research and development agreement. As discussed in Note
3(b), this agreement was terminated in 1999. In the event the merger discussed
below is not consummated, the Company intends to explore financing
alternatives. The Company has obtained a commitment from two of its
shareholders to provide funding which will be sufficient to fund operations for
2000 when combined with existing resources.
On February 14, 2000, the Company entered into an Agreement and Plan of
Merger with Creative BioMolecules, Inc. and Ontogeny, Inc. The new company,
Curis, Inc. combines the resources and product pipelines of each of the merging
companies to form a publicly traded regenerative medicine company. The
completion of the proposed merger is subject to shareholder approval of each of
the three companies and is expected to close in June 2000. Under the terms of
the agreement, the Company's shareholders would receive approximately 19% of
the initial outstanding capital stock of Curis, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies, as described in this note and
elsewhere in the accompanying consolidated financial statements and notes.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and Carolina Tissue Development Partners (CTDP), a partnership in
which the Company had a 75% interest until January 1, 1999, at which time the
Company purchased the 25% minority interest (see Note 3(f)). The effects of all
significant intercompany transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-38
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
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 reported periods. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of deposits in banks and cash invested
temporarily in various instruments with maturities of 90 days or less at time
of purchase.
The Company accounts for cash equivalents in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Instruments in Debt and Equity Securities. At December 31, 1999 and 1998, the
Company's cash equivalents consisted of money market funds.
(d) Accounts Receivable
The accounts receivable balance at December 31, 1998 represents costs
incurred by the Company under a research and development agreement for which
the Company will be reimbursed (see Note 3(b)). Accounts receivable as of
December 31, 1999 represents amounts payable to the Company for cost
reimbursement under the terms of government awards.
(e) Property and Equipment
Furniture and equipment is recorded at cost and depreciated using an
accelerated method over the estimated economic life (five to ten years) of the
respective assets. Leasehold improvements are recorded at cost and depreciated
on a straight-line basis over the remaining lease term.
In accordance with SFAS No. 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, the Company reviews its
long-lived assets (which consists of property and equipment) for impairment as
events and circumstances indicate the carrying amount of an asset may not be
recoverable. The Company evaluates the realizability of its long-lived assets
based on profitability and cash flow expectations for the related asset.
Management believes that, as of each of the balance sheet dates presented, none
of the Company's long-lived assets was impaired.
(f) Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure about fair value of financial instruments. Financial
instruments consist of cash equivalents, marketable securities, accounts
payable and debt. The estimated fair value of these financial instruments
approximates their carrying value.
(g) Revenue Recognition
Revenues from research and development contracts and government grants are
recorded as earned under the terms of the agreement or grant. Milestone
revenues are recognized upon the attainment of the milestone.
(h) Research and Development Costs
Expenditures relating to research and development of new products and
processes are expensed as incurred.
F-39
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(i) Income Taxes
The Company applies SFAS No. 109, Accounting for Income Taxes (Note 7).
Under SFAS No. 109, deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences, tax
credit carryforwards and operating loss carryforwards, and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
(j) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance sheet and credit risk
concentration. The Company has no significant off-balance-sheet or
concentration of credit risk, such as foreign exchange contracts or other
hedging agreements. Financial instruments that subject the Company to credit
risk consist of cash and cash equivalents and marketable securities.
The Company's research and development contract revenue for the years ended
December 31, 1998 and 1997 was derived entirely from its collaboration with
American Medical Systems, Inc. (see Note 3(b)). Approximately 59% and 41% of
the Company's research and development contract revenue for the year ended
December 31, 1999 was derived from American Medical Systems, Inc. and
government financial assistance awards, respectively.
As of December 31, 1998, American Medical Systems, Inc. accounted for 100%
of accounts receivable. As of December 31, 1999, the National Institute of
Standards and Technology and the Department of Health and Human Service
accounted for approximately 64% and 36% of accounts receivable, respectively.
(k) New Accounting Standards
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133, which defers the effective
date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, issued in June 1998, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company
does not anticipate the adoption of this statement will have a material impact
on its financial position or results of operations.
In March 1999, the FASB issued a proposed interpretation, Accounting for
Certain Transactions Involving Stock Compensation--An Interpretation of APB
Opinion No. 25. The proposed interpretation would clarify the application of
Opinion 25 in certain situations, as defined. The proposed interpretation would
be effective upon issuance (expected to be early 2000) but would cover certain
events having occurred after December 15, 1998. To the extent that events
covered by this proposed interpretation occur during the period after December
15, 1998, but before issuance of the final Interpretation, the effects of
applying this proposed interpretation would be recognized on a prospective
basis from the effective date. Accordingly, upon initial application of the
final
F-40
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Interpretation, (a) no adjustments would be made to financial statements for
periods before the effective date and (b) no expense would be recognized for
any additional compensation cost measured that is attributable to periods
before the effective date. The Company expects that the adoption of this
Interpretation would not have any effect on the accompanying financial
statements for stock options repriced during fiscal year 1999 (see Note 8),
however, it will affect financial statements of future periods.
(l) Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 requires disclosure of
all components of comprehensive income on an annual and interim basis.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-operating sources. For the years ended December 31,
1999, 1998 and 1997, the Company does not have any items of comprehensive
income or loss other than net loss.
(m) Net Loss per Share
Basic and diluted net loss per share are presented in conformity with SFAS
No. 128, Earnings per Share for all periods presented. In accordance with SFAS
No. 128, basic and diluted net loss per share has been computed by dividing
the weighted average number of common shares outstanding during the period
into the net loss attributable to common stockholders.
Options, warrants and shares to be issued upon conversion of convertible
preferred stock for a total of 13,075,953, 5,805,941 and 5,336,054 common
shares have not been included in the computation of dilutive EPS for the years
ended December 31, 1999, 1998 and 1997, respectively. These shares are
considered antidilutive, as the Company has recorded a loss for all periods
presented.
(n) Segment Information
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. As of December 31, 1999, the Company
operates solely in one segment, the development and marketing of cell-based
products for minimally invasive, in vivo tissue augmentation and repair and,
therefore, there is no impact to the Company's financial statements of
adopting SFAS No. 131.
(o) Reclassifications
Certain prior-period amounts have been reclassified to conform with the
current year's presentation.
(3) AGREEMENTS AND CONTRACTS
(a) Massachusetts Institute of Technology
Effective December 23, 1993, the Company entered into a license agreement
with Massachusetts Institute of Technology (MIT) that grants the Company the
rights to certain existing and future MIT and Children's Hospital of Boston
(Children's Hospital) patents that relate to tissue engineering and polymer
science with specific applications to the breast tissue and urological fields.
In 1996, this agreement was amended to include rights to certain patents
related to a second generation technology of polymer science for all fields.
MIT has retained the right to sublicense these patent rights under certain
conditions. The Company has rights to receive fees if MIT sublicenses these
patent rights. During 1996, in consideration for the rights, privileges and
license granted, the Company granted MIT 519,883 shares of common stock and
paid MIT a license issue fee of $100,000. The Company is obligated to pay MIT
an annual license maintenance fee of $60,000.
F-41
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
In addition, the Company is obligated to pay MIT royalties equal to 3% of
net sales of products using tissue engineering applications in the breast
tissue and urological fields (the Licensed Products) sold directly by and/or
for the Company. Royalties due on Licensed Product sales for any given year
will be credited against the license maintenance fee paid during that year.
License maintenance fees paid in excess of royalties cannot be credited against
royalties due in future years. The Company is responsible for all patent
application costs and maintenance fees related to inventions under the license
agreement. During 1999, 1998 and 1997, the Company paid MIT approximately
$66,000, $49,000 and $124,000, respectively, in patent application costs and
maintenance fees.
Effective November 5, 1996, the Company entered into a license agreement
with MIT relating to certain cardiovascular patents. Under the terms of the
agreement, the Company will use its best effort to bring licensed products to
market through its development program. The Company is obligated to pay MIT a
patent issue fee of $35,000, due upon the issuance of the first patent claim.
Commencing on January 1, 1999, the Company is also obligated to pay license
maintenance fees of $15,000 annually until issuance of the first patent claim
and $25,000 thereafter. Costs relating to the filing and maintenance of the
aforementioned patents are the responsibility of the Company. Patent
application costs and maintenance fees incurred during 1999, 1998 and 1997 were
approximately $3,400, $25,000 and $6,000, respectively.
In addition, the Company is obligated to pay royalties to MIT of 3% of net
sales of the products, to be reduced to 0.5% if the Company is obligated to pay
royalties under the December 23, 1993 agreement for the same products. No
royalties were paid in 1999, 1998 or 1997.
(b) American Medical Systems
In 1995, the Company entered into a Research and Development Agreement (R&D
Agreement) and a Supply and Marketing Agreement with American Medical Systems
(AMS). Under the R&D Agreement, as amended effective April 15, 1998, AMS
provided research and development funding of approximately $305,000, $4,254,000
and $4,582,000 in 1999, 1998 and 1997, respectively. AMS provided such funding
to support the Company's research and development of products for the treatment
of vesicoureteral reflux and urinary incontinence (the Reflux and Incontinence
Products).
Under the R&D Agreement, AMS was obligated to pay the Company milestone
payments of up to $9,750,000 upon reaching certain events in the Reflux and
Incontinence Products' life cycles, as defined in the R&D Agreement. Through
December 31, 1998, the Company received $4,125,000 in milestone payments; it
received none in 1999. In consideration for the above-mentioned funding, the
Company granted AMS the exclusive rights to market the Reflux and Incontinence
Products developed under the R&D Agreement at an agreed-upon price structure
that included certain royalties payable to the Company.
Effective January 26, 1999, the R&D Agreement and the Supply and Marketing
Agreement were mutually terminated by AMS and the Company. AMS reimbursed the
Company for approximately $305,000 of its actual research and development costs
for the period of January 1, 1999 through January 26, 1999. In connection with
the termination, AMS will not reimburse the Company for its research and
development expenses beyond January 26, 1999.
Pursuant to the termination agreement, the Company will pay AMS up to an
aggregate of $4 million upon the attainment of certain specific events. In
April 1999, the first payment of $500,000 became due and was paid upon the
initial treatment of a patient in the Company's clinical trials. This amount
has been included in other expense. The remaining $3,500,000 payment is
contingent upon, and due only after, regulatory approval/notification and
commercialization of the Reflux and Incontinence Products. The Company does not
currently intend to pursue regulatory approval and commercialization of its
Incontinence Product. The payment due AMS will decrease by $1,250,000 if the
Incontinence Product is discontinued.
F-42
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The Company maintains the entire right, title and interest in and to all its
technology, including such technology developed by or for the Company pursuant
to the R&D Agreement with AMS.
(c) University of Massachusetts
Effective September 19, 1996, the Company entered into an exclusive license
agreement (the UMASS License Agreement) and a sponsored research agreement (the
UMASS Research Agreement) with the University of Massachusetts (UMASS). The
UMASS License Agreement grants the Company the rights to certain existing and
future UMASS patents (the Patents) that relate to the use of cartilage paint
technology. Under the UMASS Research Agreement, the Company will provide
funding of $125,000 in 2000 to UMASS related to orthopedic research and the
development of certain plastic and reconstructive surgery and cartilage paint
products.
Future milestone payments totaling a maximum of $1,280,000 may be made to
UMASS based on reaching certain events, as defined in the UMASS License
Agreement. The Company made payments related to the UMASS Research Agreement of
approximately $250,000, $250,000 and $200,000 in 1999, 1998 and 1997,
respectively.
The Company will pay UMASS a royalty of 3% of net sales of products or
services licensed under the UMASS License Agreement (as defined). Minimum
royalties of $25,000 and $50,000 for primary field and secondary field
products, as defined, respectively, beginning in 1999 and 2001, respectively,
are payable to UMASS. The UMASS License Agreement is cancelable by the Company
upon 90 days written notice and will remain in force until the earlier of the
expiration of all issued patents or September 2006. During 1999, the Company
paid UMASS $25,000 under the terms of the UMASS License Agreement. No payments
were made in 1998 or 1997.
(d) National Institute of Standards and Technology
Effective November 1, 1999, the Company received a grant award for its
cardiovascular project from the Advanced Technology Program of the National
Institute of Standards and Technology. Under the terms of the grant award, the
Company will receive $2,000,000 in cost reimbursement funding to be paid at a
rate of approximately $666,000 annually over a three-year period. Funding is
contingent on the Company meeting minimum cost sharing and other requirements,
as defined in the financial assistance award and annual government
appropriations for the award. The Company recognized approximately $137,000
under this award in 1999.
(e) Department of Health and Human Services
Effective September 30, 1998, the Company received a grant award for its
vesicoureteral reflux product under the Orphan Drug Program of the Department
of Health and Human Services. This grant award provides for cost reimbursement
funding of approximately $221,000 for certain patient costs associated with a
vesicoureteral reflux Phase III clinical trial. In 1999, the Company earned
approximately $76,000 under this grant award. No amounts were earned in 1998.
F-43
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(f) Carolina Tissue Development Partners
Carolina Tissue Development Partners (CTDP) was formed in 1994 as a general
partnership between the Company (as Managing Partner) and a certain foundation
(the Foundation) to perform basic research and development relating to human
tissue engineering processes and products in the breast tissue field. Pursuant
to the partnership agreement, the Company contributed certain intellectual
property rights and was obligated to provide funding for the development of
synthetic polymers, not to exceed $250,000 annually or $1,000,000 in the
aggregate. The Foundation was obligated to provide up to $5,000,000 of direct
and indirect research and development resources, as described below. All
income, losses and distributions, if any, of CTDP were allocated 75% to the
Company and 25% to the Foundation.
Effective October 21, 1994, CTDP entered into a five-year collaborative
research and development agreement (Facilities, Research and Development
Agreement) with the Charlotte-Mecklenburg Hospital Authority (the Authority),
an affiliate of the Foundation, wherein the Authority provided resources in
order to assist CTDP in the development of processes and products for human
tissue engineering with specific application to breast tissue that was
conducted by an affiliated research center (the Research Center). Under the
Facilities, Research and Development Agreement, the Authority was obligated to
reimburse the Research Center up to $5,000,000 for direct and indirect costs
and expenses of performing the related research and development.
On January 1, 1999, the Company and the Foundation decided to dissolve CTDP.
In connection with this dissolution, the Authority paid CTDP $1,500,000 to
settle all outstanding obligations under the Facilities, Research and
Development Agreement and the Agreement was terminated. The Company then
purchased the Foundation's general partnership interest in CTDP for 500,000
shares of the Company's common stock and CTDP was dissolved. Upon the
dissolution, the $1,500,000 paid by the Authority reverted to the Company. The
Company recorded the 500,000 common shares issued to the Foundation at their
fair value of $500,000 and recorded the $1,500,000 as other income. The
Foundation's 25% interest in the termination fee is recorded as the $375,000
minority interest in the consolidated statements of operations for the year
ended December 31, 1999. The Company utilized purchase accounting for the
purchase of the 25% minority interest in CTDP. The excess of the purchase price
of $500,000 over the book value of the minority interest of $375,000 was
charged to research and develop expenses as in process research and
development. The Company also issued an option to purchase a total of 20,000
shares of common stock to two consultants at an exercise price of $1.00 that
vest over a 42-month period. The Company recorded compensation expense for
these options of approximately $12,000 for the year ended December 31, 1999.
In connection with the dissolution of CTDP, the Company entered into an
agreement with the Authority to license certain patents that are used by the
Company in the areas of soft tissue engineering and breast reconstruction
product development. The Company and the Authority share equally in all patent-
related costs and in any future license fees earned from patents created at the
Research Center.
Additionally, in connection with the dissolution of CTDP, the Company
entered into an 18-month sponsored research agreement with the Authority to
continue the development of products used in the areas of soft tissue
engineering and breast reconstruction that was previously conducted by CTDP
(Sponsored Research Agreement). The Sponsored Research Agreement specifies that
the Company shall pay to the Authority approximately $516,000 and $246,000 in
1999 and 2000, respectively. However, if certain development milestones were
not achieved by December 31, 1999, the Company had the option to terminate the
Sponsored Research Agreement without penalty. In 1999, the Company paid the
Authority approximately $516,000 in connection with the Sponsored Research
Agreement.
F-44
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(4) ACCRUED EXPENSES
Accrued expenses at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Accrued scientific research and consulting costs..... $396,225 $440,302
Trade accounts payable............................... 340,799 154,184
Other accrued expenses............................... 181,503 260,042
-------- --------
$918,527 $854,528
======== ========
</TABLE>
(5) COMMITMENTS
(a) Equipment Loan Agreement
In June 1998, the Company entered into an equipment loan agreement with a
maximum borrowing capacity of $2,000,000. The principal and interest on any
borrowings are to be repaid over 48 equal monthly installments. This amount is
secured by substantially all of the Company's tangible assets.
Future minimum payments under this agreement as of December 31, 1999 are as
follows:
<TABLE>
<S> <C>
Fiscal Year--
2000....................................................... $ 480,859
2001....................................................... 524,574
2002....................................................... 474,873
----------
Total payments........................................... 1,480,306
Less--Amount representing interest......................... 240,837
----------
Present value of minimum payments........................ 1,239,469
Less--Current portion...................................... 353,508
----------
$ 885,961
==========
</TABLE>
Additionally, in connection with the Equipment Loan Agreement, the Company
issued warrants for the purchase of 21,667 shares of common stock at $3.00 per
share. In accordance with SFAS No. 123, Accounting for Stock-Based
Compensation, the Company computed the fair value of the warrants using the
Black-Scholes option pricing model. The value of these warrants was not
material to the financial statements.
F-45
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(b) Operating Leases
The Company has entered into lease agreements for laboratory equipment and
facilities, office space and computer equipment. The Company's operating leases
are primarily for the Company's research and development facility in Cambridge,
Massachusetts, and expire in December 2007. Future minimum lease payments under
operating leases with initial or remaining terms of one year or more are
approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
2000........................................ $ 693,134
2001........................................ 683,000
2002........................................ 679,390
2003........................................ 677,700
2004........................................ 661,361
Thereafter.................................. 1,979,627
----------
$5,374,212
==========
</TABLE>
The Company's rent expense under operating leases was approximately
$725,000, $654,000 and $923,000 during 1999, 1998 and 1997, respectively, net
of facility sublease income of approximately $178,000 and $41,000 in 1999 and
1998, respectively. No facility sublease income was recorded in 1997.
(6) RELATED PARTY TRANSACTIONS
The Company has consulting agreements with nine members of its Scientific
Advisory Board (SAB) and one member of its board of directors. Payments to
these members under these agreements amounted to $335,834, $324,000 and
$290,000 in 1999, 1998 and 1997, respectively. Future obligations under the
consulting agreements are approximately $154,167 and $80,000 in 2000 and 2001,
respectively.
(7) DEFERRED TAXES
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $13,658,000, which expire through
2019. The Company also has certain tax credits available to offset future
federal and state income taxes, if any. Net operating loss carryforwards and
credits are subject to review and possible adjustments by the Internal Revenue
Service and they may be limited by the occurrence of certain events, including
significant changes in ownership interests.
The Company's total deferred tax assets and corresponding valuation
allowances at December 31, 1999 and 1998 are approximately as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net operating loss carryforwards................. $5,463,000 $1,815,000
Research and development tax credits............. 648,000 280,000
Other............................................ 18,000 (17,000)
---------- ----------
6,129,000 2,078,000
Less--Valuation allowance for deferred tax
assets.......................................... (6,129,000) (2,078,000)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
F-46
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
SFAS No. 109 requires that a valuation allowance be recorded against tax
assets when it is more likely than not that the deferred tax assets will not be
realized. Since their ultimate realization based upon past performance and
expiration dates is uncertain, the Company has established a full valuation
allowance against these carryforward benefits and will recognize the benefits
only as reassessment demonstrates they are realizable. Realization is entirely
dependent upon future earnings in specific tax jurisdictions. The need for this
valuation allowance is subject to periodic review. If the allowance is reduced,
the tax benefits of the carryforwards will be recorded in future operations as
a reduction of the Company's income tax expense. No income tax payments were
made during 1999 and 1998.
(8) STOCK OPTIONS
The Company's 1996 Long-Term Incentive Plan (the Plan) provides for the
grant of non-qualified and incentive stock options and shares of restricted
stock to employees, consultants, independent members of the Board of Directors
and members of the SAB. The Plan terminates on June 30, 2006, subject to
earlier termination by the Board of Directors. Under the Plan, as amended July
30, 1999, 2,500,000 shares of common stock have been reserved for issuance.
Information with respect to the Plan is as follows:
<TABLE>
<CAPTION>
Weighted-
Exercise Average
Number of Price Per Exercise
Shares Share Price
--------- ----------- ---------
<S> <C> <C> <C>
Outstanding at December 31, 1996.......... 853,400 $ 0.25-1.00 $0.97
Granted................................. 493,600 1.00-2.50 1.06
Expired or canceled..................... (60,000) 1.00 1.00
--------- ----------- -----
Outstanding at December 31, 1997.......... 1,287,000 0.25-2.50 1.00
Granted................................. 454,170 1.00-3.00 1.47
Expired or canceled..................... (5,950) 1.00 1.00
--------- ----------- -----
Outstanding at December 31, 1998.......... 1,735,220 0.25-3.00 1.16
Granted................................. 243,220 0.10-1.00 0.50
Expired or canceled..................... (67,879) 1.00 1.00
--------- ----------- -----
Outstanding at December 31, 1999.......... 1,910,561 $0.10-$3.00 $1.05
========= =========== =====
Vested at December 31, 1999............... 1,416,721 $0.25-$3.00 $1.05
========= =========== =====
Vested at December 31, 1998............... 888,513 $0.25-$2.50 $1.10
========= =========== =====
Vested at December 31, 1997............... 525,895 $0.25-$2.50 $1.10
========= =========== =====
</TABLE>
The following table presents weighted-average price and life information
about significant option groups outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Weighted-
Average Weighted-
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
-------- ----------- ----------- ---------
<S> <C> <C> <C>
$0.10-1.00 1,788,061 7.3 years $0.89
$2.50-3.00 122,500 8.1 years $2.51
---------
1,910,561
=========
</TABLE>
F-47
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Options granted to employees and certain options granted to members of the
SAB generally vest over a 42-month period, but they may not be exercised before
a registration of the Company's common stock pursuant to the provisions of the
Securities Exchange Act of 1933 or nine years and six months following the date
of grant, whichever is sooner.
During 1999, the Company repriced 70,000 options to purchase common stock
issued to certain members of its board of directors. Under Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, the Company is required to follow variable accounting for these
options. As of December 31, 1999, there was no difference between the fair
market value of the Company's common stock and the exercise price of these
options; accordingly, there was no income statement impact related to these
options in 1999.
On February 14, 2000, the Company issued 300,000 shares of restricted stock
to its Chief Executive Officer. These shares of restricted stock will be fully
vested upon the effective date of the merger of the Company with Ontogeny, Inc.
and Creative BioMolecules, Inc. If the effective date has not occurred prior to
September 30, 2000, the restricted stock will be forfeited.
SFAS No. 123 requires the measurement of the fair value of stock options or
warrants to be included in the statement of operations or disclosed in the
notes to consolidated financial statements. The Company has determined that it
will continue to account for stock-based compensation for employees under APB
No. 25 and elect the disclosure-only alternative under SFAS No. 123.
Had compensation cost for the Company's options been measured in accordance
with SFAS No. 123, the Company's net loss would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Net loss--
As reported......................... $(8,004,352) $(3,617,110) $(121,147)
Pro forma........................... (8,314,297) (3,890,368) (366,093)
</TABLE>
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield........................... 0.0% 0.0% 0.0%
Risk-free interest rate.................. 4.8%-6.33% 5.5%-5.7% 7.0%
Volatility............................... 70% 70% 70%
Weighted-average expected option term.... 7.0 years 7.0 years 7.0 years
</TABLE>
The weighted fair market value per share at the date of grant during 1999,
1998 and 1997 was approximately $0.84, $0.56 and $0.73, respectively.
(9) PREFERRED STOCK
In August 1999, the Company increased its number of authorized shares of
common and preferred stock to 30,084,501 and 7,747,153 shares, respectively.
Also in 1999, the Company issued 4,729,134 shares of Series B convertible
preferred stock (Series B) with a par value of $0.01 and warrants for the
purchase of 2,364,562 shares of the Company's common stock at $.50 per share in
exchange for an aggregate purchase price of approximately $10,500,000. The
purchase price consisted of approximately $7,430,000 in cash and the conversion
of $2,950,000 of bridge notes and $118,000 of accrued interest thereon (see
Note 10). In 1997, the Company issued 2,702,702 shares of Series A convertible
preferred stock (Series A) with a par value of $0.01 and warrants for the
purchase of 1,351,352 shares of the Company's common stock at $3.00 per share
in exchange for an aggregate purchase price of approximately $6,000,000 in
cash.
F-48
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
CONVERSION
Each share of Series A and Series B preferred stock, at the option of the
holder, may be converted at any time into one share of common stock of the
Company. The Series A and Series B preferred stock is automatically converted
into shares of common stock of the Company at any time upon the affirmative
election by the holders of a majority of the outstanding preferred stock or
upon the closing of an initial public offering of the Company's common stock
having an offering price of at least $5.00 per share and aggregate gross
proceeds of $20,000,000.
DIVIDENDS
Dividends are payable on the Series A and Series B preferred shares pro rata
on an as-converted basis with dividends on the common stock. In addition, on
January 20, 2000, under the terms of the Series B preferred stock purchase
agreement, a special common stock dividend of three-quarters of one share of
common stock per share of Series B preferred stock, for a total of 3,546,864
common shares, was paid to the Series B shareholders pursuant to the terms of
the Company's Articles of Incorporation, as amended.
Each holder of Series A and Series B preferred shares has voting rights
equal to the number of common stock shares into which such preferred shares of
the holder are convertible. The consent of the holders of a majority of the
Series A and Series B preferred shares is required for validating certain
actions by the Company.
LIQUIDATION PREFERENCE
The holders of the Series A preferred shares are entitled to a liquidation
preference equal to $2.22 per share plus any declared but unpaid dividends on
such shares in the event of the Company's liquidation, dissolution or winding-
up. After such payment is made, then:
(1) If (a) the liquidating event occurs prior to January 1, 2002 and, on
a pro forma basis, the Series B shareholders would received an amount per
share of Series B preferred in excess of $3.30 plus all declared and unpaid
dividends had all the assets of the Company legally available for
distribution (excluding those assets distributed to satisfy the liquidation
preference of the Series A preferred shares) been distributed ratably to
the holders of the Company's common stock, the Series A preferred stock and
the Series B preferred stock on an as-if-converted-to-common-stock basis or
(b) the liquidating event occurs and all shareholders of the Company are
entitled to receive securities as a result of such liquidating event, then
all remaining assets of the Company shall be distributed ratably to the
holders of the Company's common stock and the Series A preferred and the
Series B preferred on an as-if-converted-to-common-stock basis.
(2) In all other cases, the remaining assets will be distributed to
Series A and Series B shareholders on a basis whereby the Series B
shareholders will receive that portion of the total assets equal to (x) the
total number of shares of Company common stock that would be outstanding if
the outstanding shares of series B preferred stock were converted into
shares of Company common stock divided by (y) the total number of shares of
Company common stock that would be outstanding if the outstanding shares of
both Series A preferred stock and Series B preferred stock were converted
into Company common stock (the Total Shares), and Series A shareholders
will receive that portion of the total assets equal to (x) the total number
of shares of Company common stock into which the outstanding shares of
Series A preferred stock are then convertible divided by (y) the Total
Shares; with such distribution to be made until the holders of the SeriesB
preferred stock receive an amount per share of Series B equal to $2.22 plus
all declared and unpaid dividends. Any remaining assets will then be
distributed on a pro rata basis to all shareholders.
F-49
<PAGE>
REPROGENESIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
WARRANTS
The holders of the 1,351,352 warrants issued with the Series A preferred
stock are entitled to purchase shares of common stock of the Company for a cash
price of $3.00 per share. In connection with the January 1999 bridge loans, the
Company repriced 1,328,828 of these warrants from $3.00 to $0.30 per share (see
Note 10).
The warrants issued with the Series A preferred stock are fully exercisable
and expire on the earlier of (i) the closing of an initial public offering of
the Company's common stock having an offering price of at least $5.00 per share
and aggregate gross proceeds of $20,000,000, (ii) April 25, 2000 or (iii) any
reorganization, reclassification, consolidation, merger or sale, if the value
of the stock or other assets payable with respect to the Reprogenesis common
stock is in excess of the stock purchase price (as defined in the warrant), and
the stock received, if any, is publicly traded.
The holders of the 2,364,562 warrants issued with the Series B preferred
stock are entitled to purchase shares of common stock of the Company at an
exercise price of $.50 per share. The warrants are fully exercisable and expire
on the earlier of (i) the closing of an initial public offering of the
Company's common stock having an offering price of at least $5.00 per share and
aggregate gross proceeds of $20,000,000, (ii) July 30, 2004 or (iii) any
reorganization, reclassification, consolidation, merger or sale, if the value
of the stock or other assets payable with respect to the Reprogenesis common
stock is in excess of the stock purchase price (as defined in the warrant), and
the stock received, if any, is publicly traded.
(10) BRIDGE LOAN AGREEMENTS
In January 1999, the Company entered into bridge loan agreements (the Notes)
with certain Series A stockholders for a total of $2,950,000. The Notes were
secured by certain intellectual property of the Company and accrued interest at
the rate of 8% per annum until maturity. In August 1999, under the terms of the
Notes, the Notes and approximately $118,000 of accrued interest were converted
into Series B preferred stock (see Note 9).
In connection with the Notes, the Company reduced the exercise price of
warrants to purchase 1,328,828 shares of common stock issued in connection with
the Series A preferred stock from $3.00 to $0.30 (see Note 9). The Company
estimated the value of this repricing under the Black-Scholes option pricing
model to be approximately $0.72 per share. This value was accounted for as
interest expense over the term of the Notes.
(11) RETIREMENT PLAN
Effective January 1, 1999, the Company began sponsoring a defined
contribution plan (the Plan) that covers substantially all of the Company's
employees, subject to minimum age and experience requirements, pursuant to
which employees may defer compensation for income tax purposes under Section
401(k) of the Internal Revenue Code. Participants may contribute up to 15% of
their annual compensation to the Plan, subject to certain limitations.
F-50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
CREATIVE BIOMOLECULES, INC.
ONTOGENY, INC.
REPROGENESIS, INC.
AND
CURIS, INC.
Dated as of February 14, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I THE MERGER................................................ A-2
1.1 The Merger................................................. A-2
1.2 Effective Time............................................. A-2
1.3 Effect of the Merger....................................... A-2
Certificate of Incorporation and By-laws of Surviving
1.4 Company.................................................... A-2
1.5 Directors and Officers..................................... A-2
ARTICLE II EFFECTS ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES........ A-2
2.1 Effect of Merger On Capital Stock.......................... A-2
2.2 Cancellation of Treasury Shares............................ A-4
2.3 Stock Options and Warrants................................. A-4
2.4 Adjustments to Exchange Ratios............................. A-4
2.5 Fractional Shares.......................................... A-5
2.6 Surrender of Certificates.................................. A-5
2.7 No Further Ownership Rights in Company Stock............... A-6
2.8 Closing.................................................... A-6
2.9 Lost, Stolen or Destroyed Certificates..................... A-6
2.10 Tax Consequences........................................... A-7
2.11 Dissenters' Rights......................................... A-7
2.12 Closing of Company Transfer Books.......................... A-7
2.13 Affiliates................................................. A-7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANIES............... A-8
3.1 Organization of the Company................................ A-8
3.2 The Company's Capital Structure............................ A-8
3.3 Authority; No Conflict; Required Filings and Consents...... A-9
3.4 Financial Statements....................................... A-10
3.5 No Undisclosed Liabilities................................. A-11
3.6 Absence of Certain Changes or Events....................... A-11
3.7 Taxes...................................................... A-11
3.8 Properties................................................. A-12
3.9 Intellectual Property...................................... A-12
3.10 Preclinical Testing and Clinical Trials.................... A-13
3.11 Agreements, Contracts and Commitments...................... A-14
3.12 Litigation................................................. A-14
3.13 Environmental Matters...................................... A-14
3.14 Employee Benefit Plans..................................... A-15
3.15 Compliance With Laws....................................... A-16
3.16 Certain Regulatory Matters................................. A-16
3.17 Tax Matters................................................ A-16
3.18 Registration Statement; Proxy Statement/Prospectus......... A-17
3.19 Labor Matters.............................................. A-17
3.20 Insurance.................................................. A-17
3.21 No Existing Discussions.................................... A-17
3.22 Opinion of Financial Advisor............................... A-17
3.23 Section 203 of the DGCL Not Applicable..................... A-17
3.24 No Brokers................................................. A-18
3.25 Stockholder Rights......................................... A-18
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OR CURIS................... A-18
4.1 Organization of Curis..................................... A-18
4.2 Curis' Capital Structure.................................. A-19
4.3 Authority; No Conflict; Required Filings and Consents..... A-19
Continuity of Business Enterprise; Reorganization
4.4 Classification............................................ A-20
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER.................... A-20
5.1 Conduct of Business by Company Pending the Merger......... A-20
5.2 Cooperation............................................... A-22
5.3 Confidentiality........................................... A-22
5.4 Curis Certificate of Incorporation........................ A-22
ARTICLE VI SOLICITATION OF OTHER PROPOSALS........................... A-22
6.1 Solicitation of Other Proposals........................... A-22
ARTICLE VII ADDITIONAL AGREEMENTS..................................... A-25
7.1 Proxy Statement/Prospectus; Registration Statement........ A-25
7.2 Meetings of Stockholders.................................. A-26
7.3 Access to Information..................................... A-26
7.4 All Reasonable Efforts; Further Assurances................ A-26
7.5 Stock Options and Warrants................................ A-27
7.6 Notification of Certain Matters........................... A-28
7.7 Listing on the Nasdaq..................................... A-29
7.8 Public Announcements...................................... A-29
7.9 Accountant's Letters...................................... A-29
7.10 Indemnification of Directors and Officers................. A-29
7.11 Covenants for Tax-free Status............................. A-30
7.12 Stockholder Agreements.................................... A-30
7.13 Affiliate Agreements...................................... A-31
7.14 SEC Filings............................................... A-31
7.15 Maintenance, Prosecution and Filing Obligations........... A-31
7.16 Certain Agreements........................................ A-31
7.17 Lock-Up Agreements........................................ A-32
7.18 Curis Board Authorization................................. A-32
7.19 Best Efforts Obligations.................................. A-32
ARTICLE VIII CONDITIONS OF MERGER...................................... A-32
Conditions to Obligation of All Parties to Effect the
8.1 Merger.................................................... A-32
Additional Conditions to Obligation of Each Party to
8.2 Effect the Merger......................................... A-33
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER......................... A-34
9.1 Termination............................................... A-34
9.2 Effect of Termination..................................... A-35
9.3 Fees and Expenses......................................... A-35
9.4 Amendment................................................. A-37
9.5 Waiver.................................................... A-37
ARTICLE X GENERAL PROVISIONS........................................ A-38
10.1 Survival of Representations and Warranties................ A-38
10.2 Notices................................................... A-38
10.3 Certain Definitions....................................... A-39
10.4 Interpretation............................................ A-40
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
10.5 Severability.............................................. A-40
10.6 Entire Agreement.......................................... A-41
10.7 Assignment................................................ A-41
10.8 Parties in Interest....................................... A-41
10.9 Failure or Indulgence Not Waiver; Remedies Cumulative..... A-41
10.10 Governing Law............................................. A-41
10.11 Counterparts.............................................. A-41
EXHIBIT A-- Form of Stockholder Agreement............................. A-46
EXHIBIT B-- Form of Certificate of Merger............................ A-50
EXHIBIT C-- Form of Articles of Merger............................... A-52
EXHIBIT D-- Curis Certificate of Incorporation....................... A-55
EXHIBIT E-- Form of Affiliate Agreement.............................. A-58
EXHIBIT F-- Form of Lock-Up Agreement................................ A-60
Form of Certificate of Amendment to Certificate of
EXHIBIT G-- Incorporation............................................ A-62
Form of Articles of Amendment to Articles of
EXHIBIT H-- Incorporation............................................ A-64
</TABLE>
iii
<PAGE>
SCHEDULES
Schedule 1.5Directors and Officers of the Surviving Company
Creative Disclosure Schedules
See attached
Ontogeny Disclosure Schedules
See attached
Reprogenesis Disclosure Schedules
See attached
Curis Disclosure Schedules
None
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, is made as of February 14, 2000 (the
"Agreement") by and among CREATIVE BIOMOLECULES, INC., a Delaware corporation
("Creative"), ONTOGENY, INC., a Delaware corporation ("Ontogeny"),
REPROGENESIS, INC., a Texas corporation ("Reprogenesis") and CURIS, INC. a
Delaware corporation ("Curis"). Each of Creative, Ontogeny, Reprogenesis and
Curis are sometimes referred to herein individually as a "Party" and
collectively as the "Parties". Each of Creative, Ontogeny and Reprogenesis are
also sometimes referred to herein individually as a "Company" and collectively
as the "Companies".
RECITALS
WHEREAS, each of the Parties desires to effectuate a corporate
reorganization to form a combined company to conduct the businesses of the
Companies;
WHEREAS, Curis has been formed by the Companies for the purpose of
effectuating such corporate reorganization;
WHEREAS, each Company is the owner of 100 shares of common stock, par value
$.01 per share, of Curis (the "Curis Common Stock");
WHEREAS, the Board of Directors of each Party has deemed it advisable and in
the best interests of such Party and the stockholders of such Party for such
Party to effectuate the corporate reorganization upon the terms and subject to
the conditions set forth herein;
WHEREAS, in furtherance of such corporate reorganization, the Board of
Directors of each Company has approved the merger of such Company and each
other company with and into Curis (the "Merger"), with Curis being the
surviving corporation of the Merger (the "Surviving Company") in accordance
with the General Corporation Law of the State of Delaware (the "DGCL") and the
Texas Business Corporation Act (the "TBCA") and subject to the conditions set
forth herein;
WHEREAS, the Merger will result in, among other things, the exchange and
conversion of all of the issued and outstanding shares of capital stock of the
Companies into shares of common stock, par value $0.01 per share, of the
Surviving Company ("Surviving Company Common Stock");
WHEREAS, as a condition to the willingness of, and as an inducement to, the
Parties to enter into this Agreement, contemporaneously with the execution and
delivery of this Agreement, certain holders of shares of capital stock of the
Companies are entering into agreements in the form of Exhibit A hereto (a
"Stockholder Agreement"), which Stockholder Agreements provide for certain
actions relating to the transactions contemplated by this Agreement, including
the agreement by such holders to vote such shares in favor of the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code") and
the United States Treasury Regulations promulgated thereunder; and
WHEREAS, the Parties desire to make certain representations and warranties
and other agreements in connection with the Merger; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Parties hereby agree as follows:
A-1
<PAGE>
ARTICLE I
The Merger
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
provisions of the DGCL and the TBCA, each Company shall be merged with and into
Curis, the separate corporate existence of each Company shall cease and Curis
shall, as the surviving corporation in the Merger, continue its existence under
the provisions of the DGCL as the Surviving Company.
1.2 Effective Time. As promptly as practicable after the satisfaction or, to
the extent permitted hereunder, waiver of the conditions set forth in Article
VIII of this Agreement, the Parties shall cause the Merger to be consummated by
filing (a) the Certificate of Merger substantially in the form of Exhibit B
attached hereto (the "Certificate of Merger"), along with a certified copy of
this Agreement, if required, with the Secretary of State of the State of
Delaware, executed in accordance with the relevant provisions of the DGCL and
(b) the Articles of Merger substantially in the form of Exhibit C attached
hereto (the "Articles of Merger") with the Secretary of State of the State of
Texas, executed in accordance with the relevant provisions of the TBCA (the
date and time of the later of the issuance of the certificate of merger by the
Secretary of State of the State of Texas and the filing of the Certificate of
Merger, or such later date and time as may be specified in the Certificate of
Merger and the Articles of Merger by mutual agreement of the Parties, being the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the DGCL and the TBCA.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Companies shall vest in the Surviving Company, and all debts, liabilities
and duties of the Companies shall become the debts, liabilities and duties of
the Surviving Company.
1.4 Certificate of Incorporation and By-laws of Surviving Company. The
Certificate of Incorporation of Curis shall be the Certificate of Incorporation
of the Surviving Company until thereafter amended as provided by the DGCL. The
By-laws of Curis shall be the By-laws of the Surviving Company until thereafter
amended as provided by the DGCL.
1.5 Directors and Officers. At the Effective Time, the directors and
officers of the Surviving Company shall be those persons set forth on Schedule
1.5 hereto, in each case until their respective successors are duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Company's Certificate of Incorporation and By-
laws.
ARTICLE II
Effects on Capital Stock; Exchange of Certificates
2.1 Effect of Merger on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the Parties hereto or the
holders of the following securities:
(a) Subject to the other provisions of this Article II, each share of common
stock, par value $.01 per share, of Creative (the "Creative Common Stock")
issued and outstanding immediately prior to the Effective Time (other than any
Creative Common Stock to be canceled pursuant to Section 2.2) shall be
converted automatically into the right to receive 0.30 of a fully paid and
nonassessable share of Surviving Company Common Stock (the "Creative Exchange
Ratio"), together with cash, if any, in lieu of any fraction of a share of
Surviving Company Common Stock, pursuant to Section 2.5 (the "Creative Merger
Consideration").
(b) Subject to the other provisions of this Article II, each share of (i)
common stock, par value $.01 per share, of Ontogeny (the "Ontogeny Common
Stock") issued and outstanding immediately prior to the Effective
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Time and (ii) each share of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock, Series C-1
Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E
Convertible Preferred Stock, Series F Convertible Preferred Stock and Series G
Convertible Preferred Stock of Ontogeny, each series with a par value $.01 per
share (collectively, the "Ontogeny Preferred Stock") issued and outstanding
immediately prior to the Effective Time (other than, in each case, any Ontogeny
Common Stock or Ontogeny Preferred Stock to be canceled pursuant to Section 2.2
and any Appraisal Shares (as defined in Section 2.11(a))) shall be converted
automatically into the right to receive 0.2564 of a fully paid and
nonassessable share of Surviving Company Common Stock (the "Ontogeny Exchange
Ratio"), together with cash, if any, in lieu of any fraction of a share of
Surviving Company Common Stock, pursuant to Section 2.5 (the "Ontogeny Merger
Consideration").
(c) (i) In addition to such number of shares of Surviving Company Common
Stock that each share of Series A preferred stock, par value $.01 per share, of
Reprogenesis (the "Reprogenesis Series A Stock") shall be entitled to pursuant
to Section 2.1 (c)(ii), each share of Reprogenesis Series A Stock issued and
outstanding immediately prior to the Effective Time (other than any
Reprogenesis Series A Stock to be canceled pursuant to Section 2.2 and any
Dissenting Shares (as defined in Section 2.11(b)) shall be converted
automatically into the right to receive the number of fully paid and
nonassessable shares of Surviving Company Common Stock equal to the
Reprogenesis Series A Consideration divided by 2,702,702, together with cash,
if any, in lieu of any fraction of a share of Surviving Company Common Stock,
pursuant to Section 2.5. "Reprogenesis Series A Consideration" shall mean the
lesser of (A) the number of fully paid and nonassessable shares of Surviving
Company Common Stock whose aggregate Trailing Average Market Price equals
$6,000,000 and (B) the Reprogenesis Fully Diluted Merger Consideration.
(ii) Subject to Section 2.1(c)(i), each share of common stock, par value
$.01 per share, of Reprogenesis (the "Reprogenesis Common Stock"), each share
of Reprogenesis Series A Stock and each share of Series B preferred stock, par
value $.01 per share, of Reprogenesis (the "Reprogenesis Series B Stock")
issued and outstanding immediately prior to the Effective Time (other than any
Reprogenesis Common Stock, Reprogenesis Series A Stock and Reprogenesis Series
B Stock to be canceled pursuant to Section 2.2 and any Dissenting Shares (as
defined in Section 2.11(b)) shall be converted automatically into the right to
receive 0.1956 (the "Reprogenesis Exchange Ratio") multiplied by a fraction,
the numerator of which is the Reprogenesis Fully Diluted Merger Consideration
less the Reprogenesis Series A Consideration and the denominator of which is
the Reprogenesis Fully Diluted Merger Consideration, of a fully paid and
nonassessable share of Surviving Company Common Stock, together with cash, if
any, in lieu of any fraction of a share of Surviving Company Common Stock,
pursuant to Section 2.5. The Creative Exchange Ratio, Ontogeny Exchange Ratio
and Reprogenesis Exchange Ratio are sometimes referred to individually herein
as an "Exchange Ratio".
(iii) For the purposes of this Section 2.1(c), (A) "Trailing Average Market
Price" shall mean the average of the daily Market Price for each Business Day
on the twenty (20) consecutive Business Days the last day of which shall be the
fifth Business Day prior to the Effective Time, divided by the Creative
Exchange Ratio, (B) "Reprogenesis Fully Diluted Merger Consideration" shall
mean the product of the Reprogenesis Exchange Ratio and the aggregate number of
shares of Reprogenesis Common Stock, Reprogenesis Series A Stock and
Reprogenesis Series B Stock either issued and outstanding or subject to
outstanding options or warrants to purchase immediately prior to the Effective
Time (other than any Reprogenesis Common Stock, Reprogenesis Series A Stock and
Reprogenesis Series B Stock to be canceled pursuant to Section 2.2), (C)
"Market Price" at any date shall be deemed to be the last reported sale price
of Creative Common Stock, or, in case no such reported sale takes place on such
day, the average of the bid and asked prices, in either case as officially
reported by the Nasdaq National Market, or, if the Nasdaq National Market is no
longer reporting such information, as reasonably determined in good faith by
resolution of the Board of Directors of Reprogenesis, and (D) "Reprogenesis
Merger Consideration" shall mean the product of the Reprogenesis Exchange Ratio
and the number of shares of Reprogenesis Common Stock, Reprogenesis Series A
Stock and Reprogenesis Series B Stock issued and outstanding immediately prior
to the Effective Time (other than any Reprogenesis Common
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Stock, Reprogenesis Series A Stock and Reprogenesis Series B Stock to be
canceled pursuant to Section 2.2 and other than any Dissenting Shares). The
Reprogenesis Merger Consideration, collectively with the Creative Merger
Consideration and the Ontogeny Merger Consideration, are referred to herein as
the "Merger Consideration".
(d) As of the Effective Time, all Company Common Stock and Company Preferred
Stock (together, "Company Stock") issued and outstanding immediately prior to
the Effective Time shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any Company Stock shall
cease to have any rights with respect thereto, except the right to receive the
applicable Merger Consideration and any cash in lieu of fractional shares of
Surviving Company Common Stock to be issued or paid in consideration therefor
upon surrender of such certificate in accordance with Section 2.5 hereof,
without interest.
(e) As of the Effective Time, all shares of Curis Common Stock issued and
outstanding immediately prior to the Effective Time shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any Curis Common Stock
shall cease to have any rights with respect thereto.
2.2 Cancellation of Treasury Shares. Each share of Creative Common Stock
held in the treasury of Creative and each share of Creative Common Stock, if
any, owned by any wholly-owned subsidiary of Creative or by Curis immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof. Each share of Ontogeny Common Stock and Ontogeny Preferred
Stock held in the treasury of Ontogeny and each share of Ontogeny Common Stock
and Ontogeny Preferred Stock, if any, owned by any wholly-owned subsidiary of
Ontogeny or by Curis immediately prior to the Effective Time shall be canceled
and extinguished without any conversion thereof. Each share of Reprogenesis
Common Stock and Reprogenesis Preferred Stock held in the treasury of
Reprogenesis and each share of Reprogenesis Common Stock and Reprogenesis
Preferred Stock, if any, owned by any wholly-owned subsidiary of Reprogenesis
or by Curis immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
2.3 Stock Options and Warrants.
(a) At the Effective Time, each outstanding Company Stock Option under the
Company Stock Plans, whether vested or unvested, shall, in accordance with the
terms of such Company Stock Option and such Company Stock Plan, by virtue of
the Merger and without any action on the part of the holder thereof, become and
represent an option to acquire, on the same terms and conditions as were
applicable under such Company Stock Option, the same number of shares of
Surviving Company Common Stock as the holder of such Company Stock Option would
have been entitled to receive pursuant to the Merger had such holder exercised
such option in full immediately prior to the Effective Time, as further set
forth in Section 7.5.
(b) At the Effective Time, each outstanding Company Warrant (other than any
Company Warrant that by its terms otherwise expires by virtue of the Merger)
shall, in accordance with the terms of such Company Warrant, by virtue of the
Merger and without any action on the part of the holder thereof, become and
represent a warrant to acquire, on the same terms and conditions as were
applicable under such Company Warrant, the same number of shares of Surviving
Company Common Stock as the holder of such Company Warrant would have been
entitled to receive pursuant to the Merger (including with respect to the
treatment of fractional shares) had such holder exercised such Company Warrant
in full immediately prior to the Effective Time, as further set forth in
Section 7.5
2.4 Adjustments to Exchange Ratios. Without limiting any other provision of
this Agreement, the applicable Exchange Ratio or Exchange Ratios shall be
correspondingly adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Company Stock), reorganization, recapitalization,
reclassification, conversion, consolidation, contribution or exchange of shares
or other like change with respect to Curis Common Stock or Company Stock
occurring after the date hereof and prior to the Effective Time.
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2.5 Fractional Shares. No fraction of a share of Surviving Company Common
Stock will be issued hereunder, but in lieu thereof each holder of Company
Stock who would otherwise be entitled to a fraction of a share of Surviving
Company Common Stock (after aggregating all fractional shares of Surviving
Company Common Stock to be received by such holder) shall receive from the
Surviving Company an amount of cash (rounded down to the nearest whole cent),
without interest, equal to the product of such fraction multiplied by the
Market Value (as defined below) of the Surviving Company Common Stock. The
"Market Value" of the Surviving Company Common Stock means the closing price
per share of Surviving Company Common Stock (rounded to the nearest cent) on
the NASDAQ National Market (as reported in the Wall Street Journal, or, if not
reported therein, any other authoritative source selected by the Surviving
Company) on the first day of trading of shares of Surviving Company Common
Stock.
2.6 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Curis shall designate one
or more Persons to act as Exchange Agent hereunder.
(b) Surviving Company to Provide Common Stock. Promptly after the Effective
Time, the Surviving Company shall make available to the Exchange Agent for
exchange in accordance with this Article II, through such reasonable procedures
as the Surviving Company may adopt, the shares of Surviving Company Common
Stock issuable pursuant to Section 2.1 in exchange for outstanding Company
Stock, together with an estimated amount of cash to be paid pursuant to Section
2.5 in lieu of fractional shares.
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Company shall cause the Exchange Agent to mail to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding Company Stock whose shares were
converted into the right to receive shares of Surviving Company Common Stock
pursuant to Section 2.1, a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as the Surviving Company
may reasonably specify) and instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Surviving
Company Common Stock and cash in lieu of the fraction of a share of Surviving
Company Common Stock, if any, pursuant to Section 2.5 hereof. Upon surrender of
a Certificate for cancellation to the Exchange Agent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor, a certificate representing the number of whole
shares of Surviving Company Common Stock and payment in lieu of fractional
shares which such holder has the right to receive pursuant to Section 2.5, and
the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented Company Stock will be deemed from and after the Effective Time, for
all corporate purposes, other than the payment of dividends, to evidence the
right to receive the number of full shares of Surviving Company Common Stock
into which such Company Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 2.5. Any portion of the shares of Surviving Company
Common Stock deposited with the Exchange Agent pursuant to this Section 2.6(c)
which remains undistributed to the holders of the Certificates representing
Company Common Shares for six (6) months after the Effective Time shall be
delivered to Surviving Company, upon demand, and any holders of Company Stock
who have not theretofore complied with this Article II shall thereafter look
only to the Surviving Company for Surviving Company Common Stock, any cash in
lieu of fractional shares of Surviving Company Common Stock and any dividends
or distributions with respect to Surviving Company Common Stock to which such
holders may be entitled.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to
Surviving Company Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Surviving Company Common Stock represented thereby until the holder
of record of such Certificate shall
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surrender such Certificate. Subject to applicable escheat law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Surviving Company Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Surviving
Company Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Surviving
Company Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the Person
requesting such exchange will have paid to Surviving Company, or any agent
designated by it, any transfer or other taxes required by reason of the
issuance of a certificate for shares of Surviving Company Common Stock in any
name other than that of the registered holder of the certificate surrendered,
or established to the satisfaction of Surviving Company or any agent designated
by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Agreement, none of the Exchange Agent or Surviving Company shall be liable to a
holder of Company Stock for any Surviving Company Common Stock or any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(g) Withholding of Tax. The Surviving Company and the Exchange Agent will be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Company Stock such amounts as the
Surviving Company (or any Affiliate thereof) or the Exchange Agent are required
to deduct and withhold with respect to the making of such payment under the
Code, or any provision of federal, state, local or foreign Tax law (as defined
below). To the extent that amounts are so withheld by the Surviving Company or
the Exchange Agent, such withheld amounts will be treated for all purposes of
this Agreement as having been paid to the holder of Company Stock in respect of
whom such deduction and withholding were made by Surviving Company.
2.7 No Further Ownership Rights in Company Stock. All shares of Surviving
Company Common Stock issued upon the surrender for exchange of Company Stock in
accordance with the terms of this Article II (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such Company Stock under this Article II, and there
shall be no further registration of transfers on the records of the Surviving
Company of shares of Company Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Company for any reason, they shall be canceled and exchanged as
provided in this Article II.
2.8 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement abandoned pursuant to the
provisions of Article IX, and subject to the provisions of Article VIII, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. (Eastern
time) on a date (the "Closing Date") to be mutually agreed upon by the parties,
which date shall be not later than the third Business Day after all the
conditions set forth in Article VIII shall have been satisfied (or waived in
accordance with Section 9.5, to the extent the same may be waived), unless
another time and/or date is agreed to in writing by the parties. The Closing
shall take place at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., Boston, Massachusetts, unless another place is agreed to in
writing by the parties.
2.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Surviving Company
Common Stock and cash for fractional shares, if any, as may be required
pursuant to Section 2.5; provided that the Surviving Company may, as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against the
Surviving Company or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
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2.10 Tax Consequences. For federal income tax purposes, the Parties intend
that the Merger be treated as a reorganization within the meaning of Section
368(a) of the Code, and that this Agreement shall be, and is hereby, adopted as
a plan of reorganization for purposes of Section 368 of the Code. The parties
shall not take a position on any Tax Return (as defined below) inconsistent
with this Section 2.10.
2.11 Dissenters' Rights.
(a) Notwithstanding anything in this Agreement to the contrary, shares
("Appraisal Shares") of capital stock of Ontogeny that are outstanding
immediately prior to the Effective Time and that are held by any Person who is
entitled to demand and properly demands appraisal of such Appraisal Shares
pursuant to, and who complies in all respects with, Section 262 of the DGCL
("Section 262") shall not be converted into Merger Consideration as provided in
Section 2.1, but rather the holders of Appraisal Shares shall be entitled to
payment of the fair market value of such Appraisal Shares in accordance with
Section 262; provided, however, that if any such holder shall fail to perfect
or otherwise shall waive, withdraw or lose the right to appraisal under Section
262, then the right of such holder to be paid the fair value of such holder's
Appraisal Shares shall cease and such Appraisal Shares shall be deemed to have
been converted as of the Effective Time into, and to have become exchangeable
solely for the right to receive, the applicable Merger Consideration as
provided in Section 2.1. Ontogeny shall give prompt notice to Curis of any
demands received by Ontogeny for appraisal of any shares of capital stock of
Ontogeny, and Curis shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, Ontogeny shall not, without the prior written consent of Curis,
make any payment with respect to, or settle or offer to settle, any such
demands, or agree to do any of the foregoing.
(b) Notwithstanding anything in this Agreement to the contrary, shares
("Dissenting Shares") of capital stock of Reprogenesis that are outstanding
immediately prior to the Effective Time and that are held by any Person who is
entitled to make and properly makes demand for payment of the fair value of
such Dissenting Shares pursuant to, and who complies in all respects with,
Article 5.12 of the TBCA ("Article 5.12") shall not be converted into Merger
Consideration as provided in Section 2.1, but rather the holders of Dissenting
Shares shall be entitled to payment of the fair value of such Dissenting Shares
in accordance with Article 5.12; provided, however, that if any such holder
shall fail to perfect or otherwise shall waive, withdraw or lose his right to
payment of the fair value under Article 5.12, then the right of such holder to
be paid the fair value of such holder's Dissenting Shares shall cease and such
Dissenting Shares shall be deemed to have been converted as of the Effective
Time into, and to have become exchangeable solely for the right to receive, the
applicable Merger Consideration as provided in Section 2.1. Reprogenesis shall
give prompt notice to Curis of any demands received by Reprogenesis for the
payment of the fair value of any shares of capital stock of Reprogenesis, and
Curis shall have the right to participate in and direct all negotiations and
proceedings with respect to such demands. Prior to the Effective Time,
Reprogenesis shall not, without the prior written consent of Curis, make any
payment with respect to, or settle or offer to settle, any such demands, or
agree to do any of the foregoing.
2.12 Closing of Company Transfer Books. At the Effective Time, the stock
transfer books of each Company shall be closed and no transfer of shares of
Company Stock shall thereafter be made. If, after the Effective Time,
certificates representing shares of Company Stock are presented to the
Surviving Company, they shall be canceled and presented to the Exchange Agent
in accordance with Section 2.6.
2.13 Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Person who is a director or
executive officer of a Company or a holder of shares of 10% or more of such
Company's Voting Stock, shall not be exchanged until the Surviving Company has
received an Affiliate Agreement from such Person.
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ARTICLE III
Representations and Warranties of Companies
Each Company hereby represents and warrants to each other Company that the
statements contained in this Article III are true and correct with respect to
it, except as set forth herein or in the disclosure schedule attached by such
Company to this Agreement (for each respective Company, the "Company Disclosure
Schedule"). The Company Disclosure Schedule shall be arranged in sections
corresponding to the numbered and lettered sections contained in this Article
III, and the disclosure in any section shall qualify other sections in this
Article III only the extent that it is reasonably apparent from a reading of
such disclosure that it also qualifies or applies to such other sections. For
the purposes of this Article III, all references to a Company shall include
such Company and its Subsidiaries, and all representations and warranties about
a Company shall be construed as representations and warranties about each of
its Subsidiaries as well, unless the context requires otherwise (including, by
way of example, Section 3.7(c) hereof).
3.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its organization. The Company has all requisite corporate power to own, lease
and operate its properties and assets and to carry on the business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified, individually or in the aggregate, would be
reasonably likely to have a material adverse effect on the business,
properties, financial condition, results of operations or prospects of the
Company, or to have a material adverse effect on the ability of the Company to
consummate the transactions contemplated by this Agreement (a "Company Material
Adverse Effect"); provided, however, that for purposes of this Agreement, any
adverse change in the stock price of a Company whose stock is publicly traded
(each, a "Public Company") in and of itself, as quoted on the Nasdaq National
Market, shall not be taken into account in determining whether there has been
or would be a "Company Material Adverse Effect" on or with respect to the
Company.
3.2 The Company's Capital Structure.
(a) The authorized capital stock of the Company is as set forth in the
Company Disclosure Schedule. As of February 10, 2000, the number of shares of
common stock of the Company ("Company Common Stock") and preferred stock of the
Company ("Company Preferred Stock") issued and outstanding or held in the
treasury of the Company are as set forth on the Company Disclosure Schedule,
and all of such shares are validly issued, fully-paid and non-assessable. The
Company Disclosure Schedule shows the number of shares of Company Common Stock
reserved for future issuance pursuant to stock options granted and outstanding
as of the date of this Agreement, and the plans under which such options were
granted (collectively, the "Company Stock Plans") and sets forth a complete and
accurate list of all holders of options outstanding as of the date of this
Agreement to purchase shares of Company Common Stock (such outstanding options,
the "Company Stock Options") under the Company Stock Plans, indicating the
number of shares of Company Common Stock subject to each Company Stock Option,
and the exercise price, the date of grant and the expiration date thereof. The
Company Disclosure Schedule shows the number of shares of Company Common Stock
reserved for future issuance pursuant to warrants or other outstanding rights
to purchase shares of Company Common Stock outstanding as of the date of this
Agreement (such outstanding warrants or other rights, the "Company Warrants")
and the agreement or other document under which such Company Warrants were
granted and sets forth a complete and accurate list of all holders of Company
Warrants indicating the number and type of shares of Company Common Stock
subject to each Company Warrant, and the exercise price, the date of grant and
the expiration date thereof. All outstanding shares of Company Common Stock
are, and all shares of Company Common Stock subject to issuance as specified
above are, duly authorized and, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall be,
validly issued, fully paid and nonassessable and not subject to or issued in
violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision
of the DGCL or the TBCA, the Company's Certificate or Articles of Incorporation
or By-laws or any
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agreement to which the Company is a party or is otherwise bound. There are no
obligations, contingent or otherwise, of the Company to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or any other capital stock
of the Company or to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any other entity.
(b) Except for the Company Stock Plans, the Company Warrants and shares of
capital stock and other securities of the Company issuable pursuant to the
foregoing, (i) there are no equity securities of any class of the Company, or
any security exchangeable into or exercisable for such equity securities,
issued, reserved for issuance or outstanding, and (ii) there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound obligating
the Company to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of or other equity interests in the
Company or obligating the Company to grant, extend, accelerate the vesting of,
otherwise modify or amend or enter into any such option, warrant, equity
security, call, right, commitment or agreement. To the best Knowledge of the
Company, other than the Stockholder Agreements, there are no voting trusts,
proxies or other voting agreements or understandings with respect to the shares
of capital stock of or other equity interests in the Company.
(c) There are no bonds, debentures, notes or other indebtedness of the
Company with voting rights (or convertible into, or exchangeable for,
securities with voting rights) on any matters on which stockholders of the
Company may vote.
(d) The Company Disclosure Schedule sets forth all Subsidiaries of the
Company and the authorized capital stock or other equity interests of such
Subsidiaries. The Company owns all of the outstanding capital stock or other
equity interests of such Subsidiaries. As of the date of this Agreement, the
number of shares of common stock and preferred stock, or amount of other equity
interests, of any such Subsidiary issued and outstanding or held in such
Subsidiary's treasury are as set forth on the Company Disclosure Schedule, and
all of such shares or other equity interests are duly authorized, validly
issued, fully-paid and non-assessable and not subject to or issued in violation
of any purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the DGCL or the
TBCA (or other law governing such Subsidiary's organization), the Certificate
or Articles of Incorporation or By-laws (or other organizational documents) of
such Subsidiary or any agreement to which such Subsidiary is a party or is
otherwise bound. There are no obligations, contingent or otherwise, of such
Subsidiary to repurchase, redeem or otherwise acquire any shares of its capital
stock or other equity interests or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any other entity.
There are no options, warrants, equity securities, calls, rights, commitments
or agreements of any character to which any such Subsidiary is a party or by
which it is bound obligating it to issue, deliver or sell, or cause to be
issued, delivered or sold, shares of capital stock of or other equity interests
in such Subsidiary.
(e) Each Subsidiary of the Company is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization. Each
such Subsidiary has all requisite power (corporate and otherwise) to own, lease
and operate its properties and assets and to carry on the business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation or other entity in each
jurisdiction in which the failure to be so qualified, individually or in the
aggregate, would be reasonably likely to have a Company Material Adverse
Effect. Each Subsidiary of the Company is inactive, has not conducted any
business in the last five years, and has not owned, leased or operated any
properties or assets in the last five years.
3.3 Authority; No Conflict; Required Filings and Consents.
(a) The Company has all requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement by the Company have been duly
authorized by all the necessary corporate action on the part of the Company,
subject only to the approval of the Merger by
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the Company's stockholders under the DGCL or the TBCA. This Agreement has been
duly executed and delivered by the Company and constitutes the valid and
binding obligations of the Company, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception").
(b) The execution and delivery of this Agreement by the Company does not,
and the consummation of the transactions contemplated by this Agreement will
not, (i) conflict with, or result in any violation or breach of, any provision
of the Certificate or Articles of Incorporation or By-laws of the Company, (ii)
result in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract or
other agreement, instrument or obligation to which the Company is a party or by
which it or any of its properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company
or by which it or any of its properties or assets may be bound or (iv)
constitute a change in control or comparable event under any of the terms,
conditions or provisions of any note, bond mortgage, indenture, lease, license,
contract or other agreement, instrument or obligation to which the Company is a
party or by which it or any of its properties or assets may be bound, which
change of control or comparable event will give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit,
except in the case of (ii), (iii) and (iv) for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which are not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is
required by or with respect to the Company in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of a pre-merger notification report under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, ("HSR Act"),
(ii) the filing of the Certificate of Merger with the Delaware Secretary of
State, (iii) the filing of the Articles of Merger with the Secretary of State
of the State of Texas and the issuance of a certificate of merger by the
Secretary of State of the State of Texas, (iv) the filing of the Joint Proxy
Statement (as defined in Section 3.18 below) with the Securities and Exchange
Commission ("SEC") in accordance with the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (v) such, consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable state securities laws and (vi) such other consents, licenses,
permits, orders, authorizations, filings, approvals and registrations which, if
not obtained or made, would not be reasonably likely, individually or in the
aggregate, to have a Company Material Adverse Effect. The stockholder vote
required for the approval of this Agreement and the Merger by each Company is
set forth in the Company Disclosure Schedule.
3.4 Financial Statements.
(a) Each Company has provided or made available to each other Company (i)
its audited consolidated balance sheets and statements of income, changes in
stockholders' equity and cash flows as of and for each of the last three fiscal
years, and (ii) the unaudited consolidated balance sheet and statements of
income, changes in stockholders' equity and cash flows as of and for the twelve
months ended as of December 31, 1999 (the "Company Financial Statements").
(b) Each Company Financial Statement (including, in each case, any related
notes and schedules) (i) was prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC or, with respect to Ontogeny and Reprogenesis, the absence of notes
thereto) and (iii) fairly presented or will fairly present the consolidated
financial position of the Company as of the dates and the consolidated results
of its operations and cash flows
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for the period indicated, consistent with the books and records of the Company,
except that the unaudited financial statements were or are subject to normal
and recurring year-end adjustments which were not or are not expected to be
material in amount. The unaudited balance sheet of the Company as of December
31, 1999 is referred to herein as the "Company Balance Sheet."
3.5 No Undisclosed Liabilities. Except for normal or recurring liabilities
incurred since the date of the Company Balance Sheet in the ordinary course of
business and consistent with past practices, the Company does not have any
liabilities, either accrued, contingent or otherwise (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate are reasonably likely to have a Company Material Adverse
Effect.
3.6 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet, the Company has conducted its businesses only in the ordinary
course and in a manner consistent with past practice and, since such date,
there has not been (i) any event, change or development in the financial
condition, results of operations, business, properties or prospects of the
Company, that individually or in the aggregate has had, or is reasonably likely
to have, a Company Material Adverse Effect; (ii) any damage, destruction or
loss (whether or not covered by insurance) with respect to the Company having a
Company Material Adverse Effect; (iii) any material change by the Company in
its accounting methods not required pursuant to generally accepted accounting
principles or practices to which both the other Companies have not previously
consented in writing; (iv) any revaluation by the Company of any of its assets
having a Company Material Adverse Effect; or (v) any other action or event that
would have required the consent of the other Companies pursuant to Section 5.1
of this Agreement had such action or event occurred after the date of this
Agreement.
3.7 Taxes.
(a) For the purposes of this Agreement, a "Tax" or, collectively, "Taxes,"
means any and all material federal, state, local and foreign taxes, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, gains, franchise,
withholding, payroll, recapture, employment, excise, unemployment insurance,
social security, business license, occupation, business organization, stamp,
environmental and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) The Company has:
(i) (y) as of the date of this Agreement, filed all federal, state,
local and foreign tax returns and reports required to be filed by it prior
to such date (taking into account extensions) and (z) as of the Closing
Date, filed all federal, state, local and foreign tax returns and reports
required to be filed by it prior to such date (taking into account
extensions), and in each case all such returns ("Tax Returns") were
complete and accurate in all respects;
(ii) (y) as of the date of this Agreement, paid or accrued all Taxes due
and payable as of such date and (z) as of the Closing Date, paid or accrued
all Taxes due and payable as of such date, in each case whether or not so
reflected on such returns or reports; and
(iii) paid or accrued all Taxes for which a notice of assessment or
collection has been received (other than amounts being contested in good
faith by appropriate proceedings);
except in the case of clause (i), (ii) or (iii) for any such filings,
inaccuracies, payments or accruals which are not reasonably likely,
individually or in the aggregate, to have a Company Material Adverse
Effect. Unpaid Taxes for periods prior to the date hereof do not materially
exceed accruals and reserves for Taxes (exclusive of any accruals and
reserves for Taxes established to reflect timing difference between book
and Tax income) as set forth on the Company Balance Sheet. Neither the
Internal Revenue Service (the
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"IRS") nor any other taxing authority has asserted any claim for Taxes, or
to the Knowledge of the chief executive officer or the principal accounting
officer of the Company, is threatening to assert any claims for Taxes,
which claims, individually or in the aggregate, are reasonably likely to
have a Company Material Adverse Effect. The Company has withheld or
collected and paid over to the appropriate Governmental Authorities (or are
properly holding for such payment) all Taxes required by law to be withheld
or collected, except for amounts which are not reasonably likely,
individually or in the aggregate, to have a Company Material Adverse
Effect. There are no Liens for Taxes upon the assets of the Company (other
than Liens for Taxes that are not yet due or that are being contested in
good faith by appropriate proceedings), except for Liens which are not
reasonably likely, individually or in the aggregate, to have a Company
Material Adverse Effect.
(c) None of the Company and its Subsidiaries has been a member of an
affiliated group of corporations filing a consolidated federal income Tax
Return (other than a group the common parent of which was the Company). None of
the Company and its Subsidiaries has any actual or potential liability for any
Taxes of any person (other than the Company) under Treasury Regulation Section
1.1502-6 (or any similar provision of federal, state, local or foreign law), or
as a transferee or successor, by contract or otherwise.
(d) The Company is not a "consenting corporation" within the meaning of
Section 341(f) of the Code, and none of the assets of the Company are subject
to an election under Section 341(f) of the Code.
(e) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(f) The Company has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that could obligate it to make
any payments that will be an "excess parachute payment" under Section 280G of
the Code.
3.8 Properties. The Company Disclosure Schedule sets forth a true and
complete list of all real property leased by the Company (collectively,
"Lease(s)") and the location of the premises. The Company is not in default
under any of such leases, except where the existence of such defaults,
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect. The Company does not own and has never owned any real
property.
3.9 Intellectual Property.
(a) The Company Disclosure Schedule sets forth a true and complete list of
each of the following items: (1) all patents and applications therefor,
including any patent term extensions or supplementary protection certificates,
registrations of trademarks (including service marks) and applications
therefor, domain names and registrations of copyrights and applications
therefor that are owned by the Company or that are licensed or sublicensed to
the Company, indicating in each case the nature of ownership thereof or license
or sublicense thereto, (2) all licenses, agreements and contracts relating to
Intellectual Property Rights (as defined below) pursuant to which the Company
is entitled to use any Intellectual Property Rights owned by any third party
(the "Third Party Licenses"), other than commercially available mass marketed
shrink-wrap software and commercially available research reagents, and (3) all
agreements under which the Company has granted any third party the right to use
any Intellectual Property Rights.
(b) To the Company's Knowledge, the Company owns, or is licensed,
sublicensed or otherwise possesses legally enforceable rights to use, pursuant
to the licenses, agreements and contracts listed in Section 3.9(a)(2) of the
Company Disclosure Schedule, all Intellectual Property Rights that are used or
necessary to conduct the business of the Company as currently conducted and
that are material, individually or in the aggregate, to the Company, including
without limitation all Intellectual Property Rights used or necessary to
conduct its ongoing and presently planned clinical programs (each of which (the
"Ongoing Clinical Programs") is deemed to be material to the Company) and all
Intellectual Property Rights that are now used or planned to be used or are
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necessary to make, use or sell its planned products (as disclosed to each other
Company) after those products are approved for marketing and sale by the
appropriate health regulatory authorities (the "Company Intellectual Property
Rights"). For purposes hereof, "Intellectual Property Rights" means all
patents, including patent term extensions and supplementary protection
certificates, trademarks, trade names, domain names, service marks and
copyrights, any applications for and registrations of such patents, trademarks,
trade names, domain names, service marks and copyrights, and all processes,
formulae, methods, schematics, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material.
(c) The execution and delivery of this Agreement and consummation of the
transactions contemplated hereby will not result in the breach of, or create on
behalf of any third party the right to terminate or modify, any license,
sublicense or other agreement relating to the Company Intellectual Property
Rights, including any Third Party License.
(d) All patents, including all patent term extensions and supplementary
protection certificates, registered trademarks, service marks and copyrights
under which the Company holds any rights and which are material to the business
of the Company are, to the Company's Knowledge, valid and subsisting, and all
applications for such patents, trademarks, service marks and copyrights are
subsisting and were filed in good faith. The Company has taken reasonable
measures to protect the proprietary nature of the Company Intellectual Property
Rights that are material to the business of the Company and to maintain in
confidence all trade secrets and confidential information owned or used by the
Company and that are material to the business of the Company. To the Knowledge
of the Company, no other person or entity is infringing, violating or
misappropriating any of the Company Intellectual Property Rights.
(e) To the Knowledge of the Company, none of the activities or business
previously or currently conducted by the Company, its licensees or assignees of
royalty-bearing Intellectual Property Rights ("IP Assignees") or planned to be
conducted (as disclosed to each other Company) by the Company, its licensees or
IP Assignees (including the manufacture, use and sale of the future products
which are the subject of Ongoing Clinical Programs for any clinical
indications) which is material to the business of the Company infringes,
violates or constitutes a misappropriation of, any Intellectual Property Rights
of any other person or entity. The Company has not received any complaint,
claim or notice alleging any such infringement, violation or misappropriation,
present or future.
(f) The Company is not a party to any agreement under which, following the
Closing, a third party would be entitled to receive a license or any other
right in or to Intellectual Property Rights currently held by either of the
other Companies or any of such other Companies' Affiliates or which, following
the Closing, would restrict or limit the business or operations currently
conducted by either of the other Companies or any of their Affiliates.
3.10 Preclinical Testing and Clinical Trials. The human clinical trials,
animal studies and other preclinical tests conducted by the Company or in which
the Company has participated, and such studies and tests conducted on behalf of
the Company, were and, if still pending, are being conducted in all material
respects in accordance with experimental protocols, informed consents,
procedures and controls generally used by qualified experts in the preclinical
or clinical study of products comparable to those being developed by the
Company. Neither the Company, nor any agent or representative of the Company
nor, to the Knowledge of the Company, any of its licensees and IP Assignees,
has received any notices or correspondence from the Food and Drug
Administration ("FDA") or any other Governmental Authority requiring the
termination, suspension or modification (other than such modifications as are
normal in the regulatory process) of any animal studies, preclinical tests or
clinical trials conducted by or on behalf of the Company or, to the Knowledge
of the Company, such licensees and IP Assignees, or in which the Company or, to
the Knowledge of the Company, such licensees and IP Assignees, have
participated. To the Company's Knowledge, no clinical investigator acting for
the Company has been or is now, or is threatened to become, the subject of any
disbarment or disqualification proceedings by any regulatory agency.
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3.11 Agreements, Contracts and Commitments.
(a) There are no contracts or agreements that are material contracts (as
defined in Item 601(b)(10) of Regulation S-K) with respect to the Company
("Company Material Contracts") other than as set forth in the Company
Disclosure Schedule. No Company Material Contract has expired by its terms or
has been terminated in accordance with its terms (nor has the Company received
notice of any such termination) and each Company Material Contract is in full
force and effect. The Company is not in violation of or in default under (nor
does there exist any condition which, upon the passage of time or the giving of
notice or both, would cause such a violation of or default under) any lease,
permit, concession, franchise, license or other contract or agreement to which
it is a party or by which it or any of its properties or assets is bound,
except for violations or defaults that, individually or in the aggregate, have
not resulted in and are not reasonably likely to result in a Company Material
Adverse Effect.
(b) The Company Disclosure Schedule sets forth a complete list of each
contract or agreement to which the Company is a party or bound (i) with any
Affiliate of the Company, other than any agreements (A) which are or have been
fully performed and under which the Company has no continuing right, liability
or obligation, (B) that are otherwise disclosed on the Company Disclosure
Schedule and marked with a footnote indicating that it is a contract or
agreement with an Affiliate of the Company or (C) Stockholder Agreements, or
(ii) that includes any non-competition or similar provision imposing any
restrictions or undertakings on the Company. To the Company's Knowledge, none
of the contracts or agreements referred to in the foregoing clause (ii) would
preclude the Company or the Surviving Company from engaging in any of its
current activities or any of the Company's or the Surviving Company's planned
activities. Copies of all the agreements, contracts and arrangements set forth
in the Company Disclosure Schedule have heretofore been made available to the
Companies and such copies are accurate and complete.
3.12 Litigation. There is no Litigation against the Company pending or as to
which the Company has received any written notice of assertion.
3.13 Environmental Matters.
(a) Except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect: (i) the Company
has complied with all applicable Environmental Laws (as defined in Section
3.13(b)); (ii) the properties currently owned or operated by the Company
(including soils, groundwater, surface water, buildings or other structures)
are not contaminated with any Hazardous Substances (as defined in Section
3.13(c)); (iii) the properties formerly owned or operated by the Company were
not contaminated with Hazardous Substances during the period of ownership or
operation by the Company; (iv) the Company is not subject to liability for any
Hazardous Substance disposal or contamination on the property of any third
party; (v) the Company has not released any Hazardous Substance; (vi) the
Company has not received any notice, demand, letter, claim or request for
information alleging that the Company may be in violation of, liable under or
have obligations under any Environmental Law; (vii) the Company is not subject
to any orders, decrees, injunctions or other arrangements with any Governmental
Authority or any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances; and
(viii) there are no circumstances or conditions involving the Company that
could reasonably be expected to result in any claims, liability, obligations,
investigations, costs or restrictions on the ownership, use or transfer of any
property of the Company pursuant to any Environmental Law.
(b) As used herein, the term "Environmental Law" means any federal, state,
local or foreign law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to: (i) the protection,
investigation or restoration of the environment, health and safety, or natural
resources, (ii) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (iii) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.
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(c) As used herein, the term "Hazardous Substance" means any substance that
is: (i) listed, classified, regulated or which falls within the definition of a
"hazardous substance" or "hazardous material" pursuant to any Environmental
Law; (ii) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (iii) any other substance which is the subject of
regulatory action by any Governmental Authority pursuant to any Environmental
Law.
3.14 Employee Benefit Plans.
(a) The Company has listed in Section 3.14 of the Company Disclosure
Schedule all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of the Company or any trade or
business (whether or not incorporated) which is or was ever a member of a
controlled group of corporations or which is or was ever under common control
with the Company (an "ERISA Affiliate") within the meaning of Section 414 of
the Code (together, the "Company Employee Plans").
(b) With respect to each Company Employee Plan, the Company has furnished to
each of the other Companies a true and correct copy of (i) the most recent
annual report (Form 5500) filed with the IRS, (ii) such Company Employee Plan,
(iii) each trust agreement and group annuity contract, if any, relating to such
Company Employee Plan and (iv) the most recent reports regarding the
satisfaction of the nondiscrimination requirements of Sections 410(b), 401(k)
and 401(m) of the Code.
(c) With respect to the Company Employee Plans, no event has occurred, and
to the Knowledge of the Company, there exists no condition or set of
circumstances in connection with which the Company or any ERISA Affiliate could
be subject to any liability that is reasonably likely, individually or in the
aggregate, to have a Company Material Adverse Effect under ERISA, the Code or
any other applicable law. The transactions contemplated herein shall not
constitute a prohibited transaction (as defined in Section 4975 of the Code) or
in any way reasonably be expected to subject the Company to any liability that
in the aggregate would have a Company Material Adverse Effect.
(d) With respect to the Company Employee Plans, there are no funded benefit
obligations for which contributions have not been made or properly accrued and
there are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly footnoted in accordance with generally accepted
accounting principles, on the financial statements of the Company, which
obligations are reasonably likely, individually or in the aggregate, to have a
Company Material Adverse Effect.
(e) Neither the Company nor any ERISA Affiliate has (i) ever maintained a
Company Employee Benefit Plan which was ever subject to Title IV of ERISA or
Section 412 of the Code or (ii) ever been obligated to contribute to a
multiemployer plan (as defined in Section 4001(a)(3) of ERISA).
(f) Except as provided for in this Agreement, the Company is not a party to
any oral or written (i) agreement with any officer or other key employee of the
Company, the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
of the nature contemplated by this Agreement, (ii) agreement with any employee
of the Company providing any term of employment or compensation guarantee
extending for a period longer than one year from the date hereof and for the
payment of compensation in excess of $50,000 per annum, or (iii) agreement or
plan, including any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
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(g) Each Company Employee Plan intended to be qualified under Section 401(a)
of the Code has either obtained from the IRS a favorable determination letter
as to its qualified status under the Code, including all amendments to the Code
effected by the Tax Reform Act of 1986 and subsequent legislation, or has
applied (or has time remaining in which to apply) to the IRS for such a
determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or IRS pronouncements in which to apply for
such determination letter and to make any amendments necessary to obtain a
favorable determination or has been established under a standardized prototype
plan for which an IRS opinion letter has been obtained by the plan sponsor and
is valid as to the adopting employer. The Company has furnished or made
available to each other Company a copy of the most recent IRS determination or
opinion with respect to each such Company Employee Plan and nothing has
occurred since the inception of each such Company Employee Plan which could
reasonably be expected to cause the loss of the tax-qualified status of any
Company Employee Plan subject to Section 401(a) of the Code.
(h) None of the Company Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person, except as required by
applicable law.
3.15 Compliance With Laws. The Company has complied with, is not in
violation of, and has not received any notice alleging any violation with
respect to, any foreign, federal, state or local statute, law or regulation
with respect to the conduct of its business, or the ownership or operation of
its properties or assets, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Company Material Adverse Effect.
3.16 Certain Regulatory Matters.
(a) Section 3.16 of the Company Disclosure Schedule sets forth a complete
and accurate list of any written communications between the Company, on the one
hand, and the FDA or any other Governmental Authority on the other hand that
describe matters that could have a material adverse effect on the Company's
currently projected sales or revenues attributable to any contemplated
compound, product or product line of the Company. The Company has made
available to both of the other Companies copies of all such documents, as well
as copies of all complaints and other information required to be maintained by
the Company pursuant to the United States Federal Food, Drug and Cosmetic Act
and Comprehensive Drug Abuse Prevention and Control Act of 1970 and the
corresponding laws of jurisdictions other than the United States.
(b) The Company has filed with the FDA and all applicable state and local
regulatory bodies for and received approval of all registrations, applications,
licenses, requests for exemptions, permits and other regulatory authorizations
necessary to conduct the business of the Company as currently conducted, the
absence of which would, individually or in the aggregate, be reasonably likely
to have a Company Material Adverse Effect. The Company is, and at all relevant
times has been, in compliance in all material respects with all such
registrations, applications, licenses, requests for exemptions, permits and
other regulatory authorizations. To the Company's Knowledge, any third party
which is a manufacturer for the Company is, and at all relevant times has been,
in compliance in all material respects with all such registrations,
applications, licenses, requests for exemptions, permits and other regulatory
authorizations insofar as the same pertain to the manufacture of products for
the Company. The Company is, and at all relevant times has been, in compliance
in all material respect with all material FDA, state and local rules,
regulations, guidelines and policies, including, but not limited to, material
FDA, state and local rules, regulations and policies relating to good
manufacturing practice ("GMP") and good laboratory practice ("GLP"); and the
Company has no reason to believe that any party granting any such registration,
application, license, request for exemption, permit or other authorization is
considering limiting, suspending or revoking the same and knows of no basis for
any such limitation, suspension or revocation.
3.17 Tax Matters. To its Knowledge, after consulting with its independent
auditors, neither the Company nor any of its Affiliates has taken or agreed to
take any action which would prevent the Merger from constituting a transaction
qualifying as a reorganization under 368(a) of the Code.
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3.18 Registration Statement; Proxy Statement/Prospectus. The information to
be supplied by the Company for inclusion in the registration statement on Form
S-4 pursuant to which shares of Surviving Company Common Stock issued in the
Merger will be registered under the Securities Act (the "Registration
Statement"), shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement not
misleading. The information to be supplied by the Company for inclusion in the
joint proxy statement/prospectus (the "Joint Proxy Statement") to be sent to
the stockholders of the Companies in connection with the meetings of the
Companies' stockholders to consider this Agreement and the Merger (the "Company
Meetings") shall not, on the date the Joint Proxy Statement is first mailed to
stockholders of the Companies, at the time of the Company Meetings, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company Meetings which has become false or misleading. If at any time prior to
the Effective Time any event relating to the Company or any of its Affiliates,
officers or directors should be discovered by the Company which should be set
forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement, the Company shall promptly inform the other Companies.
3.19 Labor Matters. The Company is not a party to or otherwise bound by any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization. The Company is not the subject of any
proceeding asserting that the Company has committed an unfair labor practice or
is seeking to compel it to bargain with any labor union or labor organization
or that, individually or in the aggregate, is reasonably likely to have a
Company Material Adverse Effect, nor is there pending or, to the Knowledge of
the Company, threatened, any labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving the Company that, individually or in the
aggregate, is reasonably likely to have a Company Material Adverse Effect.
3.20 Insurance. All fire and casualty, general liability, business
interruption, product liability, clinical trial and sprinkler and water damage
insurance policies maintained by the Company are with reputable insurance
carriers, provide full and adequate coverage for all normal risks incident to
the business of the Company and its properties and assets, and are in character
and amount at least equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards, except for any
such failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect.
The Company Disclosure Schedule sets forth the insurance coverages maintained
by the Company and a history of any claims paid.
3.21 No Existing Discussions. As of the date hereof, the Company is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal (as defined in Section
6.1).
3.22 Opinion of Financial Advisor. The financial advisor of each of Creative
and Ontogeny has delivered to such Company an opinion dated the date of this
Agreement to the effect, as of such date, that the applicable Exchange Ratio is
fair to the holders such Company's capital stock from a financial point of
view, and such Company has furnished a copy of such opinion to the other
Companies.
3.23 Section 203 of the DGCL Not Applicable. The Board of Directors of each
of Creative and Ontogeny has taken all actions, if any, necessary so that the
restrictions contained in Section 203 of the DGCL applicable to a "business
combination" (as defined in Section 203) will not apply to the execution,
delivery or performance of this Agreement or the Stockholder Agreements or the
consummation of the Merger or the other transactions contemplated by this
Agreement or the Stockholder Agreements.
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3.24 No Brokers. Except with respect to Chase H&Q (in the case of Creative),
Pacific Growth Equities, Inc. (in the case of Reprogenesis) and SG Cowen
Securities Corporation (in the case of Ontogeny), the Company has no contract,
arrangement or understanding with any broker, finder, agent, financial advisor
or other intermediary with respect to the transactions contemplated by this
Agreement. Each Company has provided to each other Company a copy of such
Company's financial advisor contract.
3.25 Stockholder Rights.
(a) Other than as set forth in Section 3.2 of the Company Disclosure
Schedule, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements, obligations or undertakings of
any kind (contingent or otherwise) to which the Company is a party or by which
it is bound that will obligate or require the Surviving Company after the
Merger to (i) issue, deliver or sell, or cause to be issued, delivered or sold,
shares of capital stock or other voting securities of the Surviving Company,
(ii) issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking or (iii)
repurchase, redeem or otherwise acquire any shares of capital stock (or options
to acquire any such shares) of the Surviving Company.
(b) Other than as set forth in Section 3.2 of the Company Disclosure
Schedule, there are no agreements, arrangements, obligations or commitments of
any character (contingent or otherwise) pursuant to which any Person is or may
be entitled (A) to cause the Surviving Company to file a registration statement
under the Securities Act or which will otherwise relate to the registration of
any securities of the Surviving Company or (B) to preemptive rights or similar
contractual rights or arrangements with respect to the issuance or sale of
capital stock of the Surviving Company or any securities convertible into or
evidencing the right to subscribe for any shares of its capital stock.
(c) Other than the Stockholder Agreements, the Affiliate Agreements and the
Lock-up Agreements there are no voting trusts, proxies or other agreements,
arrangements, obligations or commitments of any character (contingent or
otherwise) to which the Company is a party or, to the Knowledge of the Company,
by which any of its stockholders is bound that, after the Merger, will (i)
relate to the voting of any shares of capital stock of the Surviving Company or
(ii) impose restrictions on or otherwise encumber the transfer of the capital
stock of the Surviving Company.
ARTICLE IV
Representations and Warranties of Curis
Curis hereby represents and warrants to each Company that the statements
contained in this Article IV are true and correct with respect to it, except as
set forth herein or in the disclosure schedule attached by Curis to this
Agreement (the "Curis Disclosure Schedule"). The Curis Disclosure Schedule
shall be arranged in sections corresponding to the numbered and lettered
sections contained in this Article IV, and the disclosure in any section shall
qualify other sections in this Article IV only the extent that it is reasonably
apparent from a reading of such disclosure that it also qualifies or applies to
such other sections.
4.1 Organization of Curis. Curis is a corporation duly organized, validly
existing and good standing under the laws of the State of Delaware. The
Certificate of Incorporation of Curis as in effect on the date of this
Agreement is attached as Exhibit D hereto (the "Curis Certificate of
Incorporation"). Curis has all requisite corporate power to own, lease and
operate its properties and assets and to carry on the business as now being
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so
qualified, individually or in the aggregate, would be reasonably likely to have
a material adverse effect on the business, properties, financial condition,
results of operations or prospects of Curis or to have a material adverse
effect on the ability of Curis to consummate the transactions contemplated by
this Agreement (a "Curis Material Adverse Effect"). Curis does not directly or
indirectly own
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any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any corporation, partnership, joint venture or
other business association or entity.
4.2 Curis' Capital Structure.
(a) The authorized capital stock of Curis consists of one hundred twenty-
five million shares of Curis Common Stock and twenty million shares, par value
$.01 per share, of undesignated preferred stock of Curis ("Curis Preferred
Stock"). As of the date of this Agreement, there are 300 shares of Curis Common
Stock issued and outstanding, 100 shares of which are each owned by Creative,
Ontogeny and Reprogenesis, and no shares of which are held in the treasury of
Curis. There are no shares of Curis Preferred Stock issued and outstanding or
held in the treasury of Curis. All of such shares of Curis Common Stock are
duly authorized, validly issued, fully-paid and non-assessable, were not issued
in violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under the DGCL,
Curis's Certificate of Incorporation or By-laws or any agreement to which Curis
is a party or is otherwise bound.
(b) There are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which Curis is a party or by
which it is bound obligating Curis to issue, deliver or sell, or cause to be
issued, delivered or sold, shares of capital stock of or other equity interests
in Curis. To the Knowledge of Curis, other than as provided in this Agreement,
there are no voting trusts, proxies or other voting agreements or
understandings with respect to the shares of capital stock of or other equity
interests in Curis.
(c) Curis does not (i) own of record or beneficially, directly or
indirectly, (A) any shares of capital stock or securities convertible into
capital stock of any other corporation or (B) any participating interest in any
partnership, limited liability company, joint venture or other non-corporate
business enterprise or (ii) control, directly or indirectly, any other entity.
4.3 Authority; No Conflict; Required Filings and Consents.
(a) Curis has all requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement by Curis have been duly authorized
by all the necessary corporate action on the part of Curis, subject only to the
approval of the Merger by Curis' stockholders under the DGCL. This Agreement
has been duly executed and delivered by Curis and constitutes the valid and
binding obligation of Curis, enforceable in accordance with its terms, subject
to the Bankruptcy and Equity Exception.
(b) The execution and delivery of this Agreement by Curis does not, and the
consummation of the transactions contemplated by this Agreement will not, (i)
conflict with, or result in any violation or breach of, any provision of the
Certificate of Incorporation or By-laws of Curis, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both)
a default (or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any material benefit) under, or require a consent
or waiver under, or constitute a change in control under, any of the terms,
conditions or provisions of any note, bond mortgage, indenture, lease, license,
contract or other agreement, instrument or obligation to which Curis is a party
or by which it or any of its properties or assets may be bound, or (iii)
conflict with or violate any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Curis
or by which it or any of its properties or assets may be bound, except in the
case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which are not, individually or in
the aggregate, reasonably likely to have a Curis Material Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is
required by or with respect to Curis in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of a pre-merger notification report under the
HSR Act, (ii) the filing of the Certificate of Merger with the
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Delaware Secretary of State, (iii) the filing of the Articles of Merger with
the Secretary of State of the State of Texas and the issuance of a certificate
of merger by the Secretary of State of the State of Texas, (iv) the filing of
the Registration Statement with the SEC and the effectiveness thereof, (v) the
registration of the Surviving Company Common Stock under the Exchange Act, (vi)
such, consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable state securities laws and (vii)
such other consents, licenses, permits, orders, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
reasonably likely, individually or in the aggregate, to have a Curis Material
Adverse Effect.
4.4 Continuity of Business Enterprise; Reorganization Classification. Curis
hereby represents and warrants to each Company and to the stockholders of each
Company (which representation and warranty shall survive the Closing) that the
Merger will satisfy the continuity of business enterprise test of Treasury
Regulation Section 1.368-1(d).
ARTICLE V
Conduct of Business Pending the Merger
5.1 Conduct of Business by Company Pending the Merger. Each Company
covenants and agrees with the other Parties that, between the date hereof and
the Effective Time, except as expressly required or permitted by this Agreement
or unless each other Party shall otherwise agree in writing, such Company shall
conduct and shall cause the businesses of each of its Subsidiaries to be
conducted only in, and such Company and its Subsidiaries shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice. Each Company shall use its commercially reasonable best
efforts to preserve intact the business organization and assets of such Company
and each of its Subsidiaries, and to operate, and cause each of its
Subsidiaries to operate, according to plans and budgets provided to each other
Party, to keep available the services of the present officers, employees and
consultants of such Company and each of its Subsidiaries and, except as set
forth in Section 5.1 of the Company Disclosure Schedule, to maintain in effect
Company Material Contracts and to preserve the present relationships of the
Company and each of its Subsidiaries with licensors, licensees, sponsors,
customers, suppliers, consultants and other Persons with which the Company or
any of its Subsidiaries has business relations. By way of amplification and not
limitation, except as expressly permitted by this Agreement or except as set
forth in the Company Disclosure Schedule, neither the Companies nor any of
their respective Subsidiaries shall, between the date hereof and the Effective
Time, directly or indirectly do, or propose to do, any of the following without
the prior written consent of each other Party:
(a) amend or otherwise change the Certificate or Articles of Incorporation
or By-laws or equivalent organizational document of the Company or any of its
Subsidiaries or alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership of
Company or any of its Subsidiaries;
(b) issue, sell, transfer, pledge, dispose of or encumber, or authorize the
issuance, sale, transfer, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of capital stock, or any other
ownership interest of the Company or any of its Subsidiaries (except for the
issuance of Company Common Stock upon the exercise of Company Options or
Company Warrants outstanding on the date hereof or upon the conversion of any
convertible securities outstanding on the date hereof); or sell, transfer,
pledge, dispose of or encumber, or authorize the sale, transfer, pledge,
disposition or encumbrance, of any assets of the Company or any of its
Subsidiaries (except for sales of assets in the ordinary course of business and
in a manner consistent with past practice) or redeem, purchase or otherwise
acquire, directly or indirectly, any of the capital stock of the Company or
interest in or securities of any Subsidiary;
(c) declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of any of its
capital stock (except that a wholly owned Subsidiary of any
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Company may declare and pay a dividend to its parent); split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or amend the terms of, repurchase, redeem or
otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise
acquire, any of its securities or any securities of its Subsidiaries, or
propose to do any of the foregoing;
(d) sell, transfer, lease, out-license, out-sublicense, mortgage, pledge,
dispose of, encumber, grant or otherwise dispose of any Intellectual Property
Rights, or amend or modify in any material way any existing agreements with
respect to any Intellectual Property Rights, except for (i) non-exclusive
licenses granted pursuant to material transfer agreements entered into in the
ordinary course of business consistent with past practice and (ii) non-
exclusive research licenses granted as part of a research agreement that is
otherwise permitted under this Agreement;
(e) acquire (by merger, consolidation, acquisition of stock or assets or
otherwise) any corporation, limited liability company, partnership, joint
venture or other business organization or division thereof; incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse or otherwise as an accommodation become responsible for,
the obligations of any Person, or make any loans, advances or enter into any
financial commitments, except in the ordinary course of business consistent
with past practice and as otherwise permitted under any loan or credit
agreement to which the Company is a party; authorize any capital expenditures
which are, in the aggregate, in excess of $100,000 for the Company and its
Subsidiaries taken as a whole; or enter into or amend in any material respect
any contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this Section 5.1(e);
(f) hire any employee or consultant; terminate any employee or consultant,
except in the ordinary course of business consistent with past practice;
increase the compensation (including, without limitation, bonus) payable or to
become payable to its officers or employees, except for increases in salary or
wages of employees of the Company or its Subsidiaries who are not officers of
the Company in the ordinary course of business consistent with past practices,
or grant any severance or termination pay or stock options to, or enter into
any employment or severance agreement with any director, officer or other
employee of the Company or any of its Subsidiaries, or establish, adopt, enter
into or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any current or former
directors, officers or employees;
(g) change any accounting policies or procedures (including procedures with
respect to reserves, revenue recognition, payments of accounts payable and
collection of accounts receivable) unless required by statutory accounting
principles or GAAP;
(h) create, incur, suffer to exist or assume any Lien on any of their
material assets other than Liens outstanding on the date hereof;
(i) other than in the ordinary course of business consistent with past
practice, (i) enter into any Company Material Contract, (ii) modify, amend or
transfer in any material respect or terminate any Company Material Contract or
waive, release or assign any material rights or claims thereto or thereunder or
(iii) enter into or extend any lease with respect to real property with any
third party;
(j) make any Tax election or settle or compromise any federal, state, local
or foreign income Tax liability or agree to an extension of a statute of
limitations;
(k) settle any material Litigation or waive, assign or release any material
rights or claims except, in the case of Litigation, any Litigation which
settlement would not (i) impose either material restrictions on the conduct of
the Company's business or any of its Subsidiaries or (ii) for any individual
Litigation item settled, exceed $50,000 in cost or value to the Company or any
of its Subsidiaries;
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(l) pay, discharge or satisfy any liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), except in the
ordinary course of business consistent with past practice in an amount or value
not exceeding $100,000 in any instance or series of related instances or
$250,000 in the aggregate or in accordance with their terms as in effect as of
the date hereof;
(m) engage in any transaction, or enter into any agreement, arrangement, or
understanding with, directly or indirectly, any Affiliate, other than those
contemplated pursuant to the terms of this Agreement and those existing as of
the date hereof which are listed in the Company Disclosure Schedule;
(n) fail to renew or maintain in full force and effect all insurance
policies, as the case may be, currently in effect or fail to pay any insurance
premiums thereon; and
(o) authorize, recommend, propose or announce an intention to do any of the
foregoing, or agree or enter into any agreement, contract commitment or
arrangement to do any of the foregoing.
5.2 Cooperation. Subject to compliance with applicable law, from the date
hereof until the Effective Time, each Company shall, and shall cause each of
their respective Subsidiaries to, make its officers available to confer on a
regular and frequent basis with one or more representatives of the other
Parties at reasonable times and upon reasonable advance notice to report on the
general status of ongoing operations and shall promptly provide the other
Parties or their counsel with copies of all filings made by such party with any
Governmental Authority in connection with this Agreement, the Merger and the
transactions contemplated hereby and thereby.
5.3 Confidentiality. The parties acknowledge that each of (i) the Non-
Disclosure Agreement dated June 11, 1998 between Creative and Ontogeny (as
amended, the "CO Agreement"), (ii) the Non-Disclosure Agreement between
Creative and Reprogenesis (as amended, the "CR Agreement") (iii) the Non-
Disclosure Agreement between Ontogeny and Reprogenesis (the "OR Agreement") and
(iv) the Agreement Regarding Disclosure of Confidential Documents and
Information dated January 10, 2000 by and among the Companies (the "IP NDA"
and, collectively with the CO Agreement, the CR Agreement and the OR Agreement,
the "Confidentiality Agreements"), shall continue in full force and effect in
accordance with its terms.
5.4 Curis Certificate of Incorporation. Curis covenants and agrees with the
other Parties that, between the date hereof and the Effective Time, Curis shall
not amend or modify the Curis Certificate of Incorporation without the prior
written consent of each Company.
ARTICLE VI
Solicitation of Other Proposals
6.1 Solicitation of Other Proposals.
(a) From the date hereof until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, no Company shall,
nor shall any Company permit any of their respective Subsidiaries or any of
their respective officers, directors, employees, investment bankers, attorneys
or other representatives, advisors or agents (collectively, the
"Representatives") to, and each Company shall use its best efforts to cause
each of its respective non-officer and non-director Affiliates not to, directly
or indirectly, (i) solicit, facilitate, initiate or encourage, or take any
action to solicit, facilitate, initiate or encourage, the making of any
proposal or offer that constitutes an Acquisition Proposal or the making of any
inquiries concerning an Acquisition Proposal or (ii) participate or engage in
discussions or negotiations with, or provide any information to, any Person
concerning an Acquisition Proposal or which might reasonably be expected to
lead to an Acquisition Proposal; provided that, if such Company has not
breached this Section 6.1(a), nothing contained in this Agreement shall prevent
such Company or its Board of Directors, prior to the vote of the stockholders
of such Company for approval of this Agreement and the Merger, from furnishing
non-public
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information to, or entering into discussions or negotiations with, any Person
(other than another Company) in response to an unsolicited bona fide written
Acquisition Proposal by such Person if and only to the extent that (A) the
Board of Directors of such Company believes in good faith (after consultation
with its financial advisor) that such Acquisition Proposal is reasonably
capable of being completed on the terms proposed and would, if so consummated,
result in a Superior Proposal (as defined below), (B) such Company's Board of
Directors determines in good faith after consultation with outside legal
counsel that such action is necessary for such Board of Directors to comply
with its fiduciary duties to stockholders under applicable law, (C) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such Person, such Board of Directors receives from such
Person an executed confidentiality agreement with terms no more favorable to
such Person than those contained in the Confidentiality Agreements and (D)
prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such Person, such Company has complied with
the provisions of Section 6.1(c). Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in this Section
6.1(a) by any Representative of a Company or its Subsidiaries or any non-
officer and non-director Affiliate of such Company, whether or not acting on
behalf of such Company or any of its Subsidiaries, shall be deemed to be a
breach of this Section 6.1(a) by such Company.
For purposes of this Agreement, the term "Acquisition Proposal" shall mean
any inquiry, proposal or offer after the date of this Agreement from any Person
relating to:
(1) any merger, consolidation, recapitalization, liquidation or other
direct or indirect business combination, involving a Company or any of its
Subsidiaries or the issuance or acquisition of shares of capital stock or
other equity securities of a Company or any of its Subsidiaries (excluding
the issuance of Company Common Stock upon the exercise of Company Options
or Company Warrants outstanding on the date hereof or upon the conversion
of any convertible securities outstanding on the date hereof) or any tender
or exchange offer that if consummated would result in any Person, together
with all Affiliates thereof, beneficially owning shares of capital stock or
other equity securities of a Company or any of its Subsidiaries; provided,
however, that if any pharmaceutical or biopharmaceutical company engaged in
discussions with a Company regarding the licensing of Intellectual Property
Rights makes, in connection with and relating to such discussions, an
unsolicited inquiry, proposal or offer regarding the acquisition of shares
of capital stock representing 5% or less of the outstanding capital stock
of such Company, such an inquiry, proposal or offer shall not constitute an
Acquisition Proposal if, and only if, such inquiry, proposal or offer is
disclosed in reasonable detail in writing to the other Companies within
three (3) Business Days and the Chief Executive Officers of such other
Companies agree that such inquiry, proposal or offer does not constitute an
Acquisition Proposal, with written confirmation to follow within three (3)
Business Days of such agreement; or
(2) other than as set forth in Section 6.1 of the Company Disclosure
Schedule or as permitted pursuant to Section 5.1(d), the sale, lease,
exchange, license (whether exclusive or not), or any other disposition of
any significant portion of a material Intellectual Property Right, or any
significant portion of the business or other assets of a Company or any its
Subsidiaries, or any other transaction, the consummation of which sale,
lease, exchange, license, disposition or transaction could reasonably be
expected to impede, interfere with, prevent or materially delay the
consummation of the transactions contemplated hereby or which would
reasonably be expected to diminish significantly the benefits to each other
Company and Curis of the transactions contemplated hereby; provided,
however, that if any pharmaceutical or biopharmaceutical company makes an
inquiry, proposal or offer regarding any such sale, lease, exchange,
license, disposition or transaction, such inquiry, proposal or offer shall
not constitute an Acquisition Proposal if, and only if, such inquiry,
proposal or offer is disclosed in reasonable detail in writing to the other
Companies within three (3) Business Days and the Chief Executive Officers
of such other Companies agree that such inquiry, proposal or offer does not
constitute an Acquisition Proposal, with written confirmation to follow
within three (3) Business Days of such agreement.
Each Party shall immediately cease and cause to be terminated and shall
cause its respective Representatives (and shall use its best efforts to cause
its non-officer and non-director Affiliates) to terminate
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all existing discussions or negotiations with any Persons conducted heretofore
with respect to, or that could reasonably be expected to lead to, an
Acquisition Proposal. Each Party shall promptly notify its respective
Representatives and non-officer and non-director Affiliates of its obligations
under this Section 6.1(a).
(b) Except as permitted by this Section 6.1(b), neither the Board of
Directors of each Company nor any committee thereof shall:
(1) approve or recommend, or publicly (or in a manner reasonably likely
to become public) propose to approve or recommend, any Acquisition Proposal
other than the Merger,
(2) withdraw or modify or publicly (or in a manner reasonably likely to
become public) propose to withdraw or modify in a manner adverse to each
other Party its approval or, except as provided below, recommendation (or
the approval or, except as provided below, recommendation of any committee
of such Board of Directors) of the Merger, this Agreement or the
transactions contemplated hereby,
(3) upon a request by any of the other Parties to reaffirm its approval
or, except as provided below, recommendation of this Agreement or the
Merger, fail to do so within two (2) Business Days after such request is
made,
(4) enter, or cause such Company or any its Subsidiaries to enter, into
any letter of intent, agreement in principle, acquisition agreement or
other similar agreement related to any Acquisition Proposal, or
(5) resolve or announce its intention to do any of the foregoing.
The immediately preceding sentence notwithstanding, in the event that prior
to a Company Meeting, the Board of Directors of such Company receives a
Superior Proposal, then the Board of Directors of such Company may, if such
Company has complied with the provisions of Section 6.1(a), (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to the other
Parties its recommendation of the Merger, this Agreement or the transactions
contemplated hereby, or (ii) fail to reaffirm its recommendation of this
Agreement or the Merger after a request by the other Parties to do so; provided
that (A) such Board of Directors determines in good faith, after consultation
with its outside counsel that taking such action is required to satisfy the
fiduciary duties of such directors and (B) such Company furnishes the other
Parties five Business Days' prior written notice of the taking of such action
(which notice shall include a description of the material terms and conditions
of the Superior Proposal), during which time the other Parties may make, and
such Company shall consider, a counterproposal to such Superior Proposal.
For purposes of the Agreement, the term "Superior Proposal" means any bona
fide proposal by a third party to acquire all or substantially all of the
assets or capital stock of a Company pursuant to a tender or exchange offer, a
merger, consolidation, a liquidation or dissolution, a recapitalization, a sale
of its assets or otherwise which is on terms which the Board of Directors of
such Company determines by a majority vote of its directors in their good faith
judgment to be more favorable to the stockholders of such Company than the
Merger (or any counterproposal made by the other Parties), after receiving the
written advice of the Company's independent financial advisor and after
consultation with its outside counsel, and after taking into account the terms
and conditions of such Superior Proposal and all other relevant factors
relating thereto, including, the timing of the closing thereof, the risk of
non-consummation, the ability of the Person making the Acquisition Proposal to
finance the transaction contemplated thereby and any required governmental or
other consents, filings and approvals.
(c) In addition to the other obligations of the Parties set forth in this
Section 6.1, the Parties shall immediately (and in any event within one day)
advise one another orally and in writing of any Acquisition Proposal, any
request for information with respect to any Acquisition Proposal, or any
inquiry with respect to or which could result in an Acquisition Proposal, and
the material terms and conditions of such Acquisition Proposal, request or
inquiry (including the identity of the Person making such Acquisition Proposal,
request or inquiry). The Parties shall inform one another on a prompt and
current basis of the status and content of any discussions regarding any
Acquisition Proposal with a third party and as promptly as practicable of any
change in the price, structure or form of the consideration or material terms
of and conditions regarding any
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Acquisition Proposal or of any other developments or circumstances which could
reasonably be expected to culminate in the taking of any of the actions
referred to in Section 6.1(b).
(d) Nothing in this Section 6.1 shall (i) permit a Company to terminate this
Agreement (except as specifically provided in Section 9.1 hereof), (ii) permit
a Company to enter into any agreement with respect to an Acquisition Proposal
during the term of this Agreement (it being agreed that during the term of this
Agreement, no Company shall enter into any agreement with any Person that
provides for, or in any way facilitates, an Acquisition Proposal (other than a
confidentiality agreement of the type referred to in clause (C) of Section
6.1(a) above)) or (iii) affect any other obligation of each Company under this
Agreement.
(e) Nothing contained in this Section 6.1 shall prevent the Board of
Directors of a Company that is a Public Company from at anytime taking or
disclosing to its stockholders a position contemplated by Rule 14e-2
promulgated under the Exchange Act; provided that no Company or its Board of
Directors shall, except to the extent permitted by Section 6.1(b), propose to
approve or recommend an Acquisition Proposal.
ARTICLE VII
Additional Agreements
7.1 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable following the date of this Agreement, Curis
shall prepare and file with the SEC the Registration Statement on Form S-4, in
which the Joint Proxy Statement shall be included as a prospectus, and shall
use reasonable efforts to have the Registration Statement declared effective by
the SEC as promptly as practicable. Curis shall obtain and furnish the
information required to be included in the Registration Statement and, after
consultation with each Company respond promptly to any comments made by the SEC
with respect to the Registration Statement (which comments shall promptly be
furnished to each Company) and cause the prospectus included therein, including
any amendment or supplement thereto, to be mailed to the stockholders of each
Company at the earliest practicable date after the Registration Statement is
declared effective by the SEC, provided that no amendment or supplement to the
Registration Statement will be made by Curis without consultation with each
Company and each of their respective counsels. Curis shall also take any action
required to be taken under Blue Sky or other securities Laws in connection with
the issuance of Surviving Company Common Stock in the Merger.
(b) Each Company shall (i) as promptly as practicable following the date
hereof prepare a preliminary proxy or information statement relating to the
Merger and this Agreement, (ii) obtain and furnish the information required to
be included by the SEC in the Joint Proxy Statement, (iii) cause the Joint
Proxy Statement and the prospectus to be included in the Registration
Statement, including any amendment or supplement thereto, to be mailed to their
respective stockholders at the earliest practicable date after the Registration
Statement is declared effective by the SEC, and (iv) use all reasonable efforts
to obtain the necessary approval of the Merger and this Agreement by their
stockholders. No Company shall file with or supplementally provide to the SEC
or mail to its stockholders the Joint Proxy Statement or any amendment or
supplement thereto without the prior written consent of each other Company.
Each Company shall allow each other Company's full participation in the
preparation of the Joint Proxy Statement and any amendment or supplement
thereto and shall consult with each other Company and its advisors concerning
any comments from the SEC with respect thereto.
(c) Each Company shall include in the Joint Proxy Statement the
recommendation of its Board of Directors in favor of approval and adoption of
this Agreement and the Merger, except to the extent that the Board of Directors
of such Company shall have withdrawn or modified its recommendation of this
Agreement or the Merger as permitted by Section 6.1(b). Without limiting the
foregoing, each Company agrees that its obligation under Section 7.2 to duly
call, give notice of and hold its Company Meeting as soon as practicable
following the date upon which the Registration Statement becomes effective
shall not be affected by (i) the commencement, public proposal, public
disclosure or communication to such Company of any Acquisition
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Proposal or (ii) the withdrawal or modification by the Board of Directors of
such Company of its approval or recommendation of this Agreement or the Merger.
(d) The Parties shall, as promptly as practicable, make all necessary
filings with respect to the Merger under the Securities Act and the Exchange
Act and the rules and Regulations thereunder (including, without limitation,
registration of the Surviving Company Common Stock on a Form 8-A (the "Exchange
Act Registration Statement")) and under applicable Blue Sky or similar
securities laws, rules and Regulations, and shall use all reasonable efforts to
obtain required approvals and clearances with respect thereto.
(e) In the event that Curis is not permitted to include in the Registration
Statement all shares of Surviving Company Common Stock to be issued as Merger
Consideration ("Excluded Securities") then, as promptly as practicable after
the filing of the Registration Statement, Curis shall file and shall use its
commercially reasonable best efforts to have declared effective a "shelf"
registration statement pursuant to Rule 415 under the Securities Act for the
resale of the Excluded Securities and use its commercially reasonable best
efforts to keep such registration statement effective for a period of two (2)
years following the Effective Time or, if shorter, until (i) all Excluded
Securities have been sold pursuant to such registration statement or (ii) the
first date on which each holder of Excluded Securities may sell all of such
Excluded Securities held by such holder without registration pursuant to Rule
144 under the Securities Act within a three-month period.
7.2 Meetings of Stockholders. Each Company shall promptly after the date
hereof take all action necessary in accordance with the provisions of the DGCL
or the TBCA and each of their Certificates or Articles of Incorporation and By-
laws, respectively, to duly call, give notice of and hold its Company Meeting
as soon as practicable following the date upon which the Registration Statement
becomes effective and shall consult with Curis in connection therewith. Once
such Company Meeting has been called and noticed, the Company shall not
postpone or adjourn (other than for the absence of a quorum and then only to a
future date agreed to by the other Parties) such Company Meeting without the
consent of each other Company. The Boards of Directors of each Company shall
have declared that this Agreement and the Merger is advisable and, subject to
Section 6.1(b), recommended that this Agreement and the Merger be approved and
authorized by the stockholders of such Company and include in the Registration
Statement and Joint Proxy Statement a copy of such recommendation; provided,
that each Company, through its Board of Directors, shall submit this Agreement
and the Merger to their respective stockholders whether or not such Board of
Directors at any time subsequent to making such recommendation takes any action
permitted by Section 6.1(b). Each Company shall solicit from their respective
stockholders proxies in favor of the Merger and shall take all other action
necessary or advisable to secure the vote or consent of such stockholders
required by the DGCL or the TBCA to authorize the Merger; provided that this
provision shall not prohibit the Boards of Directors of the Companies from
taking any action permitted by Section 6.1(b).
7.3 Access to Information. Upon reasonable notice, each Company shall (and
shall cause each of its Subsidiaries to) afford to the other Parties' officers,
employees, accountants, counsel and other representatives, reasonable access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments and records and, during such
period, each Company shall (and shall cause each of its Subsidiaries to)
furnish promptly to the other Parties (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws and (ii) all
other information concerning its business, properties and personnel as each
other Party may reasonably request. Unless otherwise required by law, each
Party shall, and shall cause its officers, employees, accountants, counsel and
other representatives or persons who have access to such information to, hold
any such information which is non-public in confidence in accordance with the
Confidentiality Agreements. No information or knowledge obtained in any
investigation pursuant to this Section 7.3 or otherwise shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the Parties to consummate the Merger.
7.4 All Reasonable Efforts; Further Assurances.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each Party shall use all reasonable efforts to take, or cause to be
taken, all appropriate actions, and do, or cause to be done, and to
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assist and cooperate with the other Parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated hereby.
The Parties shall use all reasonable efforts to:
(i) obtain all licenses, permits, consents, waivers, approvals,
authorizations, qualifications or Orders (including all United States and
foreign governmental and regulatory rulings and approvals), required to be
obtained by each of them, or any of their respective Subsidiaries,
respectively, and the Parties shall make all filings (including, without
limitation, all filings with United States and foreign governmental or
regulatory agencies) under applicable Law required in connection with the
authorization, execution and delivery of this Agreement by them and the
consummation by them of the transactions contemplated hereby and thereby,
including the Merger (in connection with which the Parties will cooperate
with each other in connection with the making of all such filings,
including providing copies of all such documents to the non-filing party
and its advisors prior to filings and, if requested, will accept all
reasonable additions, deletions or changes suggested in connection
therewith);
(ii) furnish all information required for any application or other
filing to be made pursuant to any applicable law or any applicable
Regulations of any Governmental Authority (including all information
required to be included in the Joint Proxy Statement or the Registration
Statement) in connection with the transactions contemplated by this
Agreement; and
(iii) lift, rescind or mitigate the effects of any injunction,
restraining order or other order adversely affecting the ability of any
party hereto to consummate the transactions contemplated hereby and thereby
and to prevent, with respect to any threatened injunction, restraining
order or other Order, the issuance or entry thereof,
provided that no Party shall be under any obligation to (x) make proposals,
execute or carry out agreements or submit to Orders providing for the sale or
other disposition or holding separate (through the establishment of a trust or
otherwise) of any assets or categories of assets material (in nature or
amount) to such Party or imposing or seeking to impose any material limitation
on the ability of such Party to conduct its business or own such assets or (y)
otherwise take any step to avoid or eliminate any impediment which may be
asserted under any Law governing competition, monopolies or restrictive trade
practices which, in the reasonable judgment of such Party, might result in a
limitation of the benefit expected to be derived by Curis as a result of the
transactions contemplated hereby or might adversely affect the Parties as a
whole. None of the Parties hereto will take any action which results in any of
the representations or warranties made by such Party pursuant to Articles III
or IV, as the case may be, becoming untrue or inaccurate in any material
respect.
(b) The Parties shall use all reasonable efforts to satisfy or cause to be
satisfied all of the conditions precedent that are set forth in Article VIII,
as applicable to each of them, and to cause the transactions contemplated by
this Agreement to be consummated. Each Party, at the reasonable request of
another Party, shall execute and deliver such other instruments and do and
perform such other reasonable acts and things as may be necessary or desirable
for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
7.5 Stock Options and Warrants.
(a) At the Effective Time, each outstanding Company Stock Option under the
Company Stock Plans, whether vested or unvested, shall, in accordance with the
terms of such Company Stock Option and such Company Stock Plan, by virtue of
the Merger and without any action on the part of the holder thereof, become
and represent an option to acquire, on the same terms and conditions as were
applicable under such Company Stock Option, the same number of shares of
Surviving Company Common Stock as the holder of such Company Stock Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Time (rounded
downward to the nearest whole number), at a price per share (rounded upward to
the nearest whole cent) equal to (i) the aggregate exercise price for shares
of Company Common Stock purchasable pursuant to such Company Stock Option
immediately prior to the Effective Time divided by (ii) the number of full
shares of Surviving Company Common Stock deemed purchasable pursuant to such
Company Stock Option in accordance with the foregoing.
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(b) As soon as practicable after the Effective Time, the Surviving Company
shall deliver to the participants in Company Stock Plans appropriate notice
setting forth such participants' rights pursuant thereto and the grants
pursuant to Company Stock Plans shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section 7.5 after
giving effect to the Merger).
(c) Curis shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Surviving Company Common Stock for delivery
under the Company Stock Plans assumed in accordance with this Section 7.5. As
soon as practicable after the Effective Time, and in any event within 30 days
thereafter, the Surviving Company shall file one or more registration
statements on Form S-8 (or any successor or other appropriate forms) with
respect to the shares of Surviving Company Common Stock subject to such options
and shall use its commercially reasonable best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding.
(d) The Board of Directors of each Company (or Board committee administering
such plans) shall have approved, prior to the date of this Agreement, and shall
take, prior to or as of the Effective Time, all necessary actions, if any,
pursuant to and in accordance with the terms of the Company Stock Plans and the
instruments evidencing the Company Stock Options, to provide for the conversion
of the Company Stock Options into options to acquire Surviving Company Common
Stock in accordance with this Section 7.5, and to provide that no consent of
the holders of the Company Stock Options is required in connection with such
conversion.
(e) At the Effective Time, each outstanding Company Warrant (other than any
Company Warrant that by its terms otherwise expires by virtue of the Merger)
shall, in accordance with the terms of such Company Warrant, by virtue of the
Merger and without any action on the part of the holder thereof, become and
represent a warrant to acquire, on the same terms and conditions as were
applicable under such Company Warrant, the same number of shares of Surviving
Company Common Stock as the holder of such Company Warrant would have been
entitled to receive pursuant to the Merger (including with respect to the
treatment of fractional shares) had such holder exercised such Company Warrant
in full immediately prior to the Effective Time, at a price per share (rounded
upward to the nearest whole cent) equal to (i) the aggregate exercise price for
the shares of Company Common Stock purchasable pursuant to such Company Warrant
immediately prior to the Effective Time divided by (ii) the number of full
shares of Surviving Company Common Stock deemed purchasable pursuant to such
Company Warrant in accordance with the foregoing.
(f) The Board of Directors of each Company shall have approved, prior to the
date of this Agreement, and shall take, prior to or as of the Effective Time,
all necessary actions, pursuant to and in accordance with the terms of the
Company Warrants, to provide for the conversion of the Company Warrants into
warrants to acquire Surviving Company Common Stock in accordance with this
Section 7.5, and to provide that no consent of the holders of any Company
Warrant is required in connection with such conversion.
(g) Immediately prior to the Effective Time, the Subordinated Note of
Ontogeny payable to Atwill Holdings Limited (the "Ontogeny Convertible Note")
shall in accordance with the terms of the Ontogeny Convertible Note and the
Common Stock Purchase Agreement pursuant to which such Ontogeny Convertible
Note was issued, by virtue of the Merger and without any action on the part of
the holder thereof, become and represent (and Ontogeny will issue to the holder
of such note) an aggregate of 819,673 shares of Ontogeny Common Stock.
7.6 Notification of Certain Matters.
(a) A Party shall give prompt notice to the other Parties of the occurrence,
or non-occurrence, of any event the occurrence, or non-occurrence, of which
results in any representation or warranty contained in this Agreement being
untrue or inaccurate in any material respect (or, in the case of any
representation or warranty qualified by its terms by materiality or Material
Adverse Effect, then untrue or inaccurate in any respect) and any failure of
the Parties, as the case may be, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 7.6 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
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(b) A Party shall give prompt notice to the other Parties of (i) any notice
or other communication from any Person alleging that the consent of such Person
is or may be required in connection with the Merger; (ii) any notice or other
communication from any Governmental Authority in connection with the Merger;
(iii) any Litigation, relating to or involving or otherwise affecting such
Party that relates to the consummation of the Merger; (iv) the occurrence of a
default or event that, with notice or lapse of time or both, will become a
default under any contract which is material to Curis or any Company Material
Contract of such Party; and (v) any change that is reasonably likely to have a
Material Adverse Effect on such Party or is likely to delay or impede the
ability of any Party to consummate the transactions contemplated by this
Agreement or to fulfill their respective obligations set forth herein.
(c) Each of the Parties shall give (or shall cause their respective
Subsidiaries to give) any notices to third Persons, and use, and cause their
respective Subsidiaries to use, all reasonable efforts to obtain any consents
from third Persons (i) necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, (ii) otherwise required under any
contracts, licenses, leases or other agreements in connection with the
consummation of the transactions contemplated hereby or (iii) required to
prevent a Material Adverse Effect on any of the Parties from occurring. If any
Party shall fail to obtain any such consent from a third Person, such Party
shall use all reasonable efforts, and will take any such actions reasonably
requested by the other Parties, to limit the adverse effect upon them, their
respective Subsidiaries, and their respective businesses resulting, or which
would result after the Effective Time, from the failure to obtain such consent.
7.7 Listing on the NASDAQ. Curis shall use its commercially reasonable best
efforts to cause the Surviving Company Common Stock to be issued in the Merger
to be approved for listing on NASDAQ National Market, subject to official
notice of issuance, prior to the Effective Time.
7.8 Public Announcements. A Party shall consult with and obtain the approval
of the other Parties before issuing any press release or other public
announcement with respect to the Merger or this Agreement and shall not issue
any such press release prior to such consultation and approval, except as may
be required by applicable law or any listing agreement related to the trading
of the shares of either party on any national securities exchange or national
automated quotation system, in which case the Party proposing to issue such
press release or make such public announcement shall use reasonable efforts to
consult in good faith with each other Party before issuing any such press
release or making any such public announcement.
7.9 Accountant's Letters. Upon reasonable notice, the Parties shall use
reasonable efforts to cause their respective independent public accountants to
deliver to the other Parties, as the case may be, a letter covering such
matters as are requested by the requesting Party, as the case may be, and as
are customarily addressed in accountant's "comfort" letters in connection with
registration statements similar to Form S-4.
7.10 Indemnification of Directors and Officers.
(a) From and after the Effective Time, Curis (as the Surviving Company)
shall, to the fullest extent permitted by Law, honor all of each Company's
obligations to indemnify (including any obligations to advance funds for
expenses) the current or former directors or officers of such Company for acts
or omissions by such directors and officers occurring prior to the Effective
Time to the extent that such obligations of such Company to indemnify and
advance expenses exist on the date of this Agreement, whether pursuant to a
Company's Certificate or Articles of Incorporation, a Company's By-laws,
individual indemnity agreements or otherwise, and such obligations shall
survive the Merger and shall continue in full force and effect in accordance
with the terms of the Companies' Certificates or Articles of Incorporations,
By-laws and such individual indemnity agreements from the Effective Time until
the later of (i) the expiration of the applicable statute of limitations with
respect to any claims against such directors or officers arising out of such
acts or omissions or (ii) in the case of any claims made prior to the
expiration of the applicable statute of limitations, the final disposition of
such claims.
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(b) For a period of six years after the Effective Time, Curis (as the
Surviving Company) shall maintain in effect, if available, directors' and
officers' liability insurance covering those Persons who, as of immediately
prior to the Effective Time, are covered by each Company's directors' and
officers' liability insurance policy (the "Insured Parties") on terms no less
favorable to the Insured Parties than those of such Company's present
directors' and officers' liability insurance policy.
(c) The provisions of this Section 7.10 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
7.11 Covenants for Tax-Free Status. Prior to and after the Effective Time,
each Party shall use all commercially reasonable efforts to cause the Merger to
qualify as a reorganization within the meaning of Section 368(a) of the Code,
and will not take any action reasonably likely to cause the Merger not to so
qualify. After the Effective Time, Curis (as the Surviving Company) shall
continue at least one significant historic business line of each Company, or
use at least a significant portion of each Company's historic business assets
in a business, in each case within the meaning of Treasury Regulation Section
1.368-1(d).
7.12 Stockholder Agreements.
(a) Concurrently with the execution of this Agreement, each Company is
delivering to the Other Companies a Stockholder Agreement in the form of
Exhibit A attached hereto executed by each director and officer of such
Company, and each of their respective Affiliates, from whom such Company has by
then obtained such a Stockholder Agreement. If and to the extent the following
has not already been accomplished at the time of execution of this Agreement,
then, within 14 days after the date hereof, (i) Creative shall use its best
efforts to cause a Stockholder Agreement in the form of Exhibit A attached
hereto to be executed and delivered to the other Companies by each of
Creative's directors and officers, and each of their respective Affiliates, and
any other Affiliates of Creative (the "Creative Voting Commitment"), (ii)
Ontogeny shall use its best efforts to cause such a Stockholder Agreement to be
executed and delivered to the other Companies by each of Ontogeny's directors
and officers, and each of their respective Affiliates, and such of its other
stockholders as are necessary to obtain the requisite vote of the stockholders
of Ontogeny to approve this Agreement and the Merger, as well as the amendment
of the Ontogeny Certificate of Incorporation in substantially the form of
Exhibit G attached hereto, in accordance with the DGCL and its Certificate of
Incorporation (the "Ontogeny Required Stockholder Vote"), and (iii)
Reprogenesis shall use its best efforts to cause such a Stockholder Agreement
to be executed and delivered to the other Companies by each of Reprogenesis'
directors and officers, and each of their respective Affiliates, and such of
its other stockholders as are necessary to obtain the requisite vote of the
stockholders of Reprogenesis to approve this Agreement and the Merger, as well
as the amendment of the Reprogenesis Articles of Incorporation in substantially
the form of Exhibit H attached hereto, in accordance with the TBCA and its
Articles of Incorporation (the "Reprogenesis Required Stockholder Vote");
provided, however, that the obligation of Ontogeny to deliver the Stockholder
Agreements representing the Ontogeny Required Stockholder Vote, and the
obligation of Reprogenesis to deliver Stockholder Agreements representing the
Reprogenesis Required Stockholder Vote, is subject to the satisfaction of such
obligation by the other such Company.
(b) If, within 14 days after the date of this Agreement, Ontogeny has been
able to obtain Stockholder Agreements representing the Ontogeny Required
Stockholder Vote, except that it has not been able to obtain Stockholder
Agreements from stockholders whose vote is sufficient to approve amendment of
any or all of Sections D.4(h) or E.4(h) of Article Fourth of the Ontogeny
Certificate of Incorporation, Section 4(h) of the Certificate of Designation of
the Series C-1 Convertible Preferred Stock thereunder, or Section 4(h) of the
Certificate of Designation of the Series G Convertible Preferred Stock
thereunder (as the case may be, the "Applicable Preferred Stock Provisions") in
substantially the manner contemplated by Exhibit G attached hereto (the
Ontogeny Required Stockholder Vote, excluding the requisite stockholder vote
described in the foregoing exception, being referred to herein as the "Ontogeny
Minimum Required Stockholder Vote"), and if
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Reprogenesis has been able to obtain Stockholder Agreements representing the
Reprogenesis Stockholder Vote, then Curis and the Companies shall cooperate in
good faith, within 28 days after the date of this Agreement, to prepare and
adopt mutually acceptable amendments to the Certificate of Incorporation of
Curis and to this Agreement that will (i) authorize a class or series of
convertible capital stock of Curis which has the minimum rights necessary to
satisfy the requirements of the Applicable Preferred Stock Provisions as they
apply to the Merger, (ii) provide for the conversion of the shares of Ontogeny
Preferred Stock to which the Applicable Preferred Stock Provisions relate into
such new class or series of convertible stock of Curis (rather than into Common
Stock of Curis) on a basis otherwise consistent with Section 2.1(b), and (iii)
make such other changes, if any, as may be necessary or appropriate to give
effect to the foregoing.
(c) Each Company acknowledges and agrees to be bound by and comply with the
provisions of paragraph 2 of each of the Stockholder Agreements, as applicable
to such Company, as if a party thereto, with respect to transfers of record of
ownership of shares of Company Stock, and agrees to notify the transfer agent
for any such shares and provide such documentation and do such other things as
may be necessary to effectuate the provisions of such Stockholder Agreements.
7.13 Affiliate Agreements.
(a) Identified in Section 7.13 of each Company Disclosure Schedule is a list
of each Person who is a director or executive officer of the Company and, to
the Company's best Knowledge, each Person who is a holder of 10% or more of the
outstanding Voting Stock of such Company, and such Persons are, in the
reasonable judgment of such Company, all Persons who are "affiliates" of such
Company within the meaning of Rule 145 promulgated under the Securities Act
("Rule 145"). Each Company shall provide such information and documents as any
other Party shall reasonably request for purposes of reviewing such list and
shall notify such other Parties in writing regarding any change in the identity
of its affiliates prior to the Closing Date. Each Company shall use its best
efforts to deliver or cause to be delivered to the other Parties no later than
the date of the filing of the Registration Statement from each of their
respective affiliates, an executed agreement, in substantially the form
attached hereto as Exhibit E (an "Affiliate Agreement"), by which each such
affiliate agrees to comply with the applicable requirements of Rule 145 and
other applicable securities laws. Curis shall be entitled to place appropriate
legends on the certificates evidencing any Surviving Company Common Stock to be
received by such affiliates pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for the
Surviving Company Common Stock, consistent with the terms of the Affiliate
Agreements (provided that such legends or stop transfer instructions shall be
promptly removed, after the required restricted period).
(b) Curis shall, at all times during the two (2) year period beginning on
the Closing Date, whether or not it is subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act, comply with the current public
information requirements of Rule 144(c)(1) promulgated under the Securities
Act.
7.14 SEC Filings. Prior to the Effective Time, each Company that is a Public
Company shall (a) timely file with the SEC each periodic or current report
required to be filed by it under the Exchange Act and (b) promptly after filing
such report, furnish each other Party with a copy.
7.15 Maintenance, Prosecution and Filing Obligations. Each Company shall pay
the costs of preparation for filing, prosecution and maintenance of each of
their respective Intellectual Property Rights as required and shall not permit
the lapse of any filings following the execution of this Agreement, except in
its reasonable business judgment in light of the transactions contemplated
hereby. Each Company shall provide copies of all filings and evidence of
payments under this Section 7.15 to the other Parties.
7.16 Certain Agreements. Each Company irrevocably and unconditionally agrees
that it (a) will vote all of the shares of Curis Common Stock owned by it in
favor of the Merger Agreement and the Merger at any meeting or meetings of
Curis's stockholders called to vote upon the Merger Agreement and the Merger;
(b) will not vote such shares (or otherwise provide a proxy or consent or a
voting agreement with respect thereto) in
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favor of any other Acquisition Proposal; and (c) will timely take all action
necessary to (i) elect as directors of Curis the persons designated on or
pursuant to Schedule 1.5, (ii) amend the Curis Certificate of Incorporation to
eliminate the ability of Curis stockholders to act by written consent and (iii)
approve a Curis employee, director and consultant stock plan.
7.17 Lock-Up Agreements. Each Company shall use its best efforts to deliver
or cause to be delivered to the other Parties no later than the date of the
filing of the Registration Statement from each Company officer and director and
each Person who is an Affiliate of each such officer and director, an executed
agreement, in substantially the form attached hereto as Exhibit F (a "Lock-Up
Agreement"); provided, however, that no Company shall be obligated to deliver
its Lock-Up Agreements to the other Companies unless both other Companies also
deliver all of their required Lock-Up Agreements. The Surviving Company may
impose stop-transfer instructions with respect to the shares subject to the
foregoing restriction until the end of said period.
7.18 Curis Board Authorization. In connection with obtaining the exemption
of certain transactions from the requirements of Section 16 of the Exchange Act
pursuant to Rule 16b-3 thereunder, Curis shall use its best efforts to approve,
by resolution of its Board of Directors, the acquisition of Surviving Company
Common Stock by its officers and directors in the Merger.
7.19 Best Efforts Obligations. Where provisions of this Agreement
(including, without limitation, Sections 7.4, 7.12, 7.13, 7.17 and 7.18)
require a Company to use its best efforts or its reasonable efforts to obtain
consents, waivers, approvals, authorizations, agreements (including Stockholder
Agreements, Affiliate Agreements and Lock-Up Agreements) or the like from any
other Person, or otherwise to cause any other Person to take action or refrain
from taking action, such Company shall not be obligated to pay any amount or
provide anything of value (other than filing fees and other required amounts in
the case of Governmental Authorities) to such other Person to induce such
Person to act in the desired manner.
ARTICLE VIII
Conditions of Merger
8.1 Conditions to Obligation of All Parties to Effect the Merger. The
respective obligations of each Party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Effectiveness of the Registration Statements. The Registration Statement
and the Exchange Act Registration Statement shall have been declared effective;
no stop order suspending the effectiveness of the Registration Statement or the
Exchange Act Registration Statement shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated; and no similar
proceeding in respect of the Joint Proxy Statement shall have been initiated
or, to the Knowledge of any Party, threatened by the SEC.
(b) Stockholder Approval. This Agreement and the Merger shall have been
authorized by the requisite vote of the stockholders of each Company in
accordance with the provisions of the DGCL or the TBCA (as the case may be) and
the Certificate or Articles of Incorporation and By-laws of each respective
Party.
(c) HSR Act. The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(d) No Injunctions or Restraints; Illegality. No Court or Governmental
Authority having jurisdiction over any Party shall have enacted, issued,
promulgated, enforced or entered any Law, Regulation or Order (whether
temporary, preliminary or permanent) which is then in effect and which has the
effect of making the Merger illegal or otherwise preventing or prohibiting
consummation of the Merger.
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(e) NASDAQ. The shares of Surviving Company Common Stock issuable to the
stockholders of the Companies pursuant to this Agreement shall have been
approved for listing on NASDAQ National Market subject to official notice of
issuance.
(f) Appraisal Shares. The Appraisal Shares of Ontogeny shall comprise not
more than 5% of the issued and outstanding Ontogeny Common Stock and not more
than 5% of the issued and outstanding Ontogeny Preferred Stock.
(g) Dissenting Shares. The Dissenting Shares of Reprogenesis shall comprise
not more than 5% of the issued and outstanding Reprogenesis Common Stock and
not more than 5% of the issued and outstanding Reprogenesis Preferred Stock.
(h) Charter Amendments. An amendment to the Amended and Restated Certificate
of Incorporation of Ontogeny in substantially the form of Exhibit G attached
hereto shall have been duly adopted and filed with the Secretary of State of
the State of Delaware, unless Section 7.12(b) of this Agreement has become
applicable, in which case such amendment shall not include an amendment of the
Applicable Preferred Stock Provisions. Articles of Amendment to the Articles of
Incorporation of Reprogenesis in substantially the form of Exhibit H attached
hereto shall have been duly adopted and filed with the Secretary of State of
the State of Texas. If Section 7.12(b) has become applicable, an amendment to
the Curis Certificate of Incorporation as contemplated by Section 7.12(b) shall
have been duly adopted and filed with the Secretary of State of the State of
Delaware.
8.2 Additional Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each Party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the additional
following conditions by each other Party, any or all of which may be waived by
such Party, in whole or in part, to the extent permitted by applicable Law:
(a) Representations and Warranties. The representations and warranties of
each other Party contained in this Agreement shall be true and correct in all
material respects on and as of the Effective Time, except for (x) changes
contemplated by this Agreement (including the Disclosure Schedules hereto), (y)
those representations and warranties that are qualified by materiality or by
Company Material Adverse Effect or Curis Material Adverse Effect, as the case
may be, in which case such representations and warranties shall be true and
correct in all respects subject to such qualifications and (z) those
representations and warranties which address matters only as of a particular
date (in which case such representations and warranties shall be true and
correct in all material respects, on and as of such particular date, with the
same force and effect as if made on and as of the Effective Time), and such
Party shall have received certificates to such effect signed by the Chief
Executive Officer and Chief Financial Officer of each other Party.
(b) Agreements and Covenants. Each other Party shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and such Party shall have received certificates to such effect
signed by the Chief Executive Officer and Chief Financial Officer of each of
other Party.
(c) Regulatory Approvals. All approvals and consents of applicable Courts
and/or Governmental Authorities required for each other Party to consummate the
Merger shall have been received, except for such approvals and consents the
failure of which to have been so received, shall not have had, or be reasonably
be expected to have, a Company Material Adverse Effect or a Curis Material
Adverse Effect, as the case may be.
(d) Third Party Consents. Such Party shall have received evidence, in form
and substance reasonably satisfactory to it, that the licenses, permits,
consents, waivers, approvals, authorizations, qualifications or Orders of
Governmental Authorities and other third parties required by each of the other
Parties as described in the Company Disclosure Schedule of such other Parties
have been obtained, except where failure to have been so obtained, either
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect or a Curis Material Adverse Effect, as the case may be.
Notwithstanding the foregoing, (i) Creative shall
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have received evidence, in form and substance reasonably satisfactory to it,
that the licenses, permits, consents, waivers, approvals, authorizations,
qualifications or Orders of Governmental Authorities and other third parties
set forth on Schedule 8.2(d) of the Company Disclosure Schedules of each of the
other two Companies shall have been obtained; (ii) Ontogeny shall have received
evidence, in form and substance reasonably satisfactory to it, that the
licenses, permits, consents, waivers, approvals, authorizations, qualifications
or Orders of Governmental Authorities and other third parties set forth on
Schedule 8.2(d) of the Company Disclosure Schedules of each of the other two
Companies shall have been obtained; and (iii) Reprogenesis shall have received
evidence, in form and substance reasonably satisfactory to it, that the
licenses, permits, consents, waivers, approvals, authorizations, qualifications
or Orders of Governmental Authorities and other third parties set forth on
Schedule 8.2(d) of the Company Disclosure Schedules of each of the other two
Companies shall have been obtained.
(e) Tax Opinions. Such Party shall have received a written opinion from its
counsel to the effect that the Merger will be treated for federal income tax
purposes as a tax-free reorganization within the meaning of Section 368(a) of
the Code; provided that if such counsel does not render such opinion, this
condition shall nonetheless be deemed satisfied if counsel for any other
Company renders such opinion to such Party (it being agreed that each Company
shall provide reasonable cooperation, including making reasonable
representations, to each Company counsel to enable it to render such opinion).
ARTICLE IX
Termination, Amendment and Waiver
9.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of each Party:
(a) By mutual written consent duly authorized by the Boards of Directors of
each Party; or
(b) By any Company if the Merger shall not have been consummated on or
before August 31, 2000; provided, that the right to terminate this Agreement
under this Section 9.1(b) shall not be available to any Company whose failure
to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Merger to have been consummated on or before
such date; or
(c) By any Company if a Court of competent jurisdiction or Governmental
Authority shall have issued an Order, decree or ruling or taken any other
action, in each case which has become final and non-appealable, which
restrains, enjoins or otherwise prohibits the Merger; or
(d) By any Company, if, at the Company Meeting of any other Company
(including any adjournment or postponement thereof), the requisite vote of the
stockholders of such other Company to authorize this Agreement shall not have
been obtained; provided that the right to terminate this Agreement under this
Section 9.1(d) shall not be available to any Company where the failure to
obtain such stockholder approval shall have been caused by the action or
failure to act of such Company in breach of this Agreement; or
(e) By any Company, if the Board of Directors of any other Company or any
committee thereof (the "Defaulting Party") shall have (1) approved or
recommended any Acquisition Proposal other than the Merger, (2) failed to
present and recommend the authorization of this Agreement and the Merger to the
stockholders of such other Company, or withdrawn or modified in a manner
adverse to such Company, its recommendation of the Merger, this Agreement or
the transactions contemplated hereby, (3) failed to mail the Joint Proxy
Statement to its stockholders within five (5) Business Days of when the Joint
Proxy Statement was available for mailing or failed to include therein such
approval and recommendation (including the recommendation that the stockholders
of such other Party vote in favor of the Merger), (4) upon a request by any
Party to reaffirm the approval and recommendation of the Merger, failed to do
so within five (5) Business Days after such request is
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made, (5) entered, or caused such other Company to enter, into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement related to any Acquisition Proposal, (6) recommended to the
stockholders of such other Company, following the commencement of a tender or
exchange offer for outstanding shares of such other Company's Common Stock,
that such stockholders tender their shares in such tender or exchange offer or
failed, within 10 days of the commencement of such offer, to recommend against
acceptance of such offer, (7) taken any action prohibited by Section 6.1, or
(8) resolved by the Board of Directors of such other Company or announced its
intention to do any of the foregoing;
(f) By any Company, if such Company is not in material breach of its
obligations or its representations and warranties under this Agreement, and if
(i) there has been a breach at any time by any other Company of any of their
respective representations and warranties hereunder such that Section 8.2(a) of
this Agreement would not be satisfied (treating such time as if it were the
Effective Time for purposes of this Section 9.1(f)) or (ii) there has been the
willful breach on the part of any other Company of any of its covenants or
agreements contained in this Agreement (other than the breach of a covenant
which is dealt with in Section 9.1(e) above) such that Section 8.2(b) of this
Agreement would not be satisfied (treating such time as if it were the
Effective Time for purposes of this Section 9.1(f)), and, in the case of either
clause (i) or (ii) above, such breach (if curable) has not been cured within 30
days after written notice to both other Companies;
(g) By Creative, no later than 21 days after the date of this Agreement, if
Ontogeny shall have failed to deliver Stockholder Agreements representing the
Ontogeny Minimum Required Stockholder Vote, or Reprogenesis shall have failed
to deliver Stockholder Agreements representing the Reprogenesis Required
Stockholder Vote, in either case within 14 days after the date of this
Agreement;
(h) By Ontogeny, no later than 21 days after the date of this Agreement, if
Creative shall have failed to deliver Stockholder Agreements representing the
Creative Voting Commitment, or Reprogenesis shall have failed to deliver
Stockholder Agreements representing the Reprogenesis Required Stockholder Vote,
in either case within 14 days after the date of this Agreement; or
(i) By Reprogenesis, no later than 21 days after the date of this Agreement,
if Ontogeny shall have failed to deliver Stockholder Agreements representing
the Ontogeny Minimum Required Stockholder Vote, or Creative shall have failed
to deliver Stockholder Agreements representing the Creative Voting Commitment,
in either case within 14 days after the date of this Agreement.
9.2 Effect of Termination. Except as provided in this Section 9.2, in the
event of the termination of this Agreement pursuant to Section 9.1, this
Agreement (other than this Section 9.2 and Sections 5.3, 9.3 and Article X
hereof, which shall survive such termination) will forthwith become void, and
there will be no liability on the part of any Party or any of their respective
officers or directors to the other and all rights and obligations of any Party
hereto will cease, except that nothing herein will relieve any Party from
liability for any breach, prior to termination of this Agreement in accordance
with its terms, of any representation, warranty, covenant or agreement
contained in this Agreement.
9.3 Fees and Expenses.
(a) Except as set forth in this Section 9.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the Party incurring such expenses, whether or not the Merger
is consummated; provided that each Company shall share pro rata, in proportion
to its proposed relative ownership of Curis upon consummation of the Merger,
all fees and expenses, other than attorneys' fees, incurred in relation to the
printing and filing of the Joint Proxy Statement (including any preliminary
materials related thereto), the Registration Statement (including financial
statements and exhibits) and any amendments or supplements thereto, and any
fees and expenses required to be paid by Curis (it being understood that the
HSR Act filing fee shall be borne equally by the Companies).
(b) In the event that any of the following occurs:
(i) any Party terminates this Agreement pursuant to Section 9.1(e)
hereof; or
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(ii) (A) any Company or Companies (as applicable) terminates this
Agreement pursuant to (y) Section 9.1(d) hereof as a result of the failure
to receive the requisite vote of the stockholders of any other Company (the
"Breaching Party") at the Company Meeting of the Breaching Party if, at the
time of such failure an Acquisition Proposal to the Breaching Party shall
have been made, or proposed, communicated or disclosed in a manner which is
or otherwise becomes public (including being known by any stockholder of
such Party) or (z) Section 9.1(f) hereof after a breach by any other
Company (the "Breaching Party") of any of the Breaching Party's covenants
or agreements contained in this Agreement and (B) within one year of such
termination, either (1) the Breaching Party or any of its Subsidiaries
enters into an agreement with any Person with respect to an Acquisition
Proposal which provides for (x) transfer or issuance of securities
representing more than 50% of the equity or voting interests in the
Breaching Party, (y) a merger, consolidation, recapitalization or another
transaction resulting in the issuance of cash or securities of any Person
(other than a reincorporation or a holding company merger that results in
the stockholders of the Breaching Party owning all of the equity interests
in the surviving corporation) to the stockholders of the Breaching Party in
exchange for more than 50% of the equity or voting interests in the
Breaching Party or (z) transfer of assets, securities or ownership
interests representing more than 50% of the consolidated assets or earning
power of the Breaching Party or (2) any Person commences a tender offer
that results in the acquisition by the Person making the tender offer of a
majority of the outstanding Company Common Stock,
then the Defaulting Party or the Breaching Party, as the case may be, shall pay
to each other Company that is not in material breach of its obligations or its
representations and warranties under this Agreement at the time of such
termination (and, only in the case of clause (ii)(A)(y) above, that has
received the requisite vote of its stockholders at its Company Meeting to
approve this Agreement), a fee in cash in the amount of $5 million (and
therefore a total of $10,000,000 to both other Companies, if both are entitled
to receive such fees), plus the amount of such Company's Stipulated Expenses
(the "Termination Fee"), which Termination Fee shall be payable by wire
transfer of immediately available funds (i) in the case of a termination
pursuant to Section 9.1(e), at the time of such termination or (ii) in the case
of a termination pursuant to Section 9.1(d) or 9.1(f), at the time such
agreement is entered into or such tender offer is commenced, as the case may
be, except as otherwise provided in Section 9.3(c) with respect to Stipulated
Expenses. Termination by any Company pursuant to Section 9.1(d) or 9.1(f) under
circumstances where the Termination Fee is then payable shall not be effective
with respect to the Company owing such Termination Fee until receipt of the
Termination Fee by the other Companies.
(c) If this Agreement is terminated pursuant to Section 9.1(f) (other than
due to an event after the date of this Agreement that results in a breach of a
representation or warranty, which event is entirely outside the control of the
Breaching Party and due to no act or omission to act of the Breaching Party),
then the Breaching Party causing such termination shall reimburse each other
Party for all Stipulated Expenses not later than two (2) Business Days after
the date of such termination.
(d) As used in this Agreement, the term "Stipulated Expenses" shall mean
those reasonable fees and expenses actually incurred by any Company in
connection with this Agreement and the transactions contemplated hereby,
including fees and expenses of counsel, investment bankers, accountants,
experts, consultants and other Representatives, including (y) such Company's
efforts to merge and (z) salaries, travel costs and expenses incurred by such
Company as a result of changes to its business plan in contemplation of the
Merger; provided that the Stipulated Expenses of any Company shall not exceed
$750,000.
(e) Nothing in this Section 9.3 shall be deemed to be exclusive of any other
rights or remedies any Party may have hereunder or at law or in equity for any
breach of this Agreement.
(f) In the event that Reprogenesis terminates this Agreement pursuant to
Section 9.1(d) hereof as a result of the failure to receive the requisite vote
of the Stockholders of Creative at the Company Meeting of Creative, then
Creative shall pay Reprogenesis a fee in the aggregate amount of $1,500,000,
which shall be payable by wire transfer of immediately available funds within
five (5) business days of such termination.
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(g) In the event that (i) any Company or Companies, as applicable,
terminates this Agreement pursuant to Section 9.1(d) hereof as a result of the
failure to receive the requisite vote of the stockholders of any other Company
(the "Failing Party") at its Company Meeting to approve this Agreement, and
(ii) each such terminating Company has received the requisite vote of its
stockholders at its Company Meeting to approve this Agreement, and (iii) within
one year of such termination, the Failing Party or its Subsidiaries enters into
an agreement with any Person with respect to an Equity Financing (as defined
below) providing the Failing Company with gross proceeds equal to or greater
than $50,000,000, then the Failing Party shall pay, to each other Company that
both has received the requisite vote of its stockholders at its Company Meeting
to approve this Agreement and is not in material breach of its obligations or
its representations and warranties under this Agreement at the time of such
termination, a fee in the amount of $5,000,000 (and therefore a total of
$10,000,000 to both other Companies, if both are entitled to receive such
fees). Such fee shall be payable by wire transfer of immediately available
funds at the time the Failing Party has received at least $50,000,000 of gross
proceeds from such Equity Financing. Termination by any Company pursuant to
Section 9.1(d) under circumstances where the fee under this Section 9.3(g) is
then payable shall not be effective with respect to the Failing Party until
receipt of such fee by each Company entitled to receive it. As used is this
Section 9.3, the term "Equity Financing" means a financing transaction (or
series of related transactions) in which a Company raises proceeds by selling
shares of its capital stock or any security convertible into, or exchangeable
or exercisable for, its capital stock.
(h) In the event that (i) any Company or Companies, as applicable,
terminates this Agreement pursuant to Section 9.1(f) hereof after a breach by
any other Company (the "Breaching Party") of any of the Breaching Party's
covenants or agreements contained in this Agreement, and (ii) within one year
of such termination, the Breaching Party or its Subsidiaries enters into an
agreement with any Person with respect to an Equity Financing providing the
Breaching Company with gross proceeds equal to or greater than $50,000,000,
then the Breaching Party shall pay, to each other Company that is not in
material breach of its obligations or its representations and warranties under
this Agreement at the time of such termination, a fee in the amount of
$5,000,000 (and therefore a total of $10,000,000 to both other Companies, if
both are entitled to receive such fees). Such fee shall be payable by wire
transfer of immediately available funds at the time the Breaching Party has
received at least $50,000,000 of gross proceeds from such Equity Financing.
Termination by any Company pursuant to Section 9.1(f) under circumstances where
the fee under this Section 9.3(h) is then payable shall not be effective with
respect to the Breaching Party until receipt of such fee by each Company
entitled to receive it.
(i) Notwithstanding any other provision hereof to the contrary, (i) the
maximum amount of the fees that any Company shall be obligated to pay to any
other Company pursuant to Sections 9.3(b), 9.3(f), 9.3(g) and 9.3(h), even if
more than one of such Sections is applicable, shall be $5,000,000 (and
therefore a total of $10,000,000 to both other Companies, if both are entitled
to receive such fees), and (ii) any Company shall be obligated to pay the
Stipulated Expenses of any other Company only once pursuant to Sections 9.3(b)
and 9.3(c), even if more than one of such Sections is applicable.
9.4 Amendment. This Agreement may be amended by the Parties hereto by action
taken by or on behalf of their respective Boards of Directors at any time prior
to the Effective Time, subject to Section 252 of the DGCL. This Agreement may
not be amended except by an instrument in writing signed by all of the Parties
hereto.
9.5 Waiver. At any time prior to the Effective Time, any Party hereto may
extend the time for the performance by any other Party of any of the
obligations or other acts required hereunder, waive any inaccuracies in the
representations and warranties of any other Party contained herein or in any
document delivered pursuant hereto and waive compliance by any other Party with
any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid if set forth in an instrument in writing signed by the
Party or Parties to be bound thereby.
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ARTICLE X
General Provisions
10.1 Survival of Representations and Warranties.
(a) Except as set forth in Section 10.1(b) of this Agreement, the
representations, warranties and agreements of each Party hereto will remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other Party hereto, any Person controlling any such Party
or any of their officers, directors, representatives or agents whether prior to
or after the execution of this Agreement.
(b) The representations and warranties in this Agreement will terminate at
the Effective Time; provided, however, this Section 10.1(b) shall in no way
limit any covenant or agreement of the Parties which by its terms contemplates
performance after the Effective Time or after the termination of this Agreement
pursuant to Article IX.
10.2 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by a nationally-recognized overnight courier or by registered or
certified mail, postage prepaid, return receipt requested, or by electronic
mail, with a copy thereof to be delivered by mail (as aforesaid) within 24
hours of such electronic mail, or by telecopier, with confirmation as provided
above addressed as follows:
If to Creative:Creative Biomolecules, Inc.
101 Huntington Avenue
Boston, Massachusetts 02111
Telecopier:(617) 912-2995
Attention:Michael Tarnow, President
Cheryl Lawton, Esq., General Counsel
and Vice President, Administration
With a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Telecopier:(617) 542-2211
Attention:Jeffrey M. Wiesen, Esq.
Lewis J. Geffen, Esq.
If to Reprogenesis:Reprogenesis, Inc.
21 Erie Street
Cambridge, MA 02139
Telecopier:(617) 499-2927
Attention:Daniel R. Omstead, President
With a copy to:
Baker Botts LLP
One Shell Plaza
910 Louisana
Houston, TX 77002
Telecopier:(713) 229-1522
Attention:Walter J. Smith, Esq.
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If to Ontogeny:Ontogeny, Inc.
45 Moulton Street
Cambridge, Massachusetts 02138
Telecopier:(617) 876-0866
Attention:Doros Platika, President
Bruce A. Leicher, Vice President and General
Counsel
With a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Telecopier:(617) 832-7000
Attention:Robert Birnbaum, Esq.
Jonathan Hulbert, Esq.
If to Curis:to each of the Companies (with copies to its counsel).
or to such other address as the Party to whom notice is to be given may have
furnished to the other Parties in writing in accordance herewith. All such
notices or communications shall be deemed to be received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of a
nationally-recognized overnight courier, on the next Business Day after the
date when sent (c) in the case of facsimile transmission or telecopier or
electronic mail, upon confirmed receipt, and (d) in the case of mailing, on
the third Business Day following the date on which the piece of mail
containing such communication was posted.
10.3 Certain Definitions. For purposes of this Agreement, the term:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such Person.
"Business Day" means any day other than a Saturday, Sunday or day on which
banks are permitted to close in the State of New York or in the State of
Delaware.
"Control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or policies of
a Person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise.
"Court" means any court or arbitration tribunal of the United States, any
domestic state, or any foreign country, and any political subdivision thereof.
"Exchange Agent" means any bank or trust company organized under the Laws
of the United States or any of the states thereof and having a net worth in
excess of $100 million designated and appointed to act in the capacities
required under Section 2.6.
"Governmental Authority" means any governmental agency or authority (other
than a Court) of the United States, any domestic state, or any foreign
country, and any political subdivision or agency thereof, and includes any
authority having governmental or quasi-governmental powers.
"Knowledge" means (i) in the case an individual, knowledge of a particular
fact or other matter if such individual is actually aware of such fact or
other matter and (ii) in the case of an entity (other than an individual) such
entity will be deemed to have "Knowledge" of a particular fact or other matter
if any individual who is serving, or has at any time served, as a director,
officer, partner, executor, or trustee of such Person has (while such
individual is serving in such capacity), or at any time had (while such
individual was serving in such capacity), Knowledge of such fact or other
matter.
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"Law" means all laws, statutes and ordinances of any Governmental Agency
including all decisions of Courts having the effect of law within its
jurisdiction.
"Lien" means any mortgage, pledge, security interest, attachment,
encumbrance, lien (statutory or otherwise), option, conditional sale
agreement, right of first refusal, first offer, termination, participation or
purchase or charge of any kind (including any agreement to give any of the
foregoing); provided, however, that the term "Lien" shall not include (i)
statutory liens for Taxes, which are not yet due and payable or are being
contested in good faith by appropriate proceedings, (ii) statutory or common
law liens to secure landlords, lessors or renters under leases or rental
agreements confined to the premises rented, (iii) deposits or pledges made in
connection with, or to secure payment of, workers' compensation, unemployment
insurance, old age pension or other social security programs mandated under
applicable Laws, (iv) statutory or common law liens in favor of carriers,
warehousemen, mechanics and materialmen, to secure claims for labor, materials
or supplies and other like liens, and (v) restrictions on transfer of
securities imposed by applicable state and federal securities Laws.
"Litigation" means any suit, action, arbitration, cause of action, claim,
complaint, criminal prosecution, investigation, demand letter, governmental or
other administrative proceeding, whether at law or at equity, before or by any
Court or Governmental Authority, or before any arbitrator or other tribunal.
"Order" means any judgment, order, writ, injunction or decree of any Court
or Governmental Authority.
"Person" means an individual, corporation, partnership, association, trust,
unincorporated organization, limited liability company, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act).
"Regulation" means any rule or regulation of any Governmental Authority
having the effect of Law.
"Subsidiary" or "Subsidiaries" of any Party or any other Person means any
corporation, partnership, joint venture, limited liability company or other
legal entity of which such Party or such other Person, as the case may be,
(either alone or through or together with any other Subsidiary) owns, directly
or indirectly, 50% or more of the stock or other equity interests the holders
of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
"Voting Stock" of any Company means the capital stock of such Company
entitled to vote upon the election of directors and upon other matters
generally submitted to stockholders of such Company for voting purposes.
10.4 Interpretation. When a reference is made in this Agreement to
Sections, subsections, Schedules or Exhibits, such reference shall be to a
Section, subsection, Schedule or Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The word "herein" and similar references mean, except where a specific Section
or Article reference is expressly indicated, the entire Agreement rather than
any specific Section or Article. The table of contents and the headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
10.5 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any Party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
A-40
<PAGE>
10.6 Entire Agreement. This Agreement (including all exhibits and schedules
hereto) constitutes the entire agreement and supersedes all prior agreements
and undertakings (other than the Confidentiality Agreements), both written and
oral, among the Parties, or any of them, with respect to the subject matter
hereof and, except as otherwise expressly provided herein, are not intended to
confer upon any other Person any rights or remedies hereunder.
10.7 Assignment. This Agreement shall not be assigned by operation of law or
otherwise.
10.8 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each Party hereto, and other than with respect to
Section 7.10 which the Parties intend to establish third party beneficiary
rights, nothing in this Agreement, express or implied, is intended to or shall
confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
10.9 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any Party hereto in the exercise of any right hereunder
will impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor will any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive to, and not exclusive of, any
rights or remedies otherwise available.
10.10 Governing Law. This agreement and the agreements, instruments and
documents contemplated hereby will be governed by and construed in accordance
with the Law of the State of Delaware (exclusive of conflicts of law
principles). State Courts within the State of Delaware and, more particularly
to the fullest extent such Court shall have subject matter jurisdiction over
the matter, the Court of Chancery of the State of Delaware, will have exclusive
jurisdiction over any and all disputes between the Parties, whether in law or
equity, arising out of or relating to this Agreement and the agreements,
instruments and documents contemplated hereby. The Parties consent to and agree
to submit to the jurisdiction of such Courts, provided, however, that such
consent to jurisdiction is solely for the purpose referred to in this Section
10.10 and shall not be deemed to be a general submission to the jurisdiction of
such Courts or in the State of Delaware other than for such purpose. Each Party
hereby waives, and agrees not to assert in any such dispute, to the fullest
extent permitted by applicable Delaware Law, any claim that (i) such Party is
not personally subject to the jurisdiction of such Courts, (ii) such Party and
such Party's property is immune from any legal process issued by such Courts or
(iii) any Litigation commenced in such Courts is brought in an inconvenient
forum.
10.11 Counterparts. This Agreement may be executed in one or more
counterparts, and by the Parties in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
A-41
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement and Plan of
Merger to be executed as of the date first written above by their respective
officers thereunto duly authorized.
Creative Biomolecules, Inc.
/s/ Michael M. Tarnow
By___________________________________
Name: Michael M. Tarnow
Title: President and CEO
Reprogenesis, Inc.
/s/ Daniel R. Omstead
By___________________________________
Name: Daniel R. Omstead
Title: President and CEO
Ontogeny, Inc.
/s/ Doros Platika
By___________________________________
Name: Doros Platika
Title: President and CEO
Curis, Inc.
/s/ Doros Platika
By___________________________________
Name: Doros Platika
Title: President and CEO
A-42
<PAGE>
Index of Defined Terms
<TABLE>
<S> <C>
Acquisition Proposal..................................... 6.1(a)
Affiliate................................................ 10.3
Affiliate Agreement...................................... 7.13
Agreement................................................ Caption
Appraisal Shares......................................... 2.11
Bankruptcy and Equity Exception.......................... 3.3(a)
Breaching Party.......................................... 9.3(b), 9.3(h)
Business Day............................................. 10.3
Certificate of Merger.................................... 1.2
Certificates............................................. 2.6(c)
Closing.................................................. 2.8
Closing Date............................................. 2.8
Code..................................................... Recitals
Company.................................................. Caption
Company Balance Sheet.................................... 3.4(b)
Company Common Stock..................................... 3.2(a)
Company Disclosure Schedule.............................. Article III Caption
Company Employee Plans................................... 3.14(a)
Company Financial Statements............................. 3.4(a)
Company Intellectual Property Rights..................... 3.9(b)
Company Material Adverse Effect.......................... 3.1
Company Material Contract................................ 3.11
Company Meeting.......................................... 3.18
Company Preferred Stock.................................. 3.2(a)
Company Stock............................................ 2.1(f)
Company Stock Option..................................... 3.2(a)
Company Stock Plan....................................... 3.2(a)
Company Warrants......................................... 3.2
Confidentiality Agreements............................... 5.3
Control.................................................. 10.3
Court.................................................... 10.3
Creative Common Stock.................................... 2.1(a)
Creative Exchange Ratio.................................. 2.1(a)
Creative Merger Consideration............................ 2.1(a)
Creative Voting Commitment............................... 7.12(a)
Curis Certificate of Incorporation....................... 4.1
Curis Material Adverse Effect............................ 4.1
DGCL..................................................... Preamble
Effective Time........................................... 1.2
Environmental Law........................................ 3.13(b)
Equity Financing......................................... 9.3(g)
ERISA.................................................... 3.14(a)
ERISA Affiliate.......................................... 3.14(a)
Exchange Act............................................. 3.3(c)
Exchange Agent........................................... 10.3
Exchange Ratio........................................... 2.1(d)
Exchange Act Registration Statement...................... 7.1(d)
Failing Party............................................ 9.3(g)
FDA...................................................... 3.10
GAAP..................................................... 3.4(b)
</TABLE>
A-43
<PAGE>
<TABLE>
<S> <C>
GLP............................................................. 3.16(b)
GMP............................................................. 3.16(b)
Governmental Authority.......................................... 10.3
Hazardous Substance............................................. 3.13(c)
HSR Act......................................................... 3.3(c)
Intellectual Property Rights.................................... 3.9(b)
IP Assignee..................................................... 3.9(e)
IPO............................................................. 9.3(g)
IRS............................................................. 3.7(b)
Joint Proxy Statement........................................... 3.18
Knowledge....................................................... 10.3
Law............................................................. 10.3
Lien............................................................ 10.3
Litigation...................................................... 10.3
Merger.......................................................... Preamble
Merger Consideration............................................ 2.1(d)
Ongoing Clinical Programs....................................... 3.9(b)
Ontogeny Exchange Ratio......................................... 2.1(b)
Ontogeny Minimum Required Stockholder Vote...................... 7.12(b)
Ontogeny Merger Consideration................................... 2.1(b)
Ontogeny Common Stock........................................... 2.1(b)
Ontogeny Preferred Stock........................................ 2.1(b)
Ontogeny Required Stockholder Vote.............................. 7.12(a)
Order........................................................... 10.3
Person.......................................................... 10.3
Public Company.................................................. 3.1
Registration Statement.......................................... 3.18
Regulation...................................................... 10.3
Representatives................................................. 6.1(a)
Reprogenesis Common Stock....................................... 2.1(c)
Reprogenesis Exchange Ratio..................................... 2.1(c)
Reprogenesis Fully Diluted Merger Consideration................. 2.1(c)
Reprogenesis Merger Consideration............................... 2.1(c)
Reprogenesis Preferred Stock.................................... 2.1(c)
Reprogenesis Required Stockholder Vote.......................... 7.12(a)
Reprogenesis Series A Consideration............................. 2.1(c)
Rule 145........................................................ 7.13
SEC............................................................. 3.3
Section 262..................................................... 2.11
Securities Act.................................................. 2.3(b)
Stipulated Expenses............................................. 9.3(d)
Stockholder Agreement........................................... Preamble
Subsidiary, Subsidiaries........................................ 10.3
Superior Proposal............................................... 6.1(b)
Surviving Company............................................... 1.1
Tax............................................................. 3.7(a)
Taxes........................................................... 3.7(a)
Tax Returns..................................................... 3.7(b)
Termination Fee................................................. 9.3(b)
Third Party Licenses............................................ 9.3(a)
Voting Stock.................................................... 10.3
</TABLE>
A-44
<PAGE>
ANNEX B
FORM OF STOCKHOLDER AGREEMENT
February , 2000
<TABLE>
<S> <C> <C>
Creative Biomolecules, Inc. Reprogenesis, Inc. Ontogeny, Inc
101 Huntington Ave. 21 Erie Street 45 Moulton Street
Boston, MA 02111 Cambridge, MA 02139 Cambridge, MA 02138
Attention: President Attention: President Attention: President
</TABLE>
Re: Stockholder Agreement
Gentlemen:
The undersigned (the "Stockholder") owns of record and beneficially the
number of shares (the "Owned Shares") of common stock [and/or preferred stock]
of [Name of Company], a [Delaware] [Texas] corporation ("Company"), as set
forth below. [On even date herewith], the Company, and (the "Other
Companies") and Curis [intend to enter] into an Agreement and Plan of Merger
(the "Merger Agreement") with respect to the merger (the "Merger") of the
Company and the Other Companies with and into Curis. Such Company common stock
[and/or preferred stock] will be converted in the Merger into shares of the
common stock, par value $.01 per share, of Curis (the "Surviving Company Common
Stock"). The Stockholder wishes to facilitate the proposed Merger, acknowledges
that the proposed Merger will benefit the Stockholder and agrees that the Other
Companies [would not enter into the Merger Agreement] unless the Stockholder
enters into this Agreement. For all purposes of this Agreement, the term "Owned
Shares" shall include any additional shares of Company capital stock as to
which the Stockholder acquires beneficial ownership after the execution hereof.
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and intending to be legally bound hereby, the Stockholder agrees as follows:
1. The Stockholder irrevocably and unconditionally agrees that he, she
or it (a) will vote all of the Owned Shares in favor of the Merger
Agreement and the Merger at any meeting or meetings of the Company's
stockholders called to vote upon the Merger Agreement and the Merger and
(b) will not vote such shares (or otherwise provide a proxy or consent or a
voting agreement with respect thereto) in favor of any other Acquisition
Proposal (as defined in the Merger Agreement) [and (c) will vote to amend
the Certificate/Articles of Incorporation of the Company as contemplated by
Section 8.1(h) of the Merger Agreement.]
2. The Stockholder agrees that he, she or it will not (a) directly or
indirectly, sell, transfer, pledge, assign or otherwise dispose of, or
enter into any contract, option, commitment or other arrangement or
understanding with respect to the sale, transfer, pledge, assignment or
other disposition of, any of the Owned Shares or (b) take any action or
omit to take any action which would prohibit, prevent or preclude
Stockholder from performing its obligations under this Agreement.
3. The Stockholder agrees that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed by it
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Company and each other Company shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement by the Stockholder and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which it is
entitled at law or in equity, and that the Stockholder waives the posting
of any bond or security in connection with any proceeding related thereto.
B-1
<PAGE>
4. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to constitute an original. This Agreement shall
become effective when one counterpart signature page has been signed by the
Stockholder and delivered to the Company (which delivery may be by
facsimile).
5. The Stockholder agrees to execute and deliver all such further
documents, certificates and instruments and take all such further
reasonable action as may be necessary or appropriate, in order to
consummate the transactions contemplated hereby. The Stockholder hereby
agrees not to engage in any transaction involving any securities of the
Other Companies that would violate applicable securities laws.
6. Notwithstanding anything in this Agreement to the contrary, the
Company and the Other Companies understand and agree that (i) Owned Shares
may be subject to liens, encumbrances or restrictions (other than those
relating to voting) arising in connection with pledges of Owned Shares by
the Stockholder or its affiliates that exist as of the date hereof and (ii)
any transfer of Owned Shares pursuant to any bona fide foreclosure under
any such pledge shall not violate this Agreement.
7. The Stockholder represents and warrants to the Company and the Other
Companies that:
(a) the Stockholder has all necessary power and authority to execute
this letter agreement including the irrevocable proxy attached hereto;
(b) the Stockholder owns or controls (regardless of in what
capacity) the number of Owned Shares set forth below free from any
lien, encumbrance or restriction whatsoever (except as otherwise
permitted by Section 6 above) and with full power to vote the Owned
Shares without the consent or approval of any other person;
(c) this letter agreement and the attached proxy have been duly
executed and delivered by the Stockholder and each constitutes a valid
and binding agreement of the Stockholder, enforceable in accordance
with its terms; and
(d) neither the execution nor delivery of this letter agreement and
the attached proxy by the Stockholder will (i) require the consent,
waiver, approval, license or authorization, or any filing with, any
person or public authority, (ii) with or without the giving of notice
or the lapse of time, or both, conflict with or constitute a violation
of, or default under, or give rise to any right of acceleration under
any indenture, contract, commitment, agreement, arrangement or other
instrument of any kind to which the Stockholder is a party or by which
the Stockholder is bound, or (iii) violate any applicable law, rule,
regulation, judgment, order or decree of any governmental
instrumentality or court having jurisdiction over the Stockholder.
8. The Agreement shall terminate on the termination of the Merger
Agreement or at the Effective Time of the Merger provided for in the Merger
Agreement, as the case may be.
B-2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
and year first above written.
Stockholder:
_____________________________________
Name: _______________________________
Address: ____________________________
_____________________________________
_____________________________________
Spouse (if applicable)
Name: _______________________________
Number of Shares of
Common Stock _______________________
[Number of Shares of Series A
Preferred Stock ____________________
Number of Shares of Series B
Preferred Stock ____________________]
[Number of Shares of Series C
Preferred Stock _____________________
Number of Shares of Series C-1
Preferred Stock ____________________]
[Number of Shares of Series D
Preferred Stock _____________________
Number of Shares of Series E
Preferred Stock ____________________]
[Number of Shares of Series F
Preferred Stock _____________________
Number of Shares of Series G
Preferred Stock ____________________]
B-3
<PAGE>
IRREVOCABLE PROXY FOR THE
STOCKHOLDER AGREEMENT OF COMPANY
By its execution hereof and in order to secure the obligations of the
undersigned set forth in the Stockholder Agreement ("Stockholder Agreement")
dated February , 2000, by and among (the "Company"), the Other Companies
and the undersigned, the undersigned hereby irrevocably constitutes and
appoints the President and the Secretary of each Other Company, and each of
such officers singly, as its true and lawful attorneys-in-fact, to : (1) vote,
in accordance with the Stockholder Agreement, all shares of capital stock of
the Company which the undersigned may be entitled to vote upon the matters set
forth in the Stockholder Agreement at any annual or special meeting of the
stockholders of the Company (but not to vote such shares on any other matter);
(2) to exercise written consent in lieu of voting with respect to the matters
set forth in clause (1); and (3) to execute, acknowledge, swear to and file in
the undersigned's name, place and stead any consent, approval, or other
documents to be executed by the stockholders in connection with the items in
clauses (1) and (2). The Proxy hereby granted is irrevocable and shall be
deemed coupled with an interest in the Stockholder Agreement for the term
stated therein and it shall survive the undersigned's insolvency.
IN WITNESS WHEREOF, the undersigned has executed this Irrevocable Proxy this
day of February, 2000.
_____________________________________
Name: _______________________________
Address: ____________________________
_______________________________
_______________________________
Spouse (if applicable)
_____________________________________
Name: _______________________________
B-4
<PAGE>
ANNEX C
OPINION OF CHASE
[Letterhead of Chase Securities Inc.]
February 14, 2000
Board of Directors
Creative BioMolecules, Inc.
101 Huntington Avenue, Suite #2400
Boston, MA 02199
Members of the Board:
You have informed us that Creative BioMolecules, Inc. (the "Company"),
Ontogeny, Inc. ("Ontogeny") and Reprogenesis, Inc. ("Reprogenesis") propose to
enter into an Agreement and Plan of Merger (the "Agreement") which provides,
among other things, that the Company will be merged (the "Company Merger") with
and into Curis, Inc., a newly-formed entity jointly owned by the Company,
Ontogeny and Reprogenesis ("Curis"), Ontogeny will be merged (the "Ontogeny
Merger") with and into Curis and Reprogenesis will be merged (the "Reprogenesis
Merger," and together with the Company Merger and the Ontogeny Merger, the
"Transaction") with and into Curis, whereby Curis will be the surviving
corporation of each merger. In the Transaction, (i) each outstanding share of
common stock, par value $0.01 per share, of the Company ("Company Common
Stock"), other than shares held in treasury or owned by any wholly-owned
subsidiary of the Company or by Curis, all of which shall be canceled, will be
converted into 0.3000 shares ("Company Exchange Ratio") of common stock, par
value $0.01 per share, of Curis ("Curis Common Stock"), (ii) each outstanding
share of common stock, par value $0.01 per share, of Ontogeny ("Ontogeny Common
Stock"), and each outstanding share of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock, Series C Convertible Preferred Stock,
Series C-1 Convertible Preferred Stock, Series D Convertible Preferred Stock,
Series E Convertible Preferred Stock, Series F Convertible Preferred Stock and
Series G Convertible Preferred Stock of Ontogeny, each series with a par value
$0.01 per share (collectively, the "Ontogeny Preferred Stock"), other than
shares of the Ontogeny Common Stock and Ontogeny Preferred Stock held in
treasury or owned by any wholly-owned subsidiary of Ontogeny or by Curis, all
of which shall be canceled, will be converted into that number of shares of
Curis Common Stock as described in the Agreement, and (iii) each outstanding
share of common stock, par value $0.01 per share, of Reprogenesis
("Reprogenesis Common Stock"), and each outstanding share of Series A Preferred
Stock and Series B Preferred Stock of Reprogenesis, each series with a par
value $0.01 per share (collectively, the "Reprogenesis Preferred Stock"), other
than shares of the Reprogenesis Common Stock or Reprogenesis Preferred Stock
held in treasury or owned by any wholly-owned subsidiary of Reprogenesis or by
Curis, all of which shall be canceled, will be converted into that number of
shares of Curis Common Stock as described in the Agreement.
You have asked us whether, in our opinion, the Company Exchange Ratio is
fair, from a financial point of view, to the holders of the Company Common
Stock.
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed a draft of the Agreement dated February 13, 2000;
(b) reviewed certain publicly available financial information that we
deemed relevant relating to the Company and certain publicly
available business information that we deemed relevant relating to
the Company, Ontogeny and Reprogenesis and the industries and
markets in which they operate;
(c) reviewed certain internal non-public financial and operating data
and forecasts provided to us by the managements of the Company,
Ontogeny and Reprogenesis relating to their respective businesses;
C-1
<PAGE>
(d) discussed, with members of the senior managements of the Company,
Ontogeny and Reprogenesis, the Company's, Ontogeny's and
Reprogenesis's operations, historical financial statements and
future prospects before and after giving effect to the Transaction;
(e) reviewed the relevant historical stock prices of the Company Common
Stock; and
(f) made such other analyses and examinations as we have deemed
necessary or appropriate.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us, or publicly
available, for purposes of this opinion and have further relied upon the
assurance of the managements of the Company, Ontogeny and Reprogenesis that
they are not aware of any facts that would make such information inaccurate or
misleading. We have neither made nor obtained any independent evaluations or
appraisals of the assets or liabilities of the Company, Ontogeny or
Reprogenesis, nor have we conducted a physical inspection of the properties or
facilities of the Company, Ontogeny or Reprogenesis. We have assumed that the
financial forecasts provided to or discussed with us by the Company, Ontogeny
and Reprogenesis have been reasonably determined on bases reflecting the best
currently available estimates and judgments of the managements of the Company,
Ontogeny and Reprogenesis as to the future financial performance of the
respective companies. We express no view as to such forecasts or projection
information or the assumptions on which they were based.
For purposes of rendering our opinion, we have assumed that, in all respects
material to our analysis, the representations and warranties of each party
contained in the Agreement are true and correct, that each party will perform
all of the covenants and agreements required to be performed by it under the
Agreement and that all conditions to the consummation of the Transaction will
be satisfied without waiver thereof. We have further assumed that all material
governmental, regulatory or other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which any of the Company, Ontogeny or Reprogenesis are a party, as
contemplated by the Agreement, no restrictions will be imposed or amendments,
modifications or waivers made that would have any material adverse effect on
the contemplated benefits of the Transaction. We have further assumed that the
Transaction will qualify as a tax-free reorganization for U.S. federal income
tax purposes. We have also assumed that the definitive Agreement will not
differ in any material respects from the draft thereof furnished to us.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, indications of interest for either the acquisition of or a business
combination involving the Company.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, of the
Company Exchange Ratio to the holders of the Company Common Stock and we
express no opinion as to the merits of the underlying decision by the Company
to engage in the Transaction. This opinion does not constitute a recommendation
to any holder of Company Common Stock as to how such stockholder should vote
with respect to the proposed Company Merger or any matter related thereto. In
addition, we express no opinion as to the prices at which the Company Common
Stock or the Curis Common Stock will trade following the announcement or the
consummation of the Transaction, as the case may be.
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Company in
connection with the Transaction and will receive a fee for our services,
payment of a significant portion of which is contingent upon the consummation
of the Transaction. In addition, the Company has agreed to indemnify us for
certain liabilities arising out of our engagement. The Chase Manhattan
Corporation and its affiliates, including Chase Securities Inc., in the
ordinary course of business, have from time to time, provided commercial and
investment banking
C-2
<PAGE>
services to the Company and Reprogenesis and their affiliates, for which we
received usual and customary compensation and in the future may continue to
provide such commercial and investment banking services. In addition, certain
affiliates of Chase Securities Inc. hold approximately 15% of the outstanding
capital stock of Reprogenesis. In the ordinary course of business, we or our
affiliates may trade in the equity securities of the Company for our accounts
and for the accounts of our customers and, accordingly, may at any time hold a
long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Company Exchange Ratio is fair, from a financial point of
view, to the holders of the Company Common Stock.
This opinion is for the use and benefit of the Board of Directors of the
Company in its evaluation of the Transaction and shall not be used for any
other purpose without the prior written consent of Chase Securities Inc. This
opinion shall not be reproduced, disseminated, quoted, summarized or referred
to at any time, in any manner or for any purpose, nor shall any public
references to Chase Securities Inc. be made by the Company, without the prior
written consent of Chase Securities Inc.
Very truly yours,
CHASE SECURITIES INC.
C-3
<PAGE>
ANNEX D
OPINION OF SG COWEN
[Letterhead of SG Cowen Securities Corporation]
February 14, 2000
Board of Directors
Ontogeny, Inc.
45 Moulton Street
Cambridge, MA 02138-1118
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Ontogeny, Inc. (the "Company") of the Exchange
Ratio (as defined below) to be received by the stockholders of the Company
pursuant to the terms of that certain Agreement, dated as of February 14, 2000
(the "Agreement"), by and among the Company, Creative BioMolecules, Inc.
("Creative BioMolecules") and Reprogenesis, Inc. ("Reprogenesis").
As more specifically set forth in the Agreement, and subject to the terms,
conditions and adjustments set forth in the Agreement, the Company, Creative
BioMolecules and Reprogenesis will merge into Curis, Inc. ("Curis"), a newly
formed corporation (the "Transaction"). Each share of the common stock of the
Company and each share of the convertible preferred stock (series A through G)
of the Company will be converted into the right to receive 0.2564 (the
"Exchange Ratio") shares of Curis.
SG Cowen Securities Corporation ("SG Cowen"), as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of our business, we and our affiliates may actively trade the
securities of Creative BioMolecules for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position
in such securities.
We are acting as exclusive financial advisor to the Board of Directors of
the Company in connection with the Transaction and will receive a fee from the
Company for providing this opinion pursuant to the terms of our engagement
letter with the Company, dated as of January 28, 2000 (the "Engagement
Letter"). SG Cowen will receive payment thereunder upon delivery of this
opinion without regard as to whether the proposed Transaction is ultimately
consummated.
In connection with our opinion, we have reviewed and considered such
financial and other matters as we have deemed relevant, including, among other
things:
. a draft of the Agreement dated February 14, 2000;
. certain information for the Company, including its financial statements
for the years ended December 31, 1998 and December 31, 1997, and its
financial information for the ten month period ended October 31, 1999 and
certain other relevant financial and operating data furnished to SG Cowen
by the Company management;
. certain information for Reprogenesis including its consolidated financial
statements for the years ended December 31, 1998 and December 31, 1997,
and its financial information for the year ended December 31, 1999 and
certain other relevant financial and operating data furnished to SG Cowen
by Reprogenesis management;
D-1
<PAGE>
. certain publicly available information for Creative BioMolecules,
including its annual report filed on Form 10-K for each of the years
ended December 31, 1998 and December 31, 1997, and its quarterly reports
filed on Form 10-Q for each of the quarters ended March, June and
September 1999 and certain other relevant financial and operating data
furnished to SG Cowen by Creative BioMolecules management;
. certain internal financial analyses, financial forecasts, reports and
other information concerning the Company, Creative BioMolecules and
Reprogenesis (the "Forecasts") prepared by the management of the Company,
Creative BioMolecules and Reprogenesis, respectively;
. First Call estimates and financial projections in Wall Street analyst
reports for Creative BioMolecules;
. discussions we have had with certain members of the management of each of
the Company, Creative BioMolecules and Reprogenesis concerning the
historical and current business operations, financial conditions and
prospects of the Company, Creative BioMolecules and Reprogenesis and such
other matters we deemed relevant;
. certain operating results of the Company, Creative BioMolecules and
Reprogenesis as compared to operating results of certain publicly traded
companies we deemed relevant;
. certain financial terms of the Transaction as compared to the financial
terms of certain selected business combinations we deemed relevant;
. based on the Forecasts, the cash flows generated by the Company, Creative
BioMolecules and Reprogenesis on a stand-alone basis to determine the
present value of the discounted cash flows;
. certain pro forma financial effects of the Transaction; and
. such other information, financial studies, analyses and investigations
and such other factors that we deemed relevant for the purposes of this
opinion.
In conducting our review and arriving at our opinion, we have, with your
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information provided to us
by the Company, Creative BioMolecules and Reprogenesis or which is publicly
available. We have not undertaken any responsibility for the accuracy,
completeness or reasonableness of, or independently verified, such information.
In addition, we have not conducted nor have assumed any obligation to conduct
any physical inspection of the properties or facilities of the Company. We have
further relied upon the assurance of management of the Company that they are
unaware of any facts that would make the information provided to us incomplete
or misleading in any respect. We have, with your consent, assumed that the
Forecasts, including the cash flows used to determine the present value of the
discounted cash flows, were reasonably prepared by the respective managements
of the Company, Creative BioMolecules and Reprogenesis on bases reflecting the
best currently available estimates and good faith judgments of such managements
as to the future performance of their respective corporations, and that such
projections and synergies, provide a reasonable basis for our opinion.
We have not made or obtained any independent evaluations, valuations or
appraisals of the assets or liabilities of the Company, nor have we been
furnished with such materials. With respect to all legal matters relating to
the Company, Creative BioMolecules and Reprogenesis we have relied on the
advice of legal counsel to the Company. Our services to the Company in
connection with the Transaction have been comprised solely of rendering an
opinion from a financial point of view with respect to the Exchange Ratio. Our
opinion is necessarily based upon economic and market conditions and other
circumstances as they exist and can be evaluated by us on the date hereof. It
should be understood that although subsequent developments may affect our
opinion, we do not have any obligation to update, revise or reaffirm our
opinion and we expressly disclaim any responsibility to do so. Additionally, we
have not investigated any other alternative transactions that may be available
to the Company.
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For purposes of rendering our opinion we have assumed in all respects
material to our analysis, that the representations and warranties of each party
contained in the Agreement are true and correct, that each party will perform
all of the covenants and agreements required to be performed by it under the
Agreement and that all conditions to the consummation of the Transaction will
be satisfied without waiver thereof. We have assumed that the final form of the
Agreement will be substantially similar to the last draft reviewed by us. We
have also assumed that all governmental, regulatory and other consents and
approvals contemplated by the Agreement will be obtained and that in the course
of obtaining any of those consents no restrictions will be imposed or waivers
made that would have an adverse effect on the contemplated benefits of the
Transaction. You have informed us, and we have assumed, that the Transaction
will be treated as a tax-free reorganization.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of the Company in its consideration of the Transaction and
may not be used for any other purpose or reproduced, disseminated, quoted or
referred to at any time, in any manner or for any purpose without our prior
written consent. This letter does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the
Transaction or to take any other action in connection with the Transaction or
otherwise. We have not been requested to opine as to, and our opinion does not
in any manner address, the Company's underlying business decision to effect the
Transaction.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date
hereof, the Exchange Ratio to be received in the Transaction is fair, from a
financial point of view, to the stockholders of the Company.
Very truly yours,
SG COWEN SECURITIES CORPORATION
D-3
<PAGE>
ANNEX E
FORM OF CURIS CERTIFICATE OF INCORPORATION
CERTIFICATE OF INCORPORATION
OF
CURIS, INC.
FIRST: The name of this corporation (the "Corporation") is Curis, Inc.
SECOND: The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle, and the name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The Corporation is authorized to issue two classes of capital stock,
one of which is designated as common stock, $.01 par value per share ("Common
Stock"), and the other of which is designated as preferred stock, $.01 par
value per share ("Preferred Stock"). The total number of shares of both classes
of capital stock that the Corporation shall have authority to issue is 145
million shares, consisting of 125 million shares of Common Stock and 20 million
shares of Preferred Stock. The Preferred Stock may be issued from time to time
in one or more series as set forth in Section (b) of this Article FOURTH. The
following is a statement of the designations and the powers, preferences and
rights of, and the qualifications, limitations or restrictions applicable to,
each class of capital stock of the Corporation.
(a) Common Stock
(1) General. The voting, dividend and liquidation rights of holders of
Common Stock are subject to and qualified by the rights of holders of
Preferred Stock of any series as may be designated in any resolution or
resolutions providing for the issue of such series as may be adopted by the
board of directors as hereinafter provided.
(2) Voting. Holders of Common Stock are entitled to one vote for each
share held at all meetings of stockholders. The number of authorized shares
of Common Stock may be increased or deceased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of
a majority of the capital stock of the Corporation entitled to vote,
irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of the State of Delaware.
(3) Dividends. Dividends may be declared and paid on Common Stock from
funds lawfully available therefor, as and when determined by the board of
directors and subject to any preferential dividend rights of any series of
Preferred Stock then outstanding.
(4) Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled
to receive all assets of the Corporation available for distribution to
stockholders of the Corporation, subject to any preferential rights of any
series of Preferred Stock then outstanding.
(b) Preferred Stock
(1) Issuance. Preferred Stock may be issued from time to time in one or
more series, each of which series shall have such terms as are set forth
herein and in any resolution or resolutions providing for the issue of such
series as may be adopted by the board of directors as hereinafter provided.
Any shares of Preferred Stock that may be redeemed, purchased or acquired
by the Corporation may be reissued except as otherwise expressly provided
in this Certificate of Incorporation or provided by law. Different series
of Preferred Stock shall not be construed to constitute different classes
of capital stock for the purposes of voting by classes unless expressly
provided.
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(2) Authority of Board. Authority is hereby expressly granted to the
board of directors to provide for the issuance of Preferred Stock from time
to time in one or more series, and in connection with the creation of any
such series, to determine and fix such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative
participating, optional or other special rights thereof, and
qualifications, limitations or restrictions applicable thereto, as shall be
stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of the State of
Delaware. Without limiting the generality of the foregoing, a resolution or
resolutions providing for issuance of any series of Preferred Stock may
provide for dividend rights, conversion rights, redemption privileges and
liquidation preferences applicable to such series and may provide that such
series shall rank superior, equal or junior to the Preferred Stock of any
other series, in each case except as otherwise expressly provided in this
Certificate of Incorporation or as provided by law. Except as otherwise
provided in this Certificate of Incorporation, no vote of holders of Common
Stock or holders of Preferred Stock shall be a prerequisite to the
designation or issuance of any shares of any series of Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation.
FIFTH: Special meetings of stockholders may be called at any time by the
Chairman of the Board, the Chief Executive Officer (or if there is no Chief
Executive Officer, the President) or the board of directors. Business
transacted at any special meeting of stockholders shall be limited to matters
relating to the purpose or purposes stated in the notice of the general
meeting.
SIXTH: No director shall be personally liable to the Corporation or to any
of its stockholders for monetary damages arising out of such director's breach
of fiduciary duty as a director of the Corporation, except to the extent that
the elimination or limitation of such liability is not permitted by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter
be amended. No amendment to or repeal of the provisions of this Article SIXTH
shall deprive any director of the Corporation of the benefit of the provisions
of this Article SIXTH with respect to any act or failure to act of any director
occurring prior to such amendment or repeal.
SEVENTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided that:
(a) Amendment of By-Laws
Subject to the limitations and exceptions, if any, contained in the by-laws
of the Corporation, the by-laws may be adopted, amended or repealed by the
board of directors.
(b) Election of Directors
Elections of directors need not be by written ballot unless otherwise
provided in the by-laws of the Corporation.
(c) Location of Corporate Books
Subject to any applicable requirements of the General Corporation Law of the
State of Delaware, the books of the Corporation may be kept outside the State
of Delaware at such location or locations as may be designated from time to
time by the board of directors or in the by-laws of the Corporation.
EIGHTH: The Corporation shall indemnify each person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that such person is or was, or has agreed to become, a
director or officer of the Corporation, or is or was serving or has agreed to
serve, at the request of the Corporation, as a director, officer or trustee of,
or in a similar capacity with, another corporation (including any partially or
wholly owned subsidiary of the Corporation), partnership, joint venture, trust
or other enterprise (including any employee benefit plan), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any such action, suit or
proceeding to the maximum extent permitted by the
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General Corporation Law of Delaware. The foregoing right of indemnification
shall in no way be exclusive of any other rights of indemnification to which
any such director or officer may be entitled, under any by-law, agreement, vote
of directors or stockholders or otherwise. No amendment to or repeal of the
provisions of this paragraph shall deprive a person of the benefit of this
paragraph with respect to any act or failure to act of such person occurring
prior to such amendment or repeal.
NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them or between the Corporation
and its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under Section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for the Corporation under Section 279
of Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by the General Corporation Law of the State of Delaware
and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding
any provision of law, any other provision of this Certificate of Incorporation
or any provision of the by-laws of the Corporation, the affirmative vote of the
holders of three- fourths of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with, any provision of Article
FIFTH or this Article TENTH.
ELEVENTH: The name of the sole incorporator of the Corporation is Jonathan
H. Hulbert and his mailing address is c/o Foley, Hoag & Eliot LLP, One Post
Office Square, Boston, Massachusetts 02109.
IN WITNESS WHEREOF, I have hereunto set my hand as of February 14, 2000.
-------------------------------------
Jonathan H. Hulbert
Sole Incorporator
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<PAGE>
ANNEX F
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ((S)) 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one (1) or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ((S)) 251 (other than a merger effected pursuant to ((S))
251(g) of this title), ((S)) 252, ((S)) 254, ((S)) 257, ((S)) 258, ((S)) 263 or
((S)) 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of ((S)) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
((S))((S)) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a, b and c of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ((S)) 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ((S)) 228 or
((S)) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten 10 days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given
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prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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ANNEX G
TEXAS BUSINESS CORPORATION ACT
ART. 5.11. RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and
the shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation if
special authorization of the shareholders is required by this Act and the
shareholders hold shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in
which there is a single surviving or new domestic or foreign corporation, or
from any plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series,
shares of which are on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation
system) or designated as a national market security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger
or plan of exchange to accept for the shareholder's shares any
consideration that is different than the consideration (other than cash in
lieu of fractional shares that the shareholder would otherwise be entitled
to receive) to be provided to any other holder of shares of the same class
or series of shares held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for the shareholder's shares any
consideration other than:
(a) shares of a domestic or foreign corporation that, immediately
after the effective time of the merger or exchange, will be part of a
class or series, shares of which are:
(i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of the securities and cash described in
Subdivisions (a) and (b) of this subsection.
G-1
<PAGE>
ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant
to Section A of Article 9.10 of this Act, the corporation, in the case of
action other than a merger, and the surviving or new corporation (foreign
or domestic) or other entity that is liable to discharge the shareholder's
right of dissent, in the case of a merger, shall, within ten (10) days
after the date the action is effected, mail to each shareholder of record
as of the effective date of the action notice of the fact and date of the
action and that the shareholder may exercise the shareholder's right to
dissent from the action. The notice shall be accompanied by a copy of this
Article and any articles or documents filed by the corporation with the
Secretary of State to effect the action. If the shareholder shall not have
consented to the taking of the action, the shareholder may, within twenty
(20) days after the mailing of the notice, make written demand on the
existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be,
of a demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or
other entity shall deliver or mail to the shareholder a written notice that
shall either set out that the corporation (foreign or domestic) or other
entity accepts the amount claimed in the demand and agrees to pay that
amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign
G-2
<PAGE>
or domestic) or other entity, as the case may be, payment for the shares
shall be made within ninety (90) days after the date on which the action
was effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the
county in which the principal office of the domestic corporation is located,
asking for a finding and determination of the fair value of the shareholder's
shares. Upon the filing of any such petition by the shareholder, service of a
copy thereof shall be made upon the corporation (foreign or domestic) or other
entity, which shall, within ten (10) days after service, file in the office of
the clerk of the court in which the petition was filed a list containing the
names and addresses of all shareholders of the domestic corporation who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the corporation (foreign or domestic) or
other entity. If the petition shall be filed by the corporation (foreign or
domestic) or other entity, the petition shall be accompanied by such a list.
The clerk of the court shall give notice of the time and place fixed for the
hearing of the petition by registered mail to the corporation (foreign or
domestic) or other entity and to the shareholders named on the list at the
addresses therein stated. The forms of the notices by mail shall be approved by
the court. All shareholders thus notified and the corporation (foreign or
domestic) or other entity shall thereafter be bound by the final judgment of
the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of
the agreed value of the shares or pursuant to payment of the judgment entered
for the value of the shares, as in this Article provided, shall, in the case of
a merger, be
G-3
<PAGE>
treated as provided in the plan of merger and, in all other cases, may be held
and disposed of by the corporation as in the case of other treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled
to vote or exercise any other rights of a shareholder except the right to
receive payment for his shares pursuant to the provisions of those articles and
the right to maintain an appropriate action to obtain relief on the ground that
the corporate action would be or was fraudulent, and the respective shares for
which payment has been demanded shall not thereafter be considered outstanding
for the purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with Article 5.12 or 5.16 of this Act, each holder of certificates
representing shares so demanding payment shall submit such certificates to the
corporation for notation thereon that such demand has been made. The failure of
holders of certificated shares to do so shall, at the option of the
corporation, terminate such shareholder's rights under Articles 5.12 and 5.16
of this Act unless a court of competent jurisdiction for good and sufficient
cause shown shall otherwise direct. If uncertificated shares for which payment
has been demanded or shares represented by a certificate on which notation has
been so made shall be transferred, any new certificate issued therefor shall
bear similar notation together with the name of the original dissenting holder
of such shares and a transferee of such shares shall acquire by such transfer
no rights in the corporation other than those which the original dissenting
shareholder had after making demand for payment of the fair value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act,
as the case may be, or if after the hearing of a petition filed pursuant to
Article 5.12 or 5.16, the court shall determine that such shareholder is not
entitled to the relief provided by those articles, then, in any such case, such
shareholder and all persons claiming under him shall be conclusively presumed
to have approved and ratified the corporate action from which he dissented and
shall be bound thereby, the right of such shareholder to be paid the fair value
of his shares shall cease, and his status as a shareholder shall be restored
without prejudice to any corporate proceedings which may have been taken during
the interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
G-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Article SIXTH of the registrant's Certificate of Incorporation provides, in
general, that no director shall be personally liable to the registrant or to
any of its stockholders for monetary damages arising out of such director's
breach of fiduciary duty as a director of the registrant, except to the extent
that the elimination or limitation of such liability is not permitted by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended.
Article EIGHTH of the registrant's Certificate of Incorporation provides, in
general, that the registrant shall indemnify each person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the registrant), by
reason of the fact that such person is or was, or has agreed to become, a
director or officer of the registrant, or is or was serving or has agreed to
serve, at the request of the registrant, as a director, officer or trustee of,
or in a similar capacity with, another corporation (including any partially or
wholly owned subsidiary of the registrant), partnership, joint venture, trust
or other enterprise (including any employee benefit plan), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any such action, suit or
proceeding to the maximum extent permitted by the General Corporation Law of
Delaware and further provides that the foregoing right of indemnification shall
in no way be exclusive of any other rights of indemnification to which any such
director or officer may be entitled, under any by-law, agreement, vote of
directors or stockholders or otherwise.
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall
have the power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), because the person is or
was a director or officer of the corporation. Such indemnity may be against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding, if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and if, with respect to any criminal action or
proceeding, the person did not have reasonable cause to believe the person's
conduct was unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the
corporation, against any expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation.
Section 145(g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the corporation against
any liability asserted against the person in any such capacity, or arising out
of the person's status as such, whether or not the corporation would have the
power to indemnify the person against such liability under the provisions of
the law.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filled herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2 Agreement and Plan of Merger, dated as of February 14, 2000 by and
among the Registrant, Creative BioMolecules, Inc., Ontogeny, Inc. and
Reprogenesis, Inc. (Filed as Exhibit 2.1 to Creative's Current Report
on Form 8-K filed February 18, 2000 (File No. 0-19910)).
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
*4 Form of Curis Common Stock Certificate.
*5 Opinion of Hale and Dorr LLP regarding legality of securities being
registered.
*8.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding certain U.S. income tax aspects of the merger.
*8.2 Opinion of Foley, Hoag & Eliot LLP regarding certain U.S. income tax
aspects of the merger.
*8.3 Opinion of Baker Botts L.L.P. regarding certain U.S. income tax
aspects of the merger.
+10.1 Master Restructuring Agreement, dated as of October 15, 1998, between
Creative and Stryker Corporation. (Filed as Exhibit 10.10 to
Creative's Annual Report on Form 10-K for the period ended December
31, 1998 (File No. 0-19910), and incorporated herein by reference.)
+10.2 Asset Purchase Agreement, dated as of October 15, 1998, between
Creative and Stryker Corporation. (Filed as Exhibit 10.11 to
Creative's Annual Report on Form 10-K for the period ended December
31, 1998 (File No. 0-19910), and incorporated herein by reference.)
10.3 Creative Irrevocable License Agreement dated November 20, 1998 between
Creative and Stryker Corporation. (Filed as Exhibit 10.7 to Creative's
Annual Report on Form 10-K for the period ended December 31, 1999
(File No. 0-19910), and incorporated herein by reference.)
10.4 Stryker Irrevocable License Agreement dated November 20, 1998 between
the Registrant and Stryker Corporation. (Filed as Exhibit 10.8 to
Creative's Annual Report on Form 10-K for the period ended December
31, 1999 (File No. 0-19910), and incorporated herein by reference.)
10.5 Assignment from Creative to Stryker dated November 20, 1998. (Filed as
Exhibit 10.9 to Creative's Annual Report on Form 10-K for the period
ended December 31, 1999 (File No. 0-19910), and incorporated herein by
reference.)
10.6 Standard Form Industrial Lease, dated as of October 24, 1988, as
amended September 17, 1991, by and between WRC Properties, Inc. and
Creative. (Filed as Exhibit 10.26 to Creative's Form S-1 Registration
Statement (Registration No. 33-42159), or amendments thereto, and
incorporated herein by reference.)
10.7 Second Amendment, dated January 28, 1994, to Standard Form Industrial
Lease dated October 24, 1988, as amended September 17, 1991, by and
between Creative and WRC Properties, Inc. (Filed as Exhibit 10.15 to
Creative's Annual Report on Form 10-K for the period ended September
30, 1994 (File No. 0-19910), and incorporated herein by reference.)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.8 Third Amendment, dated September 20, 1994, to Standard Form Industrial
Lease dated October 24, 1988, as amended September 17, 1991 and
January 28, 1994, by and between Creative and WRC Properties, Inc.
(Filed as Exhibit 10.16 to Creative's Annual Report on Form 10-K for
the period ended September 30, 1994 (File No. 0-19910), and
incorporated herein by reference.)
10.9 Fourth Amendment, dated April 10, 1997, to Standard Form Industrial
Lease dated October 24, 1988, as amended September 17, 1991, January
28, 1994 and September 20, 1994, by and between Creative and WRC
Properties, Inc. (Filed as Exhibit 10.53 to Creative's Quarterly
Report on Form 10-Q for the period ended June 30, 1997 (File No. 0-
19910), and incorporated herein by reference.)
10.10 Partial Lease Termination Agreement and Amendment to Lease, dated
February 28, 1999, between Creative and W9/TIB Real Estate Limited
Partnership (as successor in interest to WRC Properties, Inc.). (Filed
as Exhibit 10.16 to Creative's Annual Report on Form 10-K for the
period ended December 31, 1999 (File No. 0-19910), and incorporated
herein by reference.)
10.11 Standard Form Industrial Lease, dated February 25, 1992, by and
between Creative and WRC Properties, Inc. (Filed as Exhibit 10.52 to
Creative's Form S-1 Registration Statement (Registration
No. 33-46200), or amendments thereto, and incorporated herein by
reference.)
10.12 First Amendment, dated February 28, 1994, to Standard Form Industrial
Lease dated February 25, 1992 by and between Creative and WRC
Properties, Inc. (Filed as Exhibit 10.32 to Creative's Annual Report
on Form 10-K for the period ended September 30, 1995 (File
No. 0-19910), and incorporated herein by reference.)
10.13 Second Amendment, dated September 20, 1994, to Standard Form
Industrial Lease dated February 25, 1992, as amended February 28,
1994, by and between Creative and WRC Properties, Inc. (Filed as
Exhibit 10.33 to Creative's Annual Report on Form 10-K for the period
ended September 30, 1995 (File No. 0-19910), and incorporated herein
by reference.)
10.14 Third Amendment, dated April 10, 1997, to Standard Form Industrial
Lease dated February 25, 1992, as amended February 28, 1994 and
September 20, 1994, by and between Creative and WRC Properties, Inc.
(Filed as Exhibit 10.54 to Creative's Quarterly Report on Form 10-Q
for the period ended June 30, 1997 (File No. 0-19910), and
incorporated herein by reference.)
+10.15 CBM Cross-License Agreement, dated as of November 26, 1993, between
Enzon, Inc. and Creative. (Filed as Exhibit 10.42 to Creative's
Quarterly Report on Form 10-Q for the period ended December 31, 1993
(File No. 0-19910), and incorporated herein by reference.)
+10.16 Enzon Cross-License Agreement, dated as of November 26, 1993, between
Enzon, Inc. and Creative. (Filed as Exhibit 10.43 to Creative's
Quarterly Report on Form 10-Q for the period ended December 31, 1993
(File No. 0-19910), and incorporated herein by reference.)
+10.17 Cross-License Agreement, dated as of July 15, 1996, between Creative,
Genetics Institute, Inc. and Stryker Corporation. (Filed as Exhibit
10.1 to the Quarterly Report on Form 10-Q for the period ended
September 30, 1996 of Genetics Institute, Inc. (File No. 0-14587),
filed with the Securities and Exchange Commission on November 6, 1996
and incorporated herein by reference.)
+10.18 Research Collaboration and License Agreement, dated December 9, 1996,
between Creative and Biogen, Inc. (Filed as Exhibit 10.37 to
Creative's Annual Report on Form 10-K for the period ended December
31, 1996 (File No. 0-19910), and incorporated herein by reference.)
+10.19 Amendment Agreement, dated December 30, 1998, by and between Creative
and Biogen, Inc. (Filed as Exhibit 10.38 to Creative's Annual Report
on Form 10-K for the period ended December 31, 1998 (File No. 0-
19910), and incorporated herein by reference.)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.20 Restricted Stock Purchase Agreement, dated December 9, 1996, between
Creative and Biogen, Inc. (Filed as Exhibit 10.38 to Creative's Annual
Report on Form 10-K for the period ended December 31, 1996 (File No.
0-19910), and incorporated herein by reference.)
10.21 Lease, dated June 16, 1997, by and between Creative and The Prudential
Insurance Company of America. (Filed as Exhibit 10.55 to Creative's
Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File
No. 0-19910), and incorporated herein by reference.)
10.22 First Amendment, dated August 10, 1998, to Lease dated April 10, 1997,
between Creative and The Prudential Insurance Company of America.
(Filed as Exhibit 10.56 to Creative's Quarterly Report on Form 10-Q
for the period ended September 30, 1998 (File No. 0-19910), and
incorporated herein by reference.)
10.23 Master Lease Agreement, dated October 6, 1997, by and between Creative
and FINOVA Technology Finance, Inc. (Filed as Exhibit 10.38 to
Creative's Annual Report on Form 10-K for the period ended December
31, 1997 (File No. 0-19910), and incorporated herein by reference.)
10.24 Employment Agreement, dated as of January 2, 1992, between Charles
Cohen, Ph.D. and Creative. (Filed as Exhibit 10.47 to Creative's Form
S-1 Registration Statement (Registration No. 33-46200), or amendments
thereto, and incorporated herein by reference.)
10.25 Employment Agreement, dated July 17, 1995, between Michael M. Tarnow
and Creative. (Filed as Exhibit 99.1 to Creative's Report on Form 8-K
for the August 31, 1995 Event (File No. 0-19910), and incorporated
herein by reference.)
10.26 Employment Agreement, dated January 13, 1997, between Cheryl K. Lawton
and Creative. (Filed as Exhibit 10.50 to Creative's Quarterly Report
on Form 10-Q for the period ended March 31, 1997 (File No. 0-19910),
and incorporated herein by reference.)
10.27 Employment Agreement, dated February 18, 1997, between Steven L. Basta
and Creative. (Filed as Exhibit 10.51 to Creative's Quarterly Report
on Form 10-Q for the period ended March 31, 1997 (File No. 0-19910),
and incorporated herein by reference.)
10.28 Employment Agreement, dated September 17, 1997, between Carl M. Cohen,
Ph.D., and Creative. (Filed as Exhibit 10.53 to Creative's Annual
Report on Form 10-K for the period ended December 31, 1997 (File No.
0-19910), and incorporated herein by reference.)
*10.29 Promissory Note dated February 8, 2000 by Mr. Michael Tarnow to
Creative.
*10.30 Promissory Note dated February 8, 2000 by Dr. Charles Cohen to
Creative.
*10.31 Promissory Note dated March 13, 2000 by Dr. Daniel Omstead to
Reprogenesis.
*+10.32 License Agreement, dated November 30, 1997, by and between
Reprogenesis and the Regents of the University of Michigan, as amended
by the Amendment to License Agreement dated August 1999.
*+10.33 Amended and Restated License Agreement (Exclusive), dated July 1,
1996, by and between Reprogenesis and the Massachusetts Institute of
Technology, as amended by the First Amendment to Restated License
Agreement dated June 9, 1999.
*+10.34 Patent License Agreement (Exclusive), dated 10/30/96, between
Reprogenesis and the Massachusetts Institute of Technology.
*+10.35 Exclusive License Agreement (and two related intellectual property
agreements), dated February 22, 2000, by and between Reprogenesis and
Children's Medical Center Corporation.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.36 Lease, dated September 25, 1997, with respect to real property located
at 21 Erie Street, Cambridge, Massachusetts, as amended by the First
Amendment to Lease, dated October 1, 1998, by and between Reprogenesis
and 21 Erie Realty Trust.
*+10.37 Termination and Release Agreement dated January 27, 1999, by and
between Reprogenesis and American Medical Systems, Inc.
10.38 Financial Assistance Award (Development of Perivascular Endothelial
Cell Implants), dated November 1, 1999, by and between Reprogenesis
and the National Institute of Standards and Technology, Advanced
Technology Program.
10.39 Stock Subscription Warrant dated July 2, 1998, between Reprogenesis
and TBCC Funding Trust II.
*+10.40 Amended and Restated Research and Commercialization Agreement, dated
November 30, 1998, as amended by letter dated December 18, 1998, by
and between Ontogeny and Biogen, Inc.
10.41 Employment Agreement, dated as of June 17, 1996, by and between
Ontogeny and Doros Platika, M.D.
10.42 Lease, dated as of November 16, 1995 as amended, by and between
Ontogeny and Moulton Realty Corp.
*+10.43 License Agreement, dated as of February 12, 1996, by and between
Ontogeny and Leland Stanford Junior University.
*+10.44 License Agreement, dated as of September 26, 1996 and amended January
15, 1997, by and among Ontogeny, The Johns Hopkins University and
University of Washington School of Medicine.
*+10.45 License Agreement, dated as of January 1, 1995, and as amended July
19, 1995 and August 30, 1996, by and between Ontogeny and The Trustees
of Columbia University in the City of New York.
*+10.46 License Agreement, dated as of February 9, 1995 and as amended, by and
between Ontogeny and the President and Fellows of Harvard University.
*10.47 Third Amended and Restated Registration Rights and Right of First
Refusal Agreement, dated as of October 31, 1998, by and among Ontogeny
and the holders of the Senior Preferred Stock.
*10.48 Registration Rights Agreement, dated as of July 1, 1996, by and
between Ontogeny and Biogen, Inc. and First Amendment, dated as of
November 30, 1998.
*10.49 Registration Rights Agreement, dated as of September 26, 1996, by and
between Ontogeny and Corange International Limited (now, Roche).
*10.50 Scientific Advisor and Consulting Agreement by and between Ontogeny
and Douglas A. Melton, dated August 1, 1994 and amended November 12,
1997 and January 22, 2000.
*10.51 Stock Restriction Agreement by and between Ontogeny and George A.
Eldridge, dated as of May 10, 1996.
*10.52 Stock Restriction Agreement by and between Ontogeny and Doros Platika,
dated as of July 25, 1996.
10.53 Warrant Agreement, dated as of November 2, 1994, by and between
Ontogeny and Comdisco, Inc.
10.54 Warrant Agreement, dated as of January 29, 1996, by and between
Ontogeny and Lighthouse Capital Partners, L.P.
10.55 Warrant Agreement, dated as of December 8, 1997, by and between
Ontogeny and Comdisco, Inc.
10.56 Warrant Agreement, dated as of October 1, 1997, by and between
Ontogeny and Lighthouse Capital Partners, L.P.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.57 Stock Subscription Warrant, dated as of November 21, 1997, by and
between Ontogeny and mmc Ventures to purchase 1,350 shares of Common
Stock.
*10.58 Warrant Agreement, dated as of November 21, 1997, by and between
Ontogeny and TransAmerica Business Credit Corporation.
10.59 Warrant Agreement, dated as of September 1, 1999, by and between
Ontogeny and Comdisco, Inc.
10.60 Stock Subscription Warrant, dated as of November 15, 1999, by and
between Ontogeny and Transamerica Business Credit Corp.
10.61 Warrant Agreement, dated as of December 17, 1999, by and between
Ontogeny and Lighthouse Capital Partners, L.P.
*+10.62 Research Collaboration and Option Agreement by and between Ontogeny
and Becton, Dickinson and Company, dated January 13, 1999.
*10.63 Secured Promissory Note dated June 17, 1996 between Ontogeny and Dr.
Platika in the original principal amount of $500,000.
10.64 Pledge Agreement dated June 17, 1999 between Ontogeny, Inc. and Dr.
Platika.
23.1 Consent of Hale and Dorr LLP (included as part of its opinion filed as
Exhibit 5 and incorporated herein by reference).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of PricewaterhouseCoopers LLP.
23.5 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included as part of its opinion filed as Exhibit 8.1 and incorporated
herein by reference).
23.6 Consent of Foley, Hoag & Eliot LLP (included as part of its opinion
filed as Exhibit 8.2 and incorporated herein by reference).
23.7 Consent of Baker Botts L.L.P. (included as part of its opinion filed
as Exhibit 8.3 and incorporated herein by reference).
23.8 Consent of Chase Securities Inc.
23.9 Consent of SG Cowen Securities Corporation.
24 Power of Attorney (included on the signature page of this Form S-4 and
incorporated herein by reference).
27.1 Reprogenesis, Inc. Financial Data Schedule.
27.2 Creative BioMolecules Inc. Financial Data Schedule.
27.3 Ontogeny, Inc. Financial Data Schedule.
*99.1 Form of Proxy of Creative BioMolecules, Inc.
*99.2 Form of Proxy of Ontogeny, Inc.
*99.3 Form of Proxy of Reprogenesis, Inc.
</TABLE>
- --------
* To be filed by amendment.
+ Registrant hereby agrees to furnish supplementally any schedules that have
been omitted from this Exhibit to the Securities and Exchange Commission
upon its request.
+ Confidential treatment requested as to certain portions of this Exhibit.
II-6
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because the
required information is given in the financial statements or notes to those
statements for each of Creative, Ontogeny and Reprogenesis.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(2) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of any such request, and to send
the incorporated documents by first class mail or other equally prompt
means, including information contained in documents filed after the
effective date of this registration statement through the date of
responding to such request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement
when it became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. If a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in a successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on March , 2000.
CURIS, INC.
By: /s/ Doros Platika
----------------------------------
Name: Doros Platika
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Doros Platika and and each of
them, his or her true and lawful attorneys-in-fact and agents 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 and all amendments
(including post-effective amendments) to this registration statement and to
file the same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Doros Platika Chief Executive Officer , 2000
___________________________________________ (principal executive
Doros Platika officer) and Director
/s/ George A. Eldridge Vice President and Chief , 2000
___________________________________________ Financial Officer
George A. Eldridge (principal financial and
accounting officer)
/s/ James R. McNab, Jr. Director , 2000
___________________________________________
James R. McNab, Jr.
/s/ James R. Tobin Director , 2000
___________________________________________
James R. Tobin
/s/ Douglas A. Melton Director , 2000
___________________________________________
Douglas A. Melton
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael Rosenblatt Director , 2000
___________________________________________
Michael Rosenblatt
/s/ Ruth B. Kunath Director , 2000
___________________________________________
Ruth B. Kunath
/s/ Martyn D. Greenacre Director , 2000
___________________________________________
Martyn D. Greenacre
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2 Agreement and Plan of Merger, dated as of February 14, 2000 by and
among the Registrant, Creative BioMolecules, Inc., Ontogeny, Inc. and
Reprogenesis, Inc. (Filed as Exhibit 2.1 to Creative's Current Report
on Form 8-K filed February 18, 2000 (File No. 0-19910)).
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
*4 Form of Curis Common Stock Certificate.
*5 Opinion of Hale and Dorr LLP regarding legality of securities being
registered.
*8.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding certain U.S. income tax aspects of the merger.
*8.2 Opinion of Foley, Hoag & Eliot LLP regarding certain U.S. income tax
aspects of the merger.
*8.3 Opinion of Baker Botts L.L.P. regarding certain U.S. income tax
aspects of the merger.
+10.1 Master Restructuring Agreement, dated as of October 15, 1998, between
Creative and Stryker Corporation. (Filed as Exhibit 10.10 to
Creative's Annual Report on Form 10-K for the period ended December
31, 1998 (File No. 0-19910), and incorporated herein by reference.)
+10.2 Asset Purchase Agreement, dated as of October 15, 1998, between
Creative and Stryker Corporation. (Filed as Exhibit 10.11 to
Creative's Annual Report on Form 10-K for the period ended December
31, 1998 (File No. 0-19910), and incorporated herein by reference.)
10.3 Creative Irrevocable License Agreement dated November 20, 1998 between
Creative and Stryker Corporation. (Filed as Exhibit 10.7 to Creative's
Annual Report on Form 10-K for the period ended December 31, 1999
(File No. 0-19910), and incorporated herein by reference.)
10.4 Stryker Irrevocable License Agreement dated November 20, 1998 between
the Registrant and Stryker Corporation. (Filed as Exhibit 10.8 to
Creative's Annual Report on Form 10-K for the period ended December
31, 1999 (File No. 0-19910), and incorporated herein by reference.)
10.5 Assignment from Creative to Stryker dated November 20, 1998. (Filed as
Exhibit 10.9 to Creative's Annual Report on Form 10-K for the period
ended December 31, 1999 (File No. 0-19910), and incorporated herein by
reference.)
10.6 Standard Form Industrial Lease, dated as of October 24, 1988, as
amended September 17, 1991, by and between WRC Properties, Inc. and
Creative. (Filed as Exhibit 10.26 to Creative's Form S-1 Registration
Statement (Registration No. 33-42159), or amendments thereto, and
incorporated herein by reference.)
10.7 Second Amendment, dated January 28, 1994, to Standard Form Industrial
Lease dated October 24, 1988, as amended September 17, 1991, by and
between Creative and WRC Properties, Inc. (Filed as Exhibit 10.15 to
Creative's Annual Report on Form 10-K for the period ended September
30, 1994 (File No. 0-19910), and incorporated herein by reference.)
</TABLE>
<PAGE>
EXHIBIT INDEX continued
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.8 Third Amendment, dated September 20, 1994, to Standard Form Industrial
Lease dated October 24, 1988, as amended September 17, 1991 and
January 28, 1994, by and between Creative and WRC Properties, Inc.
(Filed as Exhibit 10.16 to Creative's Annual Report on Form 10-K for
the period ended September 30, 1994 (File No. 0-19910), and
incorporated herein by reference.)
10.9 Fourth Amendment, dated April 10, 1997, to Standard Form Industrial
Lease dated October 24, 1988, as amended September 17, 1991, January
28, 1994 and September 20, 1994, by and between Creative and WRC
Properties, Inc. (Filed as Exhibit 10.53 to Creative's Quarterly
Report on Form 10-Q for the period ended June 30, 1997 (File No. 0-
19910), and incorporated herein by reference.)
10.10 Partial Lease Termination Agreement and Amendment to Lease, dated
February 28, 1999, between Creative and W9/TIB Real Estate Limited
Partnership (as successor in interest to WRC Properties, Inc.). (Filed
as Exhibit 10.16 to Creative's Annual Report on Form 10-K for the
period ended December 31, 1999 (File No. 0-19910), and incorporated
herein by reference.)
10.11 Standard Form Industrial Lease, dated February 25, 1992, by and
between Creative and WRC Properties, Inc. (Filed as Exhibit 10.52 to
Creative's Form S-1 Registration Statement
(Registration No. 33-46200), or amendments thereto, and incorporated
herein by reference.)
10.12 First Amendment, dated February 28, 1994, to Standard Form Industrial
Lease dated February 25, 1992 by and between Creative and WRC
Properties, Inc. (Filed as Exhibit 10.32 to Creative's Annual Report
on Form 10-K for the period ended September 30, 1995 (File
No. 0-19910), and incorporated herein by reference.)
10.13 Second Amendment, dated September 20, 1994, to Standard Form
Industrial Lease dated February 25, 1992, as amended February 28,
1994, by and between Creative and WRC Properties, Inc. (Filed as
Exhibit 10.33 to Creative's Annual Report on Form 10-K for the period
ended September 30, 1995 (File No. 0-19910), and incorporated herein
by reference.)
10.14 Third Amendment, dated April 10, 1997, to Standard Form Industrial
Lease dated February 25, 1992, as amended February 28, 1994 and
September 20, 1994, by and between Creative and WRC Properties, Inc.
(Filed as Exhibit 10.54 to Creative's Quarterly Report on Form 10-Q
for the period ended June 30, 1997 (File No. 0-19910), and
incorporated herein by reference.)
+10.15 CBM Cross-License Agreement, dated as of November 26, 1993, between
Enzon, Inc. and Creative. (Filed as Exhibit 10.42 to Creative's
Quarterly Report on Form 10-Q for the period ended December 31, 1993
(File No. 0-19910), and incorporated herein by reference.)
+10.16 Enzon Cross-License Agreement, dated as of November 26, 1993, between
Enzon, Inc. and Creative. (Filed as Exhibit 10.43 to Creative's
Quarterly Report on Form 10-Q for the period ended December 31, 1993
(File No. 0-19910), and incorporated herein by reference.)
+10.17 Cross-License Agreement, dated as of July 15, 1996, between Creative,
Genetics Institute, Inc. and Stryker Corporation. (Filed as Exhibit
10.1 to the Quarterly Report on Form 10-Q for the period ended
September 30, 1996 of Genetics Institute, Inc. (File No. 0-14587),
filed with the Securities and Exchange Commission on November 6, 1996
and incorporated herein by reference.)
+10.18 Research Collaboration and License Agreement, dated December 9, 1996,
between Creative and Biogen, Inc. (Filed as Exhibit 10.37 to
Creative's Annual Report on Form 10-K for the period ended December
31, 1996 (File No. 0-19910), and incorporated herein by reference.)
+10.19 Amendment Agreement, dated December 30, 1998, by and between Creative
and Biogen, Inc. (Filed as Exhibit 10.38 to Creative's Annual Report
on Form 10-K for the period ended December 31, 1998 (File No. 0-
19910), and incorporated herein by reference.)
</TABLE>
<PAGE>
EXHIBIT INDEX continued
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.20 Restricted Stock Purchase Agreement, dated December 9, 1996, between
Creative and Biogen, Inc. (Filed as Exhibit 10.38 to Creative's Annual
Report on Form 10-K for the period ended December 31, 1996 (File No.
0-19910), and incorporated herein by reference.)
10.21 Lease, dated June 16, 1997, by and between Creative and The Prudential
Insurance Company of America. (Filed as Exhibit 10.55 to Creative's
Quarterly Report on Form 10-Q for the period ended June 30, 1997 (File
No. 0-19910), and incorporated herein by reference.)
10.22 First Amendment, dated August 10, 1998, to Lease dated April 10, 1997,
between Creative and The Prudential Insurance Company of America.
(Filed as Exhibit 10.56 to Creative's Quarterly Report on Form 10-Q
for the period ended September 30, 1998 (File No. 0-19910), and
incorporated herein by reference.)
10.23 Master Lease Agreement, dated October 6, 1997, by and between Creative
and FINOVA Technology Finance, Inc. (Filed as Exhibit 10.38 to
Creative's Annual Report on Form 10-K for the period ended December
31, 1997 (File No. 0-19910), and incorporated herein by reference.)
10.24 Employment Agreement, dated as of January 2, 1992, between Charles
Cohen, Ph.D. and Creative. (Filed as Exhibit 10.47 to Creative's Form
S-1 Registration Statement (Registration No. 33-46200), or amendments
thereto, and incorporated herein by reference.)
10.25 Employment Agreement, dated July 17, 1995, between Michael M. Tarnow
and Creative. (Filed as Exhibit 99.1 to Creative's Report on Form 8-K
for the August 31, 1995 Event (File No. 0-19910), and incorporated
herein by reference.)
10.26 Employment Agreement, dated January 13, 1997, between Cheryl K. Lawton
and Creative. (Filed as Exhibit 10.50 to Creative's Quarterly Report
on Form 10-Q for the period ended March 31, 1997 (File No. 0-19910),
and incorporated herein by reference.)
10.27 Employment Agreement, dated February 18, 1997, between Steven L. Basta
and Creative. (Filed as Exhibit 10.51 to Creative's Quarterly Report
on Form 10-Q for the period ended March 31, 1997 (File No. 0-19910),
and incorporated herein by reference.)
10.28 Employment Agreement, dated September 17, 1997, between Carl M. Cohen,
Ph.D., and Creative. (Filed as Exhibit 10.53 to Creative's Annual
Report on Form 10-K for the period ended December 31, 1997 (File No.
0-19910), and incorporated herein by reference.)
*10.29 Promissory Note dated February 8, 2000 by Mr. Michael Tarnow to
Creative.
*10.30 Promissory Note dated February 8, 2000 by Dr. Charles Cohen to
Creative.
*10.31 Promissory Note dated March 13, 2000 by Dr. Daniel Omstead to
Reprogenesis.
*+10.32 License Agreement, dated November 30, 1997, by and between
Reprogenesis and the Regents of the University of Michigan, as amended
by the Amendment to License Agreement dated August 1999.
*+10.33 Amended and Restated License Agreement (Exclusive), dated July 1,
1996, by and between Reprogenesis and the Massachusetts Institute of
Technology, as amended by the First Amendment to Restated License
Agreement dated June 9, 1999.
*+10.34 Patent License Agreement (Exclusive), dated 10/30/96, between
Reprogenesis and the Massachusetts Institute of Technology.
*+10.35 Exclusive License Agreement (and two related intellectual property
agreements), dated February 22, 2000, by and between Reprogenesis and
Children's Medical Center Corporation.
</TABLE>
<PAGE>
EXHIBIT INDEX continued
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.36 Lease, dated September 25, 1997, with respect to real property located
at 21 Erie Street, Cambridge, Massachusetts, as amended by the First
Amendment to Lease, dated October 1, 1998, by and between Reprogenesis
and 21 Erie Realty Trust.
*+10.37 Termination and Release Agreement dated January 27, 1999, by and
between Reprogenesis and American Medical Systems, Inc.
10.38 Financial Assistance Award (Development of Perivascular Endothelial
Cell Implants), dated November 1, 1999, by and between Reprogenesis
and the National Institute of Standards and Technology, Advanced
Technology Program.
10.39 Stock Subscription Warrant dated July 2, 1998, between Reprogenesis
and TBCC Funding Trust II.
*+10.40 Amended and Restated Research and Commercialization Agreement, dated
November 30, 1998, as amended by letter dated December 18, 1998, by
and between Ontogeny and Biogen, Inc.
10.41 Employment Agreement, dated as of June 17, 1996, by and between
Ontogeny and Doros Platika, M.D.
10.42 Lease, dated as of November 16, 1995 as amended, by and between
Ontogeny and Moulton Realty Corp.
*+10.43 License Agreement, dated as of February 12, 1996, by and between
Ontogeny and Leland Stanford Junior University.
*+10.44 License Agreement, dated as of September 26, 1996 and amended January
15, 1997, by and among Ontogeny, The Johns Hopkins University and
University of Washington School of Medicine.
*+10.45 License Agreement, dated as of January 1, 1995, and as amended July
19, 1995 and August 30, 1996, by and between Ontogeny and The Trustees
of Columbia University in the City of New York.
*+10.46 License Agreement, dated as of February 9, 1995 and as amended, by and
between Ontogeny and the President and Fellows of Harvard University.
*10.47 Third Amended and Restated Registration Rights and Right of First
Refusal Agreement, dated as of October 31, 1998, by and among Ontogeny
and the holders of the Senior Preferred Stock.
*10.48 Registration Rights Agreement, dated as of July 1, 1996, by and
between Ontogeny and Biogen, Inc. and First Amendment, dated as of
November 30, 1998.
*10.49 Registration Rights Agreement, dated as of September 26, 1996, by and
between Ontogeny and Corange International Limited (now, Roche).
*10.50 Scientific Advisor and Consulting Agreement by and between Ontogeny
and Douglas A. Melton, dated August 1, 1994 and amended November 12,
1997 and January 22, 2000.
*10.51 Stock Restriction Agreement by and between Ontogeny and George A.
Eldridge, dated as of May 10, 1996.
*10.52 Stock Restriction Agreement by and between Ontogeny and Doros Platika,
dated as of July 25, 1996.
10.53 Warrant Agreement, dated as of November 2, 1994, by and between
Ontogeny and Comdisco, Inc.
10.54 Warrant Agreement, dated as of January 29, 1996, by and between
Ontogeny and Lighthouse Capital Partners, L.P.
10.55 Warrant Agreement, dated as of December 8, 1997, by and between
Ontogeny and Comdisco, Inc.
10.56 Warrant Agreement, dated as of October 1, 1997, by and between
Ontogeny and Lighthouse Capital Partners, L.P.
</TABLE>
<PAGE>
EXHIBIT INDEX continued
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.57 Stock Subscription Warrant, dated as of November 21, 1997, by and
between Ontogeny and mmc Ventures to purchase 1,350 shares of Common
Stock.
*10.58 Warrant Agreement, dated as of November 21, 1997, by and between
Ontogeny and TransAmerica Business Credit Corporation.
10.59 Warrant Agreement, dated as of September 1, 1999, by and between
Ontogeny and Comdisco, Inc.
10.60 Stock Subscription Warrant, dated as of November 15, 1999, by and
between Ontogeny and Transamerica Business Credit Corp.
10.61 Warrant Agreement, dated as of December 17, 1999, by and between
Ontogeny and Lighthouse Capital Partners, L.P.
*+10.62 Research Collaboration and Option Agreement by and between Ontogeny
and Becton, Dickinson and Company, dated January 13, 1999.
*10.63 Secured Promissory Note dated June 17, 1996 between Ontogeny and Dr.
Platika in the original principal amount of $500,000.
10.64 Pledge Agreement dated June 17, 1999 between Ontogeny, Inc. and Dr.
Platika.
23.1 Consent of Hale and Dorr LLP (included as part of its opinion filed as
Exhibit 5 and incorporated herein by reference).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of PricewaterhouseCoopers LLP.
23.5 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included as part of its opinion filed as Exhibit 8.1 and incorporated
herein by reference).
23.6 Consent of Foley, Hoag & Eliot LLP (included as part of its opinion
filed as Exhibit 8.2 and incorporated herein by reference).
23.7 Consent of Baker Botts L.L.P. (included as part of its opinion filed
as Exhibit 8.3 and incorporated herein by reference).
23.8 Consent of Chase Securities Inc.
23.9 Consent of SG Cowen Securities Corporation.
24 Power of Attorney (included on the signature page of this Form S-4 and
incorporated herein by reference).
27.1 Reprogenesis, Inc. Financial Data Schedule.
27.2 Creative BioMolecules Inc. Financial Data Schedule.
27.3 Ontogeny, Inc. Financial Data Schedule.
*99.1 Form of Proxy of Creative BioMolecules, Inc.
*99.2 Form of Proxy of Ontogeny, Inc.
*99.3 Form of Proxy of Reprogenesis, Inc.
</TABLE>
- --------
* To be filed by amendment.
+ Registrant hereby agrees to furnish supplementally any schedules that have
been omitted from this Exhibit to the Securities and Exchange Commission
upon its request.
+ Confidential treatment requested as to certain portions of this Exhibit.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
AMONG
CREATIVE BIOMOLECULES, INC.
ONTOGENY, INC.
REPROGENESIS, INC.
AND
CURIS, INC.
Dated as of February 14, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I THE MERGER................................................ A-2
1.1 The Merger................................................. A-2
1.2 Effective Time............................................. A-2
1.3 Effect of the Merger....................................... A-2
Certificate of Incorporation and By-laws of Surviving
1.4 Company.................................................... A-2
1.5 Directors and Officers..................................... A-2
ARTICLE II EFFECTS ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES........ A-2
2.1 Effect of Merger On Capital Stock.......................... A-2
2.2 Cancellation of Treasury Shares............................ A-4
2.3 Stock Options and Warrants................................. A-4
2.4 Adjustments to Exchange Ratios............................. A-4
2.5 Fractional Shares.......................................... A-5
2.6 Surrender of Certificates.................................. A-5
2.7 No Further Ownership Rights in Company Stock............... A-6
2.8 Closing.................................................... A-6
2.9 Lost, Stolen or Destroyed Certificates..................... A-6
2.10 Tax Consequences........................................... A-7
2.11 Dissenters' Rights......................................... A-7
2.12 Closing of Company Transfer Books.......................... A-7
2.13 Affiliates................................................. A-7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANIES............... A-8
3.1 Organization of the Company................................ A-8
3.2 The Company's Capital Structure............................ A-8
3.3 Authority; No Conflict; Required Filings and Consents...... A-9
3.4 Financial Statements....................................... A-10
3.5 No Undisclosed Liabilities................................. A-11
3.6 Absence of Certain Changes or Events....................... A-11
3.7 Taxes...................................................... A-11
3.8 Properties................................................. A-12
3.9 Intellectual Property...................................... A-12
3.10 Preclinical Testing and Clinical Trials.................... A-13
3.11 Agreements, Contracts and Commitments...................... A-14
3.12 Litigation................................................. A-14
3.13 Environmental Matters...................................... A-14
3.14 Employee Benefit Plans..................................... A-15
3.15 Compliance With Laws....................................... A-16
3.16 Certain Regulatory Matters................................. A-16
3.17 Tax Matters................................................ A-16
3.18 Registration Statement; Proxy Statement/Prospectus......... A-17
3.19 Labor Matters.............................................. A-17
3.20 Insurance.................................................. A-17
3.21 No Existing Discussions.................................... A-17
3.22 Opinion of Financial Advisor............................... A-17
3.23 Section 203 of the DGCL Not Applicable..................... A-17
3.24 No Brokers................................................. A-18
3.25 Stockholder Rights......................................... A-18
</TABLE>
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<TABLE>
<C> <S> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OR CURIS................... A-18
4.1 Organization of Curis..................................... A-18
4.2 Curis' Capital Structure.................................. A-19
4.3 Authority; No Conflict; Required Filings and Consents..... A-19
Continuity of Business Enterprise; Reorganization
4.4 Classification............................................ A-20
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER.................... A-20
5.1 Conduct of Business by Company Pending the Merger......... A-20
5.2 Cooperation............................................... A-22
5.3 Confidentiality........................................... A-22
5.4 Curis Certificate of Incorporation........................ A-22
ARTICLE VI SOLICITATION OF OTHER PROPOSALS........................... A-22
6.1 Solicitation of Other Proposals........................... A-22
ARTICLE VII ADDITIONAL AGREEMENTS..................................... A-25
7.1 Proxy Statement/Prospectus; Registration Statement........ A-25
7.2 Meetings of Stockholders.................................. A-26
7.3 Access to Information..................................... A-26
7.4 All Reasonable Efforts; Further Assurances................ A-26
7.5 Stock Options and Warrants................................ A-27
7.6 Notification of Certain Matters........................... A-28
7.7 Listing on the Nasdaq..................................... A-29
7.8 Public Announcements...................................... A-29
7.9 Accountant's Letters...................................... A-29
7.10 Indemnification of Directors and Officers................. A-29
7.11 Covenants for Tax-free Status............................. A-30
7.12 Stockholder Agreements.................................... A-30
7.13 Affiliate Agreements...................................... A-31
7.14 SEC Filings............................................... A-31
7.15 Maintenance, Prosecution and Filing Obligations........... A-31
7.16 Certain Agreements........................................ A-31
7.17 Lock-Up Agreements........................................ A-32
7.18 Curis Board Authorization................................. A-32
7.19 Best Efforts Obligations.................................. A-32
ARTICLE VIII CONDITIONS OF MERGER...................................... A-32
Conditions to Obligation of All Parties to Effect the
8.1 Merger.................................................... A-32
Additional Conditions to Obligation of Each Party to
8.2 Effect the Merger......................................... A-33
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER......................... A-34
9.1 Termination............................................... A-34
9.2 Effect of Termination..................................... A-35
9.3 Fees and Expenses......................................... A-35
9.4 Amendment................................................. A-37
9.5 Waiver.................................................... A-37
ARTICLE X GENERAL PROVISIONS........................................ A-38
10.1 Survival of Representations and Warranties................ A-38
10.2 Notices................................................... A-38
10.3 Certain Definitions....................................... A-39
10.4 Interpretation............................................ A-40
</TABLE>
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<TABLE>
<C> <S> <C>
10.5 Severability.............................................. A-40
10.6 Entire Agreement.......................................... A-41
10.7 Assignment................................................ A-41
10.8 Parties in Interest....................................... A-41
10.9 Failure or Indulgence Not Waiver; Remedies Cumulative..... A-41
10.10 Governing Law............................................. A-41
10.11 Counterparts.............................................. A-41
EXHIBIT A-- Form of Stockholder Agreement............................. A-46
EXHIBIT B-- Form of Certificate of Merger............................ A-50
EXHIBIT C-- Form of Articles of Merger............................... A-52
EXHIBIT D-- Curis Certificate of Incorporation....................... A-55
EXHIBIT E-- Form of Affiliate Agreement.............................. A-58
EXHIBIT F-- Form of Lock-Up Agreement................................ A-60
Form of Certificate of Amendment to Certificate of
EXHIBIT G-- Incorporation............................................ A-62
Form of Articles of Amendment to Articles of
EXHIBIT H-- Incorporation............................................ A-64
</TABLE>
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SCHEDULES
Schedule 1.5Directors and Officers of the Surviving Company
Creative Disclosure Schedules
See attached
Ontogeny Disclosure Schedules
See attached
Reprogenesis Disclosure Schedules
See attached
Curis Disclosure Schedules
None
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, is made as of February 14, 2000 (the
"Agreement") by and among CREATIVE BIOMOLECULES, INC., a Delaware corporation
("Creative"), ONTOGENY, INC., a Delaware corporation ("Ontogeny"),
REPROGENESIS, INC., a Texas corporation ("Reprogenesis") and CURIS, INC. a
Delaware corporation ("Curis"). Each of Creative, Ontogeny, Reprogenesis and
Curis are sometimes referred to herein individually as a "Party" and
collectively as the "Parties". Each of Creative, Ontogeny and Reprogenesis are
also sometimes referred to herein individually as a "Company" and collectively
as the "Companies".
RECITALS
WHEREAS, each of the Parties desires to effectuate a corporate
reorganization to form a combined company to conduct the businesses of the
Companies;
WHEREAS, Curis has been formed by the Companies for the purpose of
effectuating such corporate reorganization;
WHEREAS, each Company is the owner of 100 shares of common stock, par value
$.01 per share, of Curis (the "Curis Common Stock");
WHEREAS, the Board of Directors of each Party has deemed it advisable and in
the best interests of such Party and the stockholders of such Party for such
Party to effectuate the corporate reorganization upon the terms and subject to
the conditions set forth herein;
WHEREAS, in furtherance of such corporate reorganization, the Board of
Directors of each Company has approved the merger of such Company and each
other company with and into Curis (the "Merger"), with Curis being the
surviving corporation of the Merger (the "Surviving Company") in accordance
with the General Corporation Law of the State of Delaware (the "DGCL") and the
Texas Business Corporation Act (the "TBCA") and subject to the conditions set
forth herein;
WHEREAS, the Merger will result in, among other things, the exchange and
conversion of all of the issued and outstanding shares of capital stock of the
Companies into shares of common stock, par value $0.01 per share, of the
Surviving Company ("Surviving Company Common Stock");
WHEREAS, as a condition to the willingness of, and as an inducement to, the
Parties to enter into this Agreement, contemporaneously with the execution and
delivery of this Agreement, certain holders of shares of capital stock of the
Companies are entering into agreements in the form of Exhibit A hereto (a
"Stockholder Agreement"), which Stockholder Agreements provide for certain
actions relating to the transactions contemplated by this Agreement, including
the agreement by such holders to vote such shares in favor of the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code") and
the United States Treasury Regulations promulgated thereunder; and
WHEREAS, the Parties desire to make certain representations and warranties
and other agreements in connection with the Merger; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Parties hereby agree as follows:
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ARTICLE I
The Merger
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
provisions of the DGCL and the TBCA, each Company shall be merged with and into
Curis, the separate corporate existence of each Company shall cease and Curis
shall, as the surviving corporation in the Merger, continue its existence under
the provisions of the DGCL as the Surviving Company.
1.2 Effective Time. As promptly as practicable after the satisfaction or, to
the extent permitted hereunder, waiver of the conditions set forth in Article
VIII of this Agreement, the Parties shall cause the Merger to be consummated by
filing (a) the Certificate of Merger substantially in the form of Exhibit B
attached hereto (the "Certificate of Merger"), along with a certified copy of
this Agreement, if required, with the Secretary of State of the State of
Delaware, executed in accordance with the relevant provisions of the DGCL and
(b) the Articles of Merger substantially in the form of Exhibit C attached
hereto (the "Articles of Merger") with the Secretary of State of the State of
Texas, executed in accordance with the relevant provisions of the TBCA (the
date and time of the later of the issuance of the certificate of merger by the
Secretary of State of the State of Texas and the filing of the Certificate of
Merger, or such later date and time as may be specified in the Certificate of
Merger and the Articles of Merger by mutual agreement of the Parties, being the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the DGCL and the TBCA.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Companies shall vest in the Surviving Company, and all debts, liabilities
and duties of the Companies shall become the debts, liabilities and duties of
the Surviving Company.
1.4 Certificate of Incorporation and By-laws of Surviving Company. The
Certificate of Incorporation of Curis shall be the Certificate of Incorporation
of the Surviving Company until thereafter amended as provided by the DGCL. The
By-laws of Curis shall be the By-laws of the Surviving Company until thereafter
amended as provided by the DGCL.
1.5 Directors and Officers. At the Effective Time, the directors and
officers of the Surviving Company shall be those persons set forth on Schedule
1.5 hereto, in each case until their respective successors are duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Company's Certificate of Incorporation and By-
laws.
ARTICLE II
Effects on Capital Stock; Exchange of Certificates
2.1 Effect of Merger on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the Parties hereto or the
holders of the following securities:
(a) Subject to the other provisions of this Article II, each share of common
stock, par value $.01 per share, of Creative (the "Creative Common Stock")
issued and outstanding immediately prior to the Effective Time (other than any
Creative Common Stock to be canceled pursuant to Section 2.2) shall be
converted automatically into the right to receive 0.30 of a fully paid and
nonassessable share of Surviving Company Common Stock (the "Creative Exchange
Ratio"), together with cash, if any, in lieu of any fraction of a share of
Surviving Company Common Stock, pursuant to Section 2.5 (the "Creative Merger
Consideration").
(b) Subject to the other provisions of this Article II, each share of (i)
common stock, par value $.01 per share, of Ontogeny (the "Ontogeny Common
Stock") issued and outstanding immediately prior to the Effective
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Time and (ii) each share of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock, Series C-1
Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E
Convertible Preferred Stock, Series F Convertible Preferred Stock and Series G
Convertible Preferred Stock of Ontogeny, each series with a par value $.01 per
share (collectively, the "Ontogeny Preferred Stock") issued and outstanding
immediately prior to the Effective Time (other than, in each case, any Ontogeny
Common Stock or Ontogeny Preferred Stock to be canceled pursuant to Section 2.2
and any Appraisal Shares (as defined in Section 2.11(a))) shall be converted
automatically into the right to receive 0.2564 of a fully paid and
nonassessable share of Surviving Company Common Stock (the "Ontogeny Exchange
Ratio"), together with cash, if any, in lieu of any fraction of a share of
Surviving Company Common Stock, pursuant to Section 2.5 (the "Ontogeny Merger
Consideration").
(c) (i) In addition to such number of shares of Surviving Company Common
Stock that each share of Series A preferred stock, par value $.01 per share, of
Reprogenesis (the "Reprogenesis Series A Stock") shall be entitled to pursuant
to Section 2.1 (c)(ii), each share of Reprogenesis Series A Stock issued and
outstanding immediately prior to the Effective Time (other than any
Reprogenesis Series A Stock to be canceled pursuant to Section 2.2 and any
Dissenting Shares (as defined in Section 2.11(b)) shall be converted
automatically into the right to receive the number of fully paid and
nonassessable shares of Surviving Company Common Stock equal to the
Reprogenesis Series A Consideration divided by 2,702,702, together with cash,
if any, in lieu of any fraction of a share of Surviving Company Common Stock,
pursuant to Section 2.5. "Reprogenesis Series A Consideration" shall mean the
lesser of (A) the number of fully paid and nonassessable shares of Surviving
Company Common Stock whose aggregate Trailing Average Market Price equals
$6,000,000 and (B) the Reprogenesis Fully Diluted Merger Consideration.
(ii) Subject to Section 2.1(c)(i), each share of common stock, par value
$.01 per share, of Reprogenesis (the "Reprogenesis Common Stock"), each share
of Reprogenesis Series A Stock and each share of Series B preferred stock, par
value $.01 per share, of Reprogenesis (the "Reprogenesis Series B Stock")
issued and outstanding immediately prior to the Effective Time (other than any
Reprogenesis Common Stock, Reprogenesis Series A Stock and Reprogenesis Series
B Stock to be canceled pursuant to Section 2.2 and any Dissenting Shares (as
defined in Section 2.11(b)) shall be converted automatically into the right to
receive 0.1956 (the "Reprogenesis Exchange Ratio") multiplied by a fraction,
the numerator of which is the Reprogenesis Fully Diluted Merger Consideration
less the Reprogenesis Series A Consideration and the denominator of which is
the Reprogenesis Fully Diluted Merger Consideration, of a fully paid and
nonassessable share of Surviving Company Common Stock, together with cash, if
any, in lieu of any fraction of a share of Surviving Company Common Stock,
pursuant to Section 2.5. The Creative Exchange Ratio, Ontogeny Exchange Ratio
and Reprogenesis Exchange Ratio are sometimes referred to individually herein
as an "Exchange Ratio".
(iii) For the purposes of this Section 2.1(c), (A) "Trailing Average Market
Price" shall mean the average of the daily Market Price for each Business Day
on the twenty (20) consecutive Business Days the last day of which shall be the
fifth Business Day prior to the Effective Time, divided by the Creative
Exchange Ratio, (B) "Reprogenesis Fully Diluted Merger Consideration" shall
mean the product of the Reprogenesis Exchange Ratio and the aggregate number of
shares of Reprogenesis Common Stock, Reprogenesis Series A Stock and
Reprogenesis Series B Stock either issued and outstanding or subject to
outstanding options or warrants to purchase immediately prior to the Effective
Time (other than any Reprogenesis Common Stock, Reprogenesis Series A Stock and
Reprogenesis Series B Stock to be canceled pursuant to Section 2.2), (C)
"Market Price" at any date shall be deemed to be the last reported sale price
of Creative Common Stock, or, in case no such reported sale takes place on such
day, the average of the bid and asked prices, in either case as officially
reported by the Nasdaq National Market, or, if the Nasdaq National Market is no
longer reporting such information, as reasonably determined in good faith by
resolution of the Board of Directors of Reprogenesis, and (D) "Reprogenesis
Merger Consideration" shall mean the product of the Reprogenesis Exchange Ratio
and the number of shares of Reprogenesis Common Stock, Reprogenesis Series A
Stock and Reprogenesis Series B Stock issued and outstanding immediately prior
to the Effective Time (other than any Reprogenesis Common
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<PAGE>
Stock, Reprogenesis Series A Stock and Reprogenesis Series B Stock to be
canceled pursuant to Section 2.2 and other than any Dissenting Shares). The
Reprogenesis Merger Consideration, collectively with the Creative Merger
Consideration and the Ontogeny Merger Consideration, are referred to herein as
the "Merger Consideration".
(d) As of the Effective Time, all Company Common Stock and Company Preferred
Stock (together, "Company Stock") issued and outstanding immediately prior to
the Effective Time shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any Company Stock shall
cease to have any rights with respect thereto, except the right to receive the
applicable Merger Consideration and any cash in lieu of fractional shares of
Surviving Company Common Stock to be issued or paid in consideration therefor
upon surrender of such certificate in accordance with Section 2.5 hereof,
without interest.
(e) As of the Effective Time, all shares of Curis Common Stock issued and
outstanding immediately prior to the Effective Time shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any Curis Common Stock
shall cease to have any rights with respect thereto.
2.2 Cancellation of Treasury Shares. Each share of Creative Common Stock
held in the treasury of Creative and each share of Creative Common Stock, if
any, owned by any wholly-owned subsidiary of Creative or by Curis immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof. Each share of Ontogeny Common Stock and Ontogeny Preferred
Stock held in the treasury of Ontogeny and each share of Ontogeny Common Stock
and Ontogeny Preferred Stock, if any, owned by any wholly-owned subsidiary of
Ontogeny or by Curis immediately prior to the Effective Time shall be canceled
and extinguished without any conversion thereof. Each share of Reprogenesis
Common Stock and Reprogenesis Preferred Stock held in the treasury of
Reprogenesis and each share of Reprogenesis Common Stock and Reprogenesis
Preferred Stock, if any, owned by any wholly-owned subsidiary of Reprogenesis
or by Curis immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
2.3 Stock Options and Warrants.
(a) At the Effective Time, each outstanding Company Stock Option under the
Company Stock Plans, whether vested or unvested, shall, in accordance with the
terms of such Company Stock Option and such Company Stock Plan, by virtue of
the Merger and without any action on the part of the holder thereof, become and
represent an option to acquire, on the same terms and conditions as were
applicable under such Company Stock Option, the same number of shares of
Surviving Company Common Stock as the holder of such Company Stock Option would
have been entitled to receive pursuant to the Merger had such holder exercised
such option in full immediately prior to the Effective Time, as further set
forth in Section 7.5.
(b) At the Effective Time, each outstanding Company Warrant (other than any
Company Warrant that by its terms otherwise expires by virtue of the Merger)
shall, in accordance with the terms of such Company Warrant, by virtue of the
Merger and without any action on the part of the holder thereof, become and
represent a warrant to acquire, on the same terms and conditions as were
applicable under such Company Warrant, the same number of shares of Surviving
Company Common Stock as the holder of such Company Warrant would have been
entitled to receive pursuant to the Merger (including with respect to the
treatment of fractional shares) had such holder exercised such Company Warrant
in full immediately prior to the Effective Time, as further set forth in
Section 7.5
2.4 Adjustments to Exchange Ratios. Without limiting any other provision of
this Agreement, the applicable Exchange Ratio or Exchange Ratios shall be
correspondingly adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Company Stock), reorganization, recapitalization,
reclassification, conversion, consolidation, contribution or exchange of shares
or other like change with respect to Curis Common Stock or Company Stock
occurring after the date hereof and prior to the Effective Time.
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2.5 Fractional Shares. No fraction of a share of Surviving Company Common
Stock will be issued hereunder, but in lieu thereof each holder of Company
Stock who would otherwise be entitled to a fraction of a share of Surviving
Company Common Stock (after aggregating all fractional shares of Surviving
Company Common Stock to be received by such holder) shall receive from the
Surviving Company an amount of cash (rounded down to the nearest whole cent),
without interest, equal to the product of such fraction multiplied by the
Market Value (as defined below) of the Surviving Company Common Stock. The
"Market Value" of the Surviving Company Common Stock means the closing price
per share of Surviving Company Common Stock (rounded to the nearest cent) on
the NASDAQ National Market (as reported in the Wall Street Journal, or, if not
reported therein, any other authoritative source selected by the Surviving
Company) on the first day of trading of shares of Surviving Company Common
Stock.
2.6 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Curis shall designate one
or more Persons to act as Exchange Agent hereunder.
(b) Surviving Company to Provide Common Stock. Promptly after the Effective
Time, the Surviving Company shall make available to the Exchange Agent for
exchange in accordance with this Article II, through such reasonable procedures
as the Surviving Company may adopt, the shares of Surviving Company Common
Stock issuable pursuant to Section 2.1 in exchange for outstanding Company
Stock, together with an estimated amount of cash to be paid pursuant to Section
2.5 in lieu of fractional shares.
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Company shall cause the Exchange Agent to mail to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding Company Stock whose shares were
converted into the right to receive shares of Surviving Company Common Stock
pursuant to Section 2.1, a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as the Surviving Company
may reasonably specify) and instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Surviving
Company Common Stock and cash in lieu of the fraction of a share of Surviving
Company Common Stock, if any, pursuant to Section 2.5 hereof. Upon surrender of
a Certificate for cancellation to the Exchange Agent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor, a certificate representing the number of whole
shares of Surviving Company Common Stock and payment in lieu of fractional
shares which such holder has the right to receive pursuant to Section 2.5, and
the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented Company Stock will be deemed from and after the Effective Time, for
all corporate purposes, other than the payment of dividends, to evidence the
right to receive the number of full shares of Surviving Company Common Stock
into which such Company Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 2.5. Any portion of the shares of Surviving Company
Common Stock deposited with the Exchange Agent pursuant to this Section 2.6(c)
which remains undistributed to the holders of the Certificates representing
Company Common Shares for six (6) months after the Effective Time shall be
delivered to Surviving Company, upon demand, and any holders of Company Stock
who have not theretofore complied with this Article II shall thereafter look
only to the Surviving Company for Surviving Company Common Stock, any cash in
lieu of fractional shares of Surviving Company Common Stock and any dividends
or distributions with respect to Surviving Company Common Stock to which such
holders may be entitled.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to
Surviving Company Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Surviving Company Common Stock represented thereby until the holder
of record of such Certificate shall
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<PAGE>
surrender such Certificate. Subject to applicable escheat law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Surviving Company Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Surviving
Company Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Surviving
Company Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the Person
requesting such exchange will have paid to Surviving Company, or any agent
designated by it, any transfer or other taxes required by reason of the
issuance of a certificate for shares of Surviving Company Common Stock in any
name other than that of the registered holder of the certificate surrendered,
or established to the satisfaction of Surviving Company or any agent designated
by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Agreement, none of the Exchange Agent or Surviving Company shall be liable to a
holder of Company Stock for any Surviving Company Common Stock or any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(g) Withholding of Tax. The Surviving Company and the Exchange Agent will be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Company Stock such amounts as the
Surviving Company (or any Affiliate thereof) or the Exchange Agent are required
to deduct and withhold with respect to the making of such payment under the
Code, or any provision of federal, state, local or foreign Tax law (as defined
below). To the extent that amounts are so withheld by the Surviving Company or
the Exchange Agent, such withheld amounts will be treated for all purposes of
this Agreement as having been paid to the holder of Company Stock in respect of
whom such deduction and withholding were made by Surviving Company.
2.7 No Further Ownership Rights in Company Stock. All shares of Surviving
Company Common Stock issued upon the surrender for exchange of Company Stock in
accordance with the terms of this Article II (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such Company Stock under this Article II, and there
shall be no further registration of transfers on the records of the Surviving
Company of shares of Company Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Company for any reason, they shall be canceled and exchanged as
provided in this Article II.
2.8 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement abandoned pursuant to the
provisions of Article IX, and subject to the provisions of Article VIII, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. (Eastern
time) on a date (the "Closing Date") to be mutually agreed upon by the parties,
which date shall be not later than the third Business Day after all the
conditions set forth in Article VIII shall have been satisfied (or waived in
accordance with Section 9.5, to the extent the same may be waived), unless
another time and/or date is agreed to in writing by the parties. The Closing
shall take place at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., Boston, Massachusetts, unless another place is agreed to in
writing by the parties.
2.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Surviving Company
Common Stock and cash for fractional shares, if any, as may be required
pursuant to Section 2.5; provided that the Surviving Company may, as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against the
Surviving Company or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
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2.10 Tax Consequences. For federal income tax purposes, the Parties intend
that the Merger be treated as a reorganization within the meaning of Section
368(a) of the Code, and that this Agreement shall be, and is hereby, adopted as
a plan of reorganization for purposes of Section 368 of the Code. The parties
shall not take a position on any Tax Return (as defined below) inconsistent
with this Section 2.10.
2.11 Dissenters' Rights.
(a) Notwithstanding anything in this Agreement to the contrary, shares
("Appraisal Shares") of capital stock of Ontogeny that are outstanding
immediately prior to the Effective Time and that are held by any Person who is
entitled to demand and properly demands appraisal of such Appraisal Shares
pursuant to, and who complies in all respects with, Section 262 of the DGCL
("Section 262") shall not be converted into Merger Consideration as provided in
Section 2.1, but rather the holders of Appraisal Shares shall be entitled to
payment of the fair market value of such Appraisal Shares in accordance with
Section 262; provided, however, that if any such holder shall fail to perfect
or otherwise shall waive, withdraw or lose the right to appraisal under Section
262, then the right of such holder to be paid the fair value of such holder's
Appraisal Shares shall cease and such Appraisal Shares shall be deemed to have
been converted as of the Effective Time into, and to have become exchangeable
solely for the right to receive, the applicable Merger Consideration as
provided in Section 2.1. Ontogeny shall give prompt notice to Curis of any
demands received by Ontogeny for appraisal of any shares of capital stock of
Ontogeny, and Curis shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, Ontogeny shall not, without the prior written consent of Curis,
make any payment with respect to, or settle or offer to settle, any such
demands, or agree to do any of the foregoing.
(b) Notwithstanding anything in this Agreement to the contrary, shares
("Dissenting Shares") of capital stock of Reprogenesis that are outstanding
immediately prior to the Effective Time and that are held by any Person who is
entitled to make and properly makes demand for payment of the fair value of
such Dissenting Shares pursuant to, and who complies in all respects with,
Article 5.12 of the TBCA ("Article 5.12") shall not be converted into Merger
Consideration as provided in Section 2.1, but rather the holders of Dissenting
Shares shall be entitled to payment of the fair value of such Dissenting Shares
in accordance with Article 5.12; provided, however, that if any such holder
shall fail to perfect or otherwise shall waive, withdraw or lose his right to
payment of the fair value under Article 5.12, then the right of such holder to
be paid the fair value of such holder's Dissenting Shares shall cease and such
Dissenting Shares shall be deemed to have been converted as of the Effective
Time into, and to have become exchangeable solely for the right to receive, the
applicable Merger Consideration as provided in Section 2.1. Reprogenesis shall
give prompt notice to Curis of any demands received by Reprogenesis for the
payment of the fair value of any shares of capital stock of Reprogenesis, and
Curis shall have the right to participate in and direct all negotiations and
proceedings with respect to such demands. Prior to the Effective Time,
Reprogenesis shall not, without the prior written consent of Curis, make any
payment with respect to, or settle or offer to settle, any such demands, or
agree to do any of the foregoing.
2.12 Closing of Company Transfer Books. At the Effective Time, the stock
transfer books of each Company shall be closed and no transfer of shares of
Company Stock shall thereafter be made. If, after the Effective Time,
certificates representing shares of Company Stock are presented to the
Surviving Company, they shall be canceled and presented to the Exchange Agent
in accordance with Section 2.6.
2.13 Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Person who is a director or
executive officer of a Company or a holder of shares of 10% or more of such
Company's Voting Stock, shall not be exchanged until the Surviving Company has
received an Affiliate Agreement from such Person.
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ARTICLE III
Representations and Warranties of Companies
Each Company hereby represents and warrants to each other Company that the
statements contained in this Article III are true and correct with respect to
it, except as set forth herein or in the disclosure schedule attached by such
Company to this Agreement (for each respective Company, the "Company Disclosure
Schedule"). The Company Disclosure Schedule shall be arranged in sections
corresponding to the numbered and lettered sections contained in this Article
III, and the disclosure in any section shall qualify other sections in this
Article III only the extent that it is reasonably apparent from a reading of
such disclosure that it also qualifies or applies to such other sections. For
the purposes of this Article III, all references to a Company shall include
such Company and its Subsidiaries, and all representations and warranties about
a Company shall be construed as representations and warranties about each of
its Subsidiaries as well, unless the context requires otherwise (including, by
way of example, Section 3.7(c) hereof).
3.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its organization. The Company has all requisite corporate power to own, lease
and operate its properties and assets and to carry on the business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified, individually or in the aggregate, would be
reasonably likely to have a material adverse effect on the business,
properties, financial condition, results of operations or prospects of the
Company, or to have a material adverse effect on the ability of the Company to
consummate the transactions contemplated by this Agreement (a "Company Material
Adverse Effect"); provided, however, that for purposes of this Agreement, any
adverse change in the stock price of a Company whose stock is publicly traded
(each, a "Public Company") in and of itself, as quoted on the Nasdaq National
Market, shall not be taken into account in determining whether there has been
or would be a "Company Material Adverse Effect" on or with respect to the
Company.
3.2 The Company's Capital Structure.
(a) The authorized capital stock of the Company is as set forth in the
Company Disclosure Schedule. As of February 10, 2000, the number of shares of
common stock of the Company ("Company Common Stock") and preferred stock of the
Company ("Company Preferred Stock") issued and outstanding or held in the
treasury of the Company are as set forth on the Company Disclosure Schedule,
and all of such shares are validly issued, fully-paid and non-assessable. The
Company Disclosure Schedule shows the number of shares of Company Common Stock
reserved for future issuance pursuant to stock options granted and outstanding
as of the date of this Agreement, and the plans under which such options were
granted (collectively, the "Company Stock Plans") and sets forth a complete and
accurate list of all holders of options outstanding as of the date of this
Agreement to purchase shares of Company Common Stock (such outstanding options,
the "Company Stock Options") under the Company Stock Plans, indicating the
number of shares of Company Common Stock subject to each Company Stock Option,
and the exercise price, the date of grant and the expiration date thereof. The
Company Disclosure Schedule shows the number of shares of Company Common Stock
reserved for future issuance pursuant to warrants or other outstanding rights
to purchase shares of Company Common Stock outstanding as of the date of this
Agreement (such outstanding warrants or other rights, the "Company Warrants")
and the agreement or other document under which such Company Warrants were
granted and sets forth a complete and accurate list of all holders of Company
Warrants indicating the number and type of shares of Company Common Stock
subject to each Company Warrant, and the exercise price, the date of grant and
the expiration date thereof. All outstanding shares of Company Common Stock
are, and all shares of Company Common Stock subject to issuance as specified
above are, duly authorized and, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall be,
validly issued, fully paid and nonassessable and not subject to or issued in
violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision
of the DGCL or the TBCA, the Company's Certificate or Articles of Incorporation
or By-laws or any
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agreement to which the Company is a party or is otherwise bound. There are no
obligations, contingent or otherwise, of the Company to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or any other capital stock
of the Company or to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any other entity.
(b) Except for the Company Stock Plans, the Company Warrants and shares of
capital stock and other securities of the Company issuable pursuant to the
foregoing, (i) there are no equity securities of any class of the Company, or
any security exchangeable into or exercisable for such equity securities,
issued, reserved for issuance or outstanding, and (ii) there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound obligating
the Company to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of or other equity interests in the
Company or obligating the Company to grant, extend, accelerate the vesting of,
otherwise modify or amend or enter into any such option, warrant, equity
security, call, right, commitment or agreement. To the best Knowledge of the
Company, other than the Stockholder Agreements, there are no voting trusts,
proxies or other voting agreements or understandings with respect to the shares
of capital stock of or other equity interests in the Company.
(c) There are no bonds, debentures, notes or other indebtedness of the
Company with voting rights (or convertible into, or exchangeable for,
securities with voting rights) on any matters on which stockholders of the
Company may vote.
(d) The Company Disclosure Schedule sets forth all Subsidiaries of the
Company and the authorized capital stock or other equity interests of such
Subsidiaries. The Company owns all of the outstanding capital stock or other
equity interests of such Subsidiaries. As of the date of this Agreement, the
number of shares of common stock and preferred stock, or amount of other equity
interests, of any such Subsidiary issued and outstanding or held in such
Subsidiary's treasury are as set forth on the Company Disclosure Schedule, and
all of such shares or other equity interests are duly authorized, validly
issued, fully-paid and non-assessable and not subject to or issued in violation
of any purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the DGCL or the
TBCA (or other law governing such Subsidiary's organization), the Certificate
or Articles of Incorporation or By-laws (or other organizational documents) of
such Subsidiary or any agreement to which such Subsidiary is a party or is
otherwise bound. There are no obligations, contingent or otherwise, of such
Subsidiary to repurchase, redeem or otherwise acquire any shares of its capital
stock or other equity interests or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any other entity.
There are no options, warrants, equity securities, calls, rights, commitments
or agreements of any character to which any such Subsidiary is a party or by
which it is bound obligating it to issue, deliver or sell, or cause to be
issued, delivered or sold, shares of capital stock of or other equity interests
in such Subsidiary.
(e) Each Subsidiary of the Company is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization. Each
such Subsidiary has all requisite power (corporate and otherwise) to own, lease
and operate its properties and assets and to carry on the business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation or other entity in each
jurisdiction in which the failure to be so qualified, individually or in the
aggregate, would be reasonably likely to have a Company Material Adverse
Effect. Each Subsidiary of the Company is inactive, has not conducted any
business in the last five years, and has not owned, leased or operated any
properties or assets in the last five years.
3.3 Authority; No Conflict; Required Filings and Consents.
(a) The Company has all requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement by the Company have been duly
authorized by all the necessary corporate action on the part of the Company,
subject only to the approval of the Merger by
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the Company's stockholders under the DGCL or the TBCA. This Agreement has been
duly executed and delivered by the Company and constitutes the valid and
binding obligations of the Company, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception").
(b) The execution and delivery of this Agreement by the Company does not,
and the consummation of the transactions contemplated by this Agreement will
not, (i) conflict with, or result in any violation or breach of, any provision
of the Certificate or Articles of Incorporation or By-laws of the Company, (ii)
result in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract or
other agreement, instrument or obligation to which the Company is a party or by
which it or any of its properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company
or by which it or any of its properties or assets may be bound or (iv)
constitute a change in control or comparable event under any of the terms,
conditions or provisions of any note, bond mortgage, indenture, lease, license,
contract or other agreement, instrument or obligation to which the Company is a
party or by which it or any of its properties or assets may be bound, which
change of control or comparable event will give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit,
except in the case of (ii), (iii) and (iv) for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which are not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is
required by or with respect to the Company in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of a pre-merger notification report under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, ("HSR Act"),
(ii) the filing of the Certificate of Merger with the Delaware Secretary of
State, (iii) the filing of the Articles of Merger with the Secretary of State
of the State of Texas and the issuance of a certificate of merger by the
Secretary of State of the State of Texas, (iv) the filing of the Joint Proxy
Statement (as defined in Section 3.18 below) with the Securities and Exchange
Commission ("SEC") in accordance with the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (v) such, consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable state securities laws and (vi) such other consents, licenses,
permits, orders, authorizations, filings, approvals and registrations which, if
not obtained or made, would not be reasonably likely, individually or in the
aggregate, to have a Company Material Adverse Effect. The stockholder vote
required for the approval of this Agreement and the Merger by each Company is
set forth in the Company Disclosure Schedule.
3.4 Financial Statements.
(a) Each Company has provided or made available to each other Company (i)
its audited consolidated balance sheets and statements of income, changes in
stockholders' equity and cash flows as of and for each of the last three fiscal
years, and (ii) the unaudited consolidated balance sheet and statements of
income, changes in stockholders' equity and cash flows as of and for the twelve
months ended as of December 31, 1999 (the "Company Financial Statements").
(b) Each Company Financial Statement (including, in each case, any related
notes and schedules) (i) was prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC or, with respect to Ontogeny and Reprogenesis, the absence of notes
thereto) and (iii) fairly presented or will fairly present the consolidated
financial position of the Company as of the dates and the consolidated results
of its operations and cash flows
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for the period indicated, consistent with the books and records of the Company,
except that the unaudited financial statements were or are subject to normal
and recurring year-end adjustments which were not or are not expected to be
material in amount. The unaudited balance sheet of the Company as of December
31, 1999 is referred to herein as the "Company Balance Sheet."
3.5 No Undisclosed Liabilities. Except for normal or recurring liabilities
incurred since the date of the Company Balance Sheet in the ordinary course of
business and consistent with past practices, the Company does not have any
liabilities, either accrued, contingent or otherwise (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate are reasonably likely to have a Company Material Adverse
Effect.
3.6 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet, the Company has conducted its businesses only in the ordinary
course and in a manner consistent with past practice and, since such date,
there has not been (i) any event, change or development in the financial
condition, results of operations, business, properties or prospects of the
Company, that individually or in the aggregate has had, or is reasonably likely
to have, a Company Material Adverse Effect; (ii) any damage, destruction or
loss (whether or not covered by insurance) with respect to the Company having a
Company Material Adverse Effect; (iii) any material change by the Company in
its accounting methods not required pursuant to generally accepted accounting
principles or practices to which both the other Companies have not previously
consented in writing; (iv) any revaluation by the Company of any of its assets
having a Company Material Adverse Effect; or (v) any other action or event that
would have required the consent of the other Companies pursuant to Section 5.1
of this Agreement had such action or event occurred after the date of this
Agreement.
3.7 Taxes.
(a) For the purposes of this Agreement, a "Tax" or, collectively, "Taxes,"
means any and all material federal, state, local and foreign taxes, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, gains, franchise,
withholding, payroll, recapture, employment, excise, unemployment insurance,
social security, business license, occupation, business organization, stamp,
environmental and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) The Company has:
(i) (y) as of the date of this Agreement, filed all federal, state,
local and foreign tax returns and reports required to be filed by it prior
to such date (taking into account extensions) and (z) as of the Closing
Date, filed all federal, state, local and foreign tax returns and reports
required to be filed by it prior to such date (taking into account
extensions), and in each case all such returns ("Tax Returns") were
complete and accurate in all respects;
(ii) (y) as of the date of this Agreement, paid or accrued all Taxes due
and payable as of such date and (z) as of the Closing Date, paid or accrued
all Taxes due and payable as of such date, in each case whether or not so
reflected on such returns or reports; and
(iii) paid or accrued all Taxes for which a notice of assessment or
collection has been received (other than amounts being contested in good
faith by appropriate proceedings);
except in the case of clause (i), (ii) or (iii) for any such filings,
inaccuracies, payments or accruals which are not reasonably likely,
individually or in the aggregate, to have a Company Material Adverse
Effect. Unpaid Taxes for periods prior to the date hereof do not materially
exceed accruals and reserves for Taxes (exclusive of any accruals and
reserves for Taxes established to reflect timing difference between book
and Tax income) as set forth on the Company Balance Sheet. Neither the
Internal Revenue Service (the
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"IRS") nor any other taxing authority has asserted any claim for Taxes, or
to the Knowledge of the chief executive officer or the principal accounting
officer of the Company, is threatening to assert any claims for Taxes,
which claims, individually or in the aggregate, are reasonably likely to
have a Company Material Adverse Effect. The Company has withheld or
collected and paid over to the appropriate Governmental Authorities (or are
properly holding for such payment) all Taxes required by law to be withheld
or collected, except for amounts which are not reasonably likely,
individually or in the aggregate, to have a Company Material Adverse
Effect. There are no Liens for Taxes upon the assets of the Company (other
than Liens for Taxes that are not yet due or that are being contested in
good faith by appropriate proceedings), except for Liens which are not
reasonably likely, individually or in the aggregate, to have a Company
Material Adverse Effect.
(c) None of the Company and its Subsidiaries has been a member of an
affiliated group of corporations filing a consolidated federal income Tax
Return (other than a group the common parent of which was the Company). None of
the Company and its Subsidiaries has any actual or potential liability for any
Taxes of any person (other than the Company) under Treasury Regulation Section
1.1502-6 (or any similar provision of federal, state, local or foreign law), or
as a transferee or successor, by contract or otherwise.
(d) The Company is not a "consenting corporation" within the meaning of
Section 341(f) of the Code, and none of the assets of the Company are subject
to an election under Section 341(f) of the Code.
(e) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(f) The Company has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that could obligate it to make
any payments that will be an "excess parachute payment" under Section 280G of
the Code.
3.8 Properties. The Company Disclosure Schedule sets forth a true and
complete list of all real property leased by the Company (collectively,
"Lease(s)") and the location of the premises. The Company is not in default
under any of such leases, except where the existence of such defaults,
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect. The Company does not own and has never owned any real
property.
3.9 Intellectual Property.
(a) The Company Disclosure Schedule sets forth a true and complete list of
each of the following items: (1) all patents and applications therefor,
including any patent term extensions or supplementary protection certificates,
registrations of trademarks (including service marks) and applications
therefor, domain names and registrations of copyrights and applications
therefor that are owned by the Company or that are licensed or sublicensed to
the Company, indicating in each case the nature of ownership thereof or license
or sublicense thereto, (2) all licenses, agreements and contracts relating to
Intellectual Property Rights (as defined below) pursuant to which the Company
is entitled to use any Intellectual Property Rights owned by any third party
(the "Third Party Licenses"), other than commercially available mass marketed
shrink-wrap software and commercially available research reagents, and (3) all
agreements under which the Company has granted any third party the right to use
any Intellectual Property Rights.
(b) To the Company's Knowledge, the Company owns, or is licensed,
sublicensed or otherwise possesses legally enforceable rights to use, pursuant
to the licenses, agreements and contracts listed in Section 3.9(a)(2) of the
Company Disclosure Schedule, all Intellectual Property Rights that are used or
necessary to conduct the business of the Company as currently conducted and
that are material, individually or in the aggregate, to the Company, including
without limitation all Intellectual Property Rights used or necessary to
conduct its ongoing and presently planned clinical programs (each of which (the
"Ongoing Clinical Programs") is deemed to be material to the Company) and all
Intellectual Property Rights that are now used or planned to be used or are
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necessary to make, use or sell its planned products (as disclosed to each other
Company) after those products are approved for marketing and sale by the
appropriate health regulatory authorities (the "Company Intellectual Property
Rights"). For purposes hereof, "Intellectual Property Rights" means all
patents, including patent term extensions and supplementary protection
certificates, trademarks, trade names, domain names, service marks and
copyrights, any applications for and registrations of such patents, trademarks,
trade names, domain names, service marks and copyrights, and all processes,
formulae, methods, schematics, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material.
(c) The execution and delivery of this Agreement and consummation of the
transactions contemplated hereby will not result in the breach of, or create on
behalf of any third party the right to terminate or modify, any license,
sublicense or other agreement relating to the Company Intellectual Property
Rights, including any Third Party License.
(d) All patents, including all patent term extensions and supplementary
protection certificates, registered trademarks, service marks and copyrights
under which the Company holds any rights and which are material to the business
of the Company are, to the Company's Knowledge, valid and subsisting, and all
applications for such patents, trademarks, service marks and copyrights are
subsisting and were filed in good faith. The Company has taken reasonable
measures to protect the proprietary nature of the Company Intellectual Property
Rights that are material to the business of the Company and to maintain in
confidence all trade secrets and confidential information owned or used by the
Company and that are material to the business of the Company. To the Knowledge
of the Company, no other person or entity is infringing, violating or
misappropriating any of the Company Intellectual Property Rights.
(e) To the Knowledge of the Company, none of the activities or business
previously or currently conducted by the Company, its licensees or assignees of
royalty-bearing Intellectual Property Rights ("IP Assignees") or planned to be
conducted (as disclosed to each other Company) by the Company, its licensees or
IP Assignees (including the manufacture, use and sale of the future products
which are the subject of Ongoing Clinical Programs for any clinical
indications) which is material to the business of the Company infringes,
violates or constitutes a misappropriation of, any Intellectual Property Rights
of any other person or entity. The Company has not received any complaint,
claim or notice alleging any such infringement, violation or misappropriation,
present or future.
(f) The Company is not a party to any agreement under which, following the
Closing, a third party would be entitled to receive a license or any other
right in or to Intellectual Property Rights currently held by either of the
other Companies or any of such other Companies' Affiliates or which, following
the Closing, would restrict or limit the business or operations currently
conducted by either of the other Companies or any of their Affiliates.
3.10 Preclinical Testing and Clinical Trials. The human clinical trials,
animal studies and other preclinical tests conducted by the Company or in which
the Company has participated, and such studies and tests conducted on behalf of
the Company, were and, if still pending, are being conducted in all material
respects in accordance with experimental protocols, informed consents,
procedures and controls generally used by qualified experts in the preclinical
or clinical study of products comparable to those being developed by the
Company. Neither the Company, nor any agent or representative of the Company
nor, to the Knowledge of the Company, any of its licensees and IP Assignees,
has received any notices or correspondence from the Food and Drug
Administration ("FDA") or any other Governmental Authority requiring the
termination, suspension or modification (other than such modifications as are
normal in the regulatory process) of any animal studies, preclinical tests or
clinical trials conducted by or on behalf of the Company or, to the Knowledge
of the Company, such licensees and IP Assignees, or in which the Company or, to
the Knowledge of the Company, such licensees and IP Assignees, have
participated. To the Company's Knowledge, no clinical investigator acting for
the Company has been or is now, or is threatened to become, the subject of any
disbarment or disqualification proceedings by any regulatory agency.
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3.11 Agreements, Contracts and Commitments.
(a) There are no contracts or agreements that are material contracts (as
defined in Item 601(b)(10) of Regulation S-K) with respect to the Company
("Company Material Contracts") other than as set forth in the Company
Disclosure Schedule. No Company Material Contract has expired by its terms or
has been terminated in accordance with its terms (nor has the Company received
notice of any such termination) and each Company Material Contract is in full
force and effect. The Company is not in violation of or in default under (nor
does there exist any condition which, upon the passage of time or the giving of
notice or both, would cause such a violation of or default under) any lease,
permit, concession, franchise, license or other contract or agreement to which
it is a party or by which it or any of its properties or assets is bound,
except for violations or defaults that, individually or in the aggregate, have
not resulted in and are not reasonably likely to result in a Company Material
Adverse Effect.
(b) The Company Disclosure Schedule sets forth a complete list of each
contract or agreement to which the Company is a party or bound (i) with any
Affiliate of the Company, other than any agreements (A) which are or have been
fully performed and under which the Company has no continuing right, liability
or obligation, (B) that are otherwise disclosed on the Company Disclosure
Schedule and marked with a footnote indicating that it is a contract or
agreement with an Affiliate of the Company or (C) Stockholder Agreements, or
(ii) that includes any non-competition or similar provision imposing any
restrictions or undertakings on the Company. To the Company's Knowledge, none
of the contracts or agreements referred to in the foregoing clause (ii) would
preclude the Company or the Surviving Company from engaging in any of its
current activities or any of the Company's or the Surviving Company's planned
activities. Copies of all the agreements, contracts and arrangements set forth
in the Company Disclosure Schedule have heretofore been made available to the
Companies and such copies are accurate and complete.
3.12 Litigation. There is no Litigation against the Company pending or as to
which the Company has received any written notice of assertion.
3.13 Environmental Matters.
(a) Except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect: (i) the Company
has complied with all applicable Environmental Laws (as defined in Section
3.13(b)); (ii) the properties currently owned or operated by the Company
(including soils, groundwater, surface water, buildings or other structures)
are not contaminated with any Hazardous Substances (as defined in Section
3.13(c)); (iii) the properties formerly owned or operated by the Company were
not contaminated with Hazardous Substances during the period of ownership or
operation by the Company; (iv) the Company is not subject to liability for any
Hazardous Substance disposal or contamination on the property of any third
party; (v) the Company has not released any Hazardous Substance; (vi) the
Company has not received any notice, demand, letter, claim or request for
information alleging that the Company may be in violation of, liable under or
have obligations under any Environmental Law; (vii) the Company is not subject
to any orders, decrees, injunctions or other arrangements with any Governmental
Authority or any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances; and
(viii) there are no circumstances or conditions involving the Company that
could reasonably be expected to result in any claims, liability, obligations,
investigations, costs or restrictions on the ownership, use or transfer of any
property of the Company pursuant to any Environmental Law.
(b) As used herein, the term "Environmental Law" means any federal, state,
local or foreign law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to: (i) the protection,
investigation or restoration of the environment, health and safety, or natural
resources, (ii) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (iii) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.
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(c) As used herein, the term "Hazardous Substance" means any substance that
is: (i) listed, classified, regulated or which falls within the definition of a
"hazardous substance" or "hazardous material" pursuant to any Environmental
Law; (ii) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (iii) any other substance which is the subject of
regulatory action by any Governmental Authority pursuant to any Environmental
Law.
3.14 Employee Benefit Plans.
(a) The Company has listed in Section 3.14 of the Company Disclosure
Schedule all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of the Company or any trade or
business (whether or not incorporated) which is or was ever a member of a
controlled group of corporations or which is or was ever under common control
with the Company (an "ERISA Affiliate") within the meaning of Section 414 of
the Code (together, the "Company Employee Plans").
(b) With respect to each Company Employee Plan, the Company has furnished to
each of the other Companies a true and correct copy of (i) the most recent
annual report (Form 5500) filed with the IRS, (ii) such Company Employee Plan,
(iii) each trust agreement and group annuity contract, if any, relating to such
Company Employee Plan and (iv) the most recent reports regarding the
satisfaction of the nondiscrimination requirements of Sections 410(b), 401(k)
and 401(m) of the Code.
(c) With respect to the Company Employee Plans, no event has occurred, and
to the Knowledge of the Company, there exists no condition or set of
circumstances in connection with which the Company or any ERISA Affiliate could
be subject to any liability that is reasonably likely, individually or in the
aggregate, to have a Company Material Adverse Effect under ERISA, the Code or
any other applicable law. The transactions contemplated herein shall not
constitute a prohibited transaction (as defined in Section 4975 of the Code) or
in any way reasonably be expected to subject the Company to any liability that
in the aggregate would have a Company Material Adverse Effect.
(d) With respect to the Company Employee Plans, there are no funded benefit
obligations for which contributions have not been made or properly accrued and
there are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly footnoted in accordance with generally accepted
accounting principles, on the financial statements of the Company, which
obligations are reasonably likely, individually or in the aggregate, to have a
Company Material Adverse Effect.
(e) Neither the Company nor any ERISA Affiliate has (i) ever maintained a
Company Employee Benefit Plan which was ever subject to Title IV of ERISA or
Section 412 of the Code or (ii) ever been obligated to contribute to a
multiemployer plan (as defined in Section 4001(a)(3) of ERISA).
(f) Except as provided for in this Agreement, the Company is not a party to
any oral or written (i) agreement with any officer or other key employee of the
Company, the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
of the nature contemplated by this Agreement, (ii) agreement with any employee
of the Company providing any term of employment or compensation guarantee
extending for a period longer than one year from the date hereof and for the
payment of compensation in excess of $50,000 per annum, or (iii) agreement or
plan, including any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
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(g) Each Company Employee Plan intended to be qualified under Section 401(a)
of the Code has either obtained from the IRS a favorable determination letter
as to its qualified status under the Code, including all amendments to the Code
effected by the Tax Reform Act of 1986 and subsequent legislation, or has
applied (or has time remaining in which to apply) to the IRS for such a
determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or IRS pronouncements in which to apply for
such determination letter and to make any amendments necessary to obtain a
favorable determination or has been established under a standardized prototype
plan for which an IRS opinion letter has been obtained by the plan sponsor and
is valid as to the adopting employer. The Company has furnished or made
available to each other Company a copy of the most recent IRS determination or
opinion with respect to each such Company Employee Plan and nothing has
occurred since the inception of each such Company Employee Plan which could
reasonably be expected to cause the loss of the tax-qualified status of any
Company Employee Plan subject to Section 401(a) of the Code.
(h) None of the Company Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person, except as required by
applicable law.
3.15 Compliance With Laws. The Company has complied with, is not in
violation of, and has not received any notice alleging any violation with
respect to, any foreign, federal, state or local statute, law or regulation
with respect to the conduct of its business, or the ownership or operation of
its properties or assets, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Company Material Adverse Effect.
3.16 Certain Regulatory Matters.
(a) Section 3.16 of the Company Disclosure Schedule sets forth a complete
and accurate list of any written communications between the Company, on the one
hand, and the FDA or any other Governmental Authority on the other hand that
describe matters that could have a material adverse effect on the Company's
currently projected sales or revenues attributable to any contemplated
compound, product or product line of the Company. The Company has made
available to both of the other Companies copies of all such documents, as well
as copies of all complaints and other information required to be maintained by
the Company pursuant to the United States Federal Food, Drug and Cosmetic Act
and Comprehensive Drug Abuse Prevention and Control Act of 1970 and the
corresponding laws of jurisdictions other than the United States.
(b) The Company has filed with the FDA and all applicable state and local
regulatory bodies for and received approval of all registrations, applications,
licenses, requests for exemptions, permits and other regulatory authorizations
necessary to conduct the business of the Company as currently conducted, the
absence of which would, individually or in the aggregate, be reasonably likely
to have a Company Material Adverse Effect. The Company is, and at all relevant
times has been, in compliance in all material respects with all such
registrations, applications, licenses, requests for exemptions, permits and
other regulatory authorizations. To the Company's Knowledge, any third party
which is a manufacturer for the Company is, and at all relevant times has been,
in compliance in all material respects with all such registrations,
applications, licenses, requests for exemptions, permits and other regulatory
authorizations insofar as the same pertain to the manufacture of products for
the Company. The Company is, and at all relevant times has been, in compliance
in all material respect with all material FDA, state and local rules,
regulations, guidelines and policies, including, but not limited to, material
FDA, state and local rules, regulations and policies relating to good
manufacturing practice ("GMP") and good laboratory practice ("GLP"); and the
Company has no reason to believe that any party granting any such registration,
application, license, request for exemption, permit or other authorization is
considering limiting, suspending or revoking the same and knows of no basis for
any such limitation, suspension or revocation.
3.17 Tax Matters. To its Knowledge, after consulting with its independent
auditors, neither the Company nor any of its Affiliates has taken or agreed to
take any action which would prevent the Merger from constituting a transaction
qualifying as a reorganization under 368(a) of the Code.
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3.18 Registration Statement; Proxy Statement/Prospectus. The information to
be supplied by the Company for inclusion in the registration statement on Form
S-4 pursuant to which shares of Surviving Company Common Stock issued in the
Merger will be registered under the Securities Act (the "Registration
Statement"), shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement not
misleading. The information to be supplied by the Company for inclusion in the
joint proxy statement/prospectus (the "Joint Proxy Statement") to be sent to
the stockholders of the Companies in connection with the meetings of the
Companies' stockholders to consider this Agreement and the Merger (the "Company
Meetings") shall not, on the date the Joint Proxy Statement is first mailed to
stockholders of the Companies, at the time of the Company Meetings, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company Meetings which has become false or misleading. If at any time prior to
the Effective Time any event relating to the Company or any of its Affiliates,
officers or directors should be discovered by the Company which should be set
forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement, the Company shall promptly inform the other Companies.
3.19 Labor Matters. The Company is not a party to or otherwise bound by any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization. The Company is not the subject of any
proceeding asserting that the Company has committed an unfair labor practice or
is seeking to compel it to bargain with any labor union or labor organization
or that, individually or in the aggregate, is reasonably likely to have a
Company Material Adverse Effect, nor is there pending or, to the Knowledge of
the Company, threatened, any labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving the Company that, individually or in the
aggregate, is reasonably likely to have a Company Material Adverse Effect.
3.20 Insurance. All fire and casualty, general liability, business
interruption, product liability, clinical trial and sprinkler and water damage
insurance policies maintained by the Company are with reputable insurance
carriers, provide full and adequate coverage for all normal risks incident to
the business of the Company and its properties and assets, and are in character
and amount at least equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards, except for any
such failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect.
The Company Disclosure Schedule sets forth the insurance coverages maintained
by the Company and a history of any claims paid.
3.21 No Existing Discussions. As of the date hereof, the Company is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal (as defined in Section
6.1).
3.22 Opinion of Financial Advisor. The financial advisor of each of Creative
and Ontogeny has delivered to such Company an opinion dated the date of this
Agreement to the effect, as of such date, that the applicable Exchange Ratio is
fair to the holders such Company's capital stock from a financial point of
view, and such Company has furnished a copy of such opinion to the other
Companies.
3.23 Section 203 of the DGCL Not Applicable. The Board of Directors of each
of Creative and Ontogeny has taken all actions, if any, necessary so that the
restrictions contained in Section 203 of the DGCL applicable to a "business
combination" (as defined in Section 203) will not apply to the execution,
delivery or performance of this Agreement or the Stockholder Agreements or the
consummation of the Merger or the other transactions contemplated by this
Agreement or the Stockholder Agreements.
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3.24 No Brokers. Except with respect to Chase H&Q (in the case of Creative),
Pacific Growth Equities, Inc. (in the case of Reprogenesis) and SG Cowen
Securities Corporation (in the case of Ontogeny), the Company has no contract,
arrangement or understanding with any broker, finder, agent, financial advisor
or other intermediary with respect to the transactions contemplated by this
Agreement. Each Company has provided to each other Company a copy of such
Company's financial advisor contract.
3.25 Stockholder Rights.
(a) Other than as set forth in Section 3.2 of the Company Disclosure
Schedule, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements, obligations or undertakings of
any kind (contingent or otherwise) to which the Company is a party or by which
it is bound that will obligate or require the Surviving Company after the
Merger to (i) issue, deliver or sell, or cause to be issued, delivered or sold,
shares of capital stock or other voting securities of the Surviving Company,
(ii) issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking or (iii)
repurchase, redeem or otherwise acquire any shares of capital stock (or options
to acquire any such shares) of the Surviving Company.
(b) Other than as set forth in Section 3.2 of the Company Disclosure
Schedule, there are no agreements, arrangements, obligations or commitments of
any character (contingent or otherwise) pursuant to which any Person is or may
be entitled (A) to cause the Surviving Company to file a registration statement
under the Securities Act or which will otherwise relate to the registration of
any securities of the Surviving Company or (B) to preemptive rights or similar
contractual rights or arrangements with respect to the issuance or sale of
capital stock of the Surviving Company or any securities convertible into or
evidencing the right to subscribe for any shares of its capital stock.
(c) Other than the Stockholder Agreements, the Affiliate Agreements and the
Lock-up Agreements there are no voting trusts, proxies or other agreements,
arrangements, obligations or commitments of any character (contingent or
otherwise) to which the Company is a party or, to the Knowledge of the Company,
by which any of its stockholders is bound that, after the Merger, will (i)
relate to the voting of any shares of capital stock of the Surviving Company or
(ii) impose restrictions on or otherwise encumber the transfer of the capital
stock of the Surviving Company.
ARTICLE IV
Representations and Warranties of Curis
Curis hereby represents and warrants to each Company that the statements
contained in this Article IV are true and correct with respect to it, except as
set forth herein or in the disclosure schedule attached by Curis to this
Agreement (the "Curis Disclosure Schedule"). The Curis Disclosure Schedule
shall be arranged in sections corresponding to the numbered and lettered
sections contained in this Article IV, and the disclosure in any section shall
qualify other sections in this Article IV only the extent that it is reasonably
apparent from a reading of such disclosure that it also qualifies or applies to
such other sections.
4.1 Organization of Curis. Curis is a corporation duly organized, validly
existing and good standing under the laws of the State of Delaware. The
Certificate of Incorporation of Curis as in effect on the date of this
Agreement is attached as Exhibit D hereto (the "Curis Certificate of
Incorporation"). Curis has all requisite corporate power to own, lease and
operate its properties and assets and to carry on the business as now being
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so
qualified, individually or in the aggregate, would be reasonably likely to have
a material adverse effect on the business, properties, financial condition,
results of operations or prospects of Curis or to have a material adverse
effect on the ability of Curis to consummate the transactions contemplated by
this Agreement (a "Curis Material Adverse Effect"). Curis does not directly or
indirectly own
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any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any corporation, partnership, joint venture or
other business association or entity.
4.2 Curis' Capital Structure.
(a) The authorized capital stock of Curis consists of one hundred twenty-
five million shares of Curis Common Stock and twenty million shares, par value
$.01 per share, of undesignated preferred stock of Curis ("Curis Preferred
Stock"). As of the date of this Agreement, there are 300 shares of Curis Common
Stock issued and outstanding, 100 shares of which are each owned by Creative,
Ontogeny and Reprogenesis, and no shares of which are held in the treasury of
Curis. There are no shares of Curis Preferred Stock issued and outstanding or
held in the treasury of Curis. All of such shares of Curis Common Stock are
duly authorized, validly issued, fully-paid and non-assessable, were not issued
in violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under the DGCL,
Curis's Certificate of Incorporation or By-laws or any agreement to which Curis
is a party or is otherwise bound.
(b) There are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which Curis is a party or by
which it is bound obligating Curis to issue, deliver or sell, or cause to be
issued, delivered or sold, shares of capital stock of or other equity interests
in Curis. To the Knowledge of Curis, other than as provided in this Agreement,
there are no voting trusts, proxies or other voting agreements or
understandings with respect to the shares of capital stock of or other equity
interests in Curis.
(c) Curis does not (i) own of record or beneficially, directly or
indirectly, (A) any shares of capital stock or securities convertible into
capital stock of any other corporation or (B) any participating interest in any
partnership, limited liability company, joint venture or other non-corporate
business enterprise or (ii) control, directly or indirectly, any other entity.
4.3 Authority; No Conflict; Required Filings and Consents.
(a) Curis has all requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement by Curis have been duly authorized
by all the necessary corporate action on the part of Curis, subject only to the
approval of the Merger by Curis' stockholders under the DGCL. This Agreement
has been duly executed and delivered by Curis and constitutes the valid and
binding obligation of Curis, enforceable in accordance with its terms, subject
to the Bankruptcy and Equity Exception.
(b) The execution and delivery of this Agreement by Curis does not, and the
consummation of the transactions contemplated by this Agreement will not, (i)
conflict with, or result in any violation or breach of, any provision of the
Certificate of Incorporation or By-laws of Curis, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both)
a default (or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any material benefit) under, or require a consent
or waiver under, or constitute a change in control under, any of the terms,
conditions or provisions of any note, bond mortgage, indenture, lease, license,
contract or other agreement, instrument or obligation to which Curis is a party
or by which it or any of its properties or assets may be bound, or (iii)
conflict with or violate any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Curis
or by which it or any of its properties or assets may be bound, except in the
case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which are not, individually or in
the aggregate, reasonably likely to have a Curis Material Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is
required by or with respect to Curis in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of a pre-merger notification report under the
HSR Act, (ii) the filing of the Certificate of Merger with the
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Delaware Secretary of State, (iii) the filing of the Articles of Merger with
the Secretary of State of the State of Texas and the issuance of a certificate
of merger by the Secretary of State of the State of Texas, (iv) the filing of
the Registration Statement with the SEC and the effectiveness thereof, (v) the
registration of the Surviving Company Common Stock under the Exchange Act, (vi)
such, consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable state securities laws and (vii)
such other consents, licenses, permits, orders, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
reasonably likely, individually or in the aggregate, to have a Curis Material
Adverse Effect.
4.4 Continuity of Business Enterprise; Reorganization Classification. Curis
hereby represents and warrants to each Company and to the stockholders of each
Company (which representation and warranty shall survive the Closing) that the
Merger will satisfy the continuity of business enterprise test of Treasury
Regulation Section 1.368-1(d).
ARTICLE V
Conduct of Business Pending the Merger
5.1 Conduct of Business by Company Pending the Merger. Each Company
covenants and agrees with the other Parties that, between the date hereof and
the Effective Time, except as expressly required or permitted by this Agreement
or unless each other Party shall otherwise agree in writing, such Company shall
conduct and shall cause the businesses of each of its Subsidiaries to be
conducted only in, and such Company and its Subsidiaries shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice. Each Company shall use its commercially reasonable best
efforts to preserve intact the business organization and assets of such Company
and each of its Subsidiaries, and to operate, and cause each of its
Subsidiaries to operate, according to plans and budgets provided to each other
Party, to keep available the services of the present officers, employees and
consultants of such Company and each of its Subsidiaries and, except as set
forth in Section 5.1 of the Company Disclosure Schedule, to maintain in effect
Company Material Contracts and to preserve the present relationships of the
Company and each of its Subsidiaries with licensors, licensees, sponsors,
customers, suppliers, consultants and other Persons with which the Company or
any of its Subsidiaries has business relations. By way of amplification and not
limitation, except as expressly permitted by this Agreement or except as set
forth in the Company Disclosure Schedule, neither the Companies nor any of
their respective Subsidiaries shall, between the date hereof and the Effective
Time, directly or indirectly do, or propose to do, any of the following without
the prior written consent of each other Party:
(a) amend or otherwise change the Certificate or Articles of Incorporation
or By-laws or equivalent organizational document of the Company or any of its
Subsidiaries or alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership of
Company or any of its Subsidiaries;
(b) issue, sell, transfer, pledge, dispose of or encumber, or authorize the
issuance, sale, transfer, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of capital stock, or any other
ownership interest of the Company or any of its Subsidiaries (except for the
issuance of Company Common Stock upon the exercise of Company Options or
Company Warrants outstanding on the date hereof or upon the conversion of any
convertible securities outstanding on the date hereof); or sell, transfer,
pledge, dispose of or encumber, or authorize the sale, transfer, pledge,
disposition or encumbrance, of any assets of the Company or any of its
Subsidiaries (except for sales of assets in the ordinary course of business and
in a manner consistent with past practice) or redeem, purchase or otherwise
acquire, directly or indirectly, any of the capital stock of the Company or
interest in or securities of any Subsidiary;
(c) declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of any of its
capital stock (except that a wholly owned Subsidiary of any
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Company may declare and pay a dividend to its parent); split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or amend the terms of, repurchase, redeem or
otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise
acquire, any of its securities or any securities of its Subsidiaries, or
propose to do any of the foregoing;
(d) sell, transfer, lease, out-license, out-sublicense, mortgage, pledge,
dispose of, encumber, grant or otherwise dispose of any Intellectual Property
Rights, or amend or modify in any material way any existing agreements with
respect to any Intellectual Property Rights, except for (i) non-exclusive
licenses granted pursuant to material transfer agreements entered into in the
ordinary course of business consistent with past practice and (ii) non-
exclusive research licenses granted as part of a research agreement that is
otherwise permitted under this Agreement;
(e) acquire (by merger, consolidation, acquisition of stock or assets or
otherwise) any corporation, limited liability company, partnership, joint
venture or other business organization or division thereof; incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse or otherwise as an accommodation become responsible for,
the obligations of any Person, or make any loans, advances or enter into any
financial commitments, except in the ordinary course of business consistent
with past practice and as otherwise permitted under any loan or credit
agreement to which the Company is a party; authorize any capital expenditures
which are, in the aggregate, in excess of $100,000 for the Company and its
Subsidiaries taken as a whole; or enter into or amend in any material respect
any contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this Section 5.1(e);
(f) hire any employee or consultant; terminate any employee or consultant,
except in the ordinary course of business consistent with past practice;
increase the compensation (including, without limitation, bonus) payable or to
become payable to its officers or employees, except for increases in salary or
wages of employees of the Company or its Subsidiaries who are not officers of
the Company in the ordinary course of business consistent with past practices,
or grant any severance or termination pay or stock options to, or enter into
any employment or severance agreement with any director, officer or other
employee of the Company or any of its Subsidiaries, or establish, adopt, enter
into or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any current or former
directors, officers or employees;
(g) change any accounting policies or procedures (including procedures with
respect to reserves, revenue recognition, payments of accounts payable and
collection of accounts receivable) unless required by statutory accounting
principles or GAAP;
(h) create, incur, suffer to exist or assume any Lien on any of their
material assets other than Liens outstanding on the date hereof;
(i) other than in the ordinary course of business consistent with past
practice, (i) enter into any Company Material Contract, (ii) modify, amend or
transfer in any material respect or terminate any Company Material Contract or
waive, release or assign any material rights or claims thereto or thereunder or
(iii) enter into or extend any lease with respect to real property with any
third party;
(j) make any Tax election or settle or compromise any federal, state, local
or foreign income Tax liability or agree to an extension of a statute of
limitations;
(k) settle any material Litigation or waive, assign or release any material
rights or claims except, in the case of Litigation, any Litigation which
settlement would not (i) impose either material restrictions on the conduct of
the Company's business or any of its Subsidiaries or (ii) for any individual
Litigation item settled, exceed $50,000 in cost or value to the Company or any
of its Subsidiaries;
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(l) pay, discharge or satisfy any liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), except in the
ordinary course of business consistent with past practice in an amount or value
not exceeding $100,000 in any instance or series of related instances or
$250,000 in the aggregate or in accordance with their terms as in effect as of
the date hereof;
(m) engage in any transaction, or enter into any agreement, arrangement, or
understanding with, directly or indirectly, any Affiliate, other than those
contemplated pursuant to the terms of this Agreement and those existing as of
the date hereof which are listed in the Company Disclosure Schedule;
(n) fail to renew or maintain in full force and effect all insurance
policies, as the case may be, currently in effect or fail to pay any insurance
premiums thereon; and
(o) authorize, recommend, propose or announce an intention to do any of the
foregoing, or agree or enter into any agreement, contract commitment or
arrangement to do any of the foregoing.
5.2 Cooperation. Subject to compliance with applicable law, from the date
hereof until the Effective Time, each Company shall, and shall cause each of
their respective Subsidiaries to, make its officers available to confer on a
regular and frequent basis with one or more representatives of the other
Parties at reasonable times and upon reasonable advance notice to report on the
general status of ongoing operations and shall promptly provide the other
Parties or their counsel with copies of all filings made by such party with any
Governmental Authority in connection with this Agreement, the Merger and the
transactions contemplated hereby and thereby.
5.3 Confidentiality. The parties acknowledge that each of (i) the Non-
Disclosure Agreement dated June 11, 1998 between Creative and Ontogeny (as
amended, the "CO Agreement"), (ii) the Non-Disclosure Agreement between
Creative and Reprogenesis (as amended, the "CR Agreement") (iii) the Non-
Disclosure Agreement between Ontogeny and Reprogenesis (the "OR Agreement") and
(iv) the Agreement Regarding Disclosure of Confidential Documents and
Information dated January 10, 2000 by and among the Companies (the "IP NDA"
and, collectively with the CO Agreement, the CR Agreement and the OR Agreement,
the "Confidentiality Agreements"), shall continue in full force and effect in
accordance with its terms.
5.4 Curis Certificate of Incorporation. Curis covenants and agrees with the
other Parties that, between the date hereof and the Effective Time, Curis shall
not amend or modify the Curis Certificate of Incorporation without the prior
written consent of each Company.
ARTICLE VI
Solicitation of Other Proposals
6.1 Solicitation of Other Proposals.
(a) From the date hereof until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, no Company shall,
nor shall any Company permit any of their respective Subsidiaries or any of
their respective officers, directors, employees, investment bankers, attorneys
or other representatives, advisors or agents (collectively, the
"Representatives") to, and each Company shall use its best efforts to cause
each of its respective non-officer and non-director Affiliates not to, directly
or indirectly, (i) solicit, facilitate, initiate or encourage, or take any
action to solicit, facilitate, initiate or encourage, the making of any
proposal or offer that constitutes an Acquisition Proposal or the making of any
inquiries concerning an Acquisition Proposal or (ii) participate or engage in
discussions or negotiations with, or provide any information to, any Person
concerning an Acquisition Proposal or which might reasonably be expected to
lead to an Acquisition Proposal; provided that, if such Company has not
breached this Section 6.1(a), nothing contained in this Agreement shall prevent
such Company or its Board of Directors, prior to the vote of the stockholders
of such Company for approval of this Agreement and the Merger, from furnishing
non-public
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information to, or entering into discussions or negotiations with, any Person
(other than another Company) in response to an unsolicited bona fide written
Acquisition Proposal by such Person if and only to the extent that (A) the
Board of Directors of such Company believes in good faith (after consultation
with its financial advisor) that such Acquisition Proposal is reasonably
capable of being completed on the terms proposed and would, if so consummated,
result in a Superior Proposal (as defined below), (B) such Company's Board of
Directors determines in good faith after consultation with outside legal
counsel that such action is necessary for such Board of Directors to comply
with its fiduciary duties to stockholders under applicable law, (C) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such Person, such Board of Directors receives from such
Person an executed confidentiality agreement with terms no more favorable to
such Person than those contained in the Confidentiality Agreements and (D)
prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such Person, such Company has complied with
the provisions of Section 6.1(c). Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in this Section
6.1(a) by any Representative of a Company or its Subsidiaries or any non-
officer and non-director Affiliate of such Company, whether or not acting on
behalf of such Company or any of its Subsidiaries, shall be deemed to be a
breach of this Section 6.1(a) by such Company.
For purposes of this Agreement, the term "Acquisition Proposal" shall mean
any inquiry, proposal or offer after the date of this Agreement from any Person
relating to:
(1) any merger, consolidation, recapitalization, liquidation or other
direct or indirect business combination, involving a Company or any of its
Subsidiaries or the issuance or acquisition of shares of capital stock or
other equity securities of a Company or any of its Subsidiaries (excluding
the issuance of Company Common Stock upon the exercise of Company Options
or Company Warrants outstanding on the date hereof or upon the conversion
of any convertible securities outstanding on the date hereof) or any tender
or exchange offer that if consummated would result in any Person, together
with all Affiliates thereof, beneficially owning shares of capital stock or
other equity securities of a Company or any of its Subsidiaries; provided,
however, that if any pharmaceutical or biopharmaceutical company engaged in
discussions with a Company regarding the licensing of Intellectual Property
Rights makes, in connection with and relating to such discussions, an
unsolicited inquiry, proposal or offer regarding the acquisition of shares
of capital stock representing 5% or less of the outstanding capital stock
of such Company, such an inquiry, proposal or offer shall not constitute an
Acquisition Proposal if, and only if, such inquiry, proposal or offer is
disclosed in reasonable detail in writing to the other Companies within
three (3) Business Days and the Chief Executive Officers of such other
Companies agree that such inquiry, proposal or offer does not constitute an
Acquisition Proposal, with written confirmation to follow within three (3)
Business Days of such agreement; or
(2) other than as set forth in Section 6.1 of the Company Disclosure
Schedule or as permitted pursuant to Section 5.1(d), the sale, lease,
exchange, license (whether exclusive or not), or any other disposition of
any significant portion of a material Intellectual Property Right, or any
significant portion of the business or other assets of a Company or any its
Subsidiaries, or any other transaction, the consummation of which sale,
lease, exchange, license, disposition or transaction could reasonably be
expected to impede, interfere with, prevent or materially delay the
consummation of the transactions contemplated hereby or which would
reasonably be expected to diminish significantly the benefits to each other
Company and Curis of the transactions contemplated hereby; provided,
however, that if any pharmaceutical or biopharmaceutical company makes an
inquiry, proposal or offer regarding any such sale, lease, exchange,
license, disposition or transaction, such inquiry, proposal or offer shall
not constitute an Acquisition Proposal if, and only if, such inquiry,
proposal or offer is disclosed in reasonable detail in writing to the other
Companies within three (3) Business Days and the Chief Executive Officers
of such other Companies agree that such inquiry, proposal or offer does not
constitute an Acquisition Proposal, with written confirmation to follow
within three (3) Business Days of such agreement.
Each Party shall immediately cease and cause to be terminated and shall
cause its respective Representatives (and shall use its best efforts to cause
its non-officer and non-director Affiliates) to terminate
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all existing discussions or negotiations with any Persons conducted heretofore
with respect to, or that could reasonably be expected to lead to, an
Acquisition Proposal. Each Party shall promptly notify its respective
Representatives and non-officer and non-director Affiliates of its obligations
under this Section 6.1(a).
(b) Except as permitted by this Section 6.1(b), neither the Board of
Directors of each Company nor any committee thereof shall:
(1) approve or recommend, or publicly (or in a manner reasonably likely
to become public) propose to approve or recommend, any Acquisition Proposal
other than the Merger,
(2) withdraw or modify or publicly (or in a manner reasonably likely to
become public) propose to withdraw or modify in a manner adverse to each
other Party its approval or, except as provided below, recommendation (or
the approval or, except as provided below, recommendation of any committee
of such Board of Directors) of the Merger, this Agreement or the
transactions contemplated hereby,
(3) upon a request by any of the other Parties to reaffirm its approval
or, except as provided below, recommendation of this Agreement or the
Merger, fail to do so within two (2) Business Days after such request is
made,
(4) enter, or cause such Company or any its Subsidiaries to enter, into
any letter of intent, agreement in principle, acquisition agreement or
other similar agreement related to any Acquisition Proposal, or
(5) resolve or announce its intention to do any of the foregoing.
The immediately preceding sentence notwithstanding, in the event that prior
to a Company Meeting, the Board of Directors of such Company receives a
Superior Proposal, then the Board of Directors of such Company may, if such
Company has complied with the provisions of Section 6.1(a), (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to the other
Parties its recommendation of the Merger, this Agreement or the transactions
contemplated hereby, or (ii) fail to reaffirm its recommendation of this
Agreement or the Merger after a request by the other Parties to do so; provided
that (A) such Board of Directors determines in good faith, after consultation
with its outside counsel that taking such action is required to satisfy the
fiduciary duties of such directors and (B) such Company furnishes the other
Parties five Business Days' prior written notice of the taking of such action
(which notice shall include a description of the material terms and conditions
of the Superior Proposal), during which time the other Parties may make, and
such Company shall consider, a counterproposal to such Superior Proposal.
For purposes of the Agreement, the term "Superior Proposal" means any bona
fide proposal by a third party to acquire all or substantially all of the
assets or capital stock of a Company pursuant to a tender or exchange offer, a
merger, consolidation, a liquidation or dissolution, a recapitalization, a sale
of its assets or otherwise which is on terms which the Board of Directors of
such Company determines by a majority vote of its directors in their good faith
judgment to be more favorable to the stockholders of such Company than the
Merger (or any counterproposal made by the other Parties), after receiving the
written advice of the Company's independent financial advisor and after
consultation with its outside counsel, and after taking into account the terms
and conditions of such Superior Proposal and all other relevant factors
relating thereto, including, the timing of the closing thereof, the risk of
non-consummation, the ability of the Person making the Acquisition Proposal to
finance the transaction contemplated thereby and any required governmental or
other consents, filings and approvals.
(c) In addition to the other obligations of the Parties set forth in this
Section 6.1, the Parties shall immediately (and in any event within one day)
advise one another orally and in writing of any Acquisition Proposal, any
request for information with respect to any Acquisition Proposal, or any
inquiry with respect to or which could result in an Acquisition Proposal, and
the material terms and conditions of such Acquisition Proposal, request or
inquiry (including the identity of the Person making such Acquisition Proposal,
request or inquiry). The Parties shall inform one another on a prompt and
current basis of the status and content of any discussions regarding any
Acquisition Proposal with a third party and as promptly as practicable of any
change in the price, structure or form of the consideration or material terms
of and conditions regarding any
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Acquisition Proposal or of any other developments or circumstances which could
reasonably be expected to culminate in the taking of any of the actions
referred to in Section 6.1(b).
(d) Nothing in this Section 6.1 shall (i) permit a Company to terminate this
Agreement (except as specifically provided in Section 9.1 hereof), (ii) permit
a Company to enter into any agreement with respect to an Acquisition Proposal
during the term of this Agreement (it being agreed that during the term of this
Agreement, no Company shall enter into any agreement with any Person that
provides for, or in any way facilitates, an Acquisition Proposal (other than a
confidentiality agreement of the type referred to in clause (C) of Section
6.1(a) above)) or (iii) affect any other obligation of each Company under this
Agreement.
(e) Nothing contained in this Section 6.1 shall prevent the Board of
Directors of a Company that is a Public Company from at anytime taking or
disclosing to its stockholders a position contemplated by Rule 14e-2
promulgated under the Exchange Act; provided that no Company or its Board of
Directors shall, except to the extent permitted by Section 6.1(b), propose to
approve or recommend an Acquisition Proposal.
ARTICLE VII
Additional Agreements
7.1 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable following the date of this Agreement, Curis
shall prepare and file with the SEC the Registration Statement on Form S-4, in
which the Joint Proxy Statement shall be included as a prospectus, and shall
use reasonable efforts to have the Registration Statement declared effective by
the SEC as promptly as practicable. Curis shall obtain and furnish the
information required to be included in the Registration Statement and, after
consultation with each Company respond promptly to any comments made by the SEC
with respect to the Registration Statement (which comments shall promptly be
furnished to each Company) and cause the prospectus included therein, including
any amendment or supplement thereto, to be mailed to the stockholders of each
Company at the earliest practicable date after the Registration Statement is
declared effective by the SEC, provided that no amendment or supplement to the
Registration Statement will be made by Curis without consultation with each
Company and each of their respective counsels. Curis shall also take any action
required to be taken under Blue Sky or other securities Laws in connection with
the issuance of Surviving Company Common Stock in the Merger.
(b) Each Company shall (i) as promptly as practicable following the date
hereof prepare a preliminary proxy or information statement relating to the
Merger and this Agreement, (ii) obtain and furnish the information required to
be included by the SEC in the Joint Proxy Statement, (iii) cause the Joint
Proxy Statement and the prospectus to be included in the Registration
Statement, including any amendment or supplement thereto, to be mailed to their
respective stockholders at the earliest practicable date after the Registration
Statement is declared effective by the SEC, and (iv) use all reasonable efforts
to obtain the necessary approval of the Merger and this Agreement by their
stockholders. No Company shall file with or supplementally provide to the SEC
or mail to its stockholders the Joint Proxy Statement or any amendment or
supplement thereto without the prior written consent of each other Company.
Each Company shall allow each other Company's full participation in the
preparation of the Joint Proxy Statement and any amendment or supplement
thereto and shall consult with each other Company and its advisors concerning
any comments from the SEC with respect thereto.
(c) Each Company shall include in the Joint Proxy Statement the
recommendation of its Board of Directors in favor of approval and adoption of
this Agreement and the Merger, except to the extent that the Board of Directors
of such Company shall have withdrawn or modified its recommendation of this
Agreement or the Merger as permitted by Section 6.1(b). Without limiting the
foregoing, each Company agrees that its obligation under Section 7.2 to duly
call, give notice of and hold its Company Meeting as soon as practicable
following the date upon which the Registration Statement becomes effective
shall not be affected by (i) the commencement, public proposal, public
disclosure or communication to such Company of any Acquisition
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Proposal or (ii) the withdrawal or modification by the Board of Directors of
such Company of its approval or recommendation of this Agreement or the Merger.
(d) The Parties shall, as promptly as practicable, make all necessary
filings with respect to the Merger under the Securities Act and the Exchange
Act and the rules and Regulations thereunder (including, without limitation,
registration of the Surviving Company Common Stock on a Form 8-A (the "Exchange
Act Registration Statement")) and under applicable Blue Sky or similar
securities laws, rules and Regulations, and shall use all reasonable efforts to
obtain required approvals and clearances with respect thereto.
(e) In the event that Curis is not permitted to include in the Registration
Statement all shares of Surviving Company Common Stock to be issued as Merger
Consideration ("Excluded Securities") then, as promptly as practicable after
the filing of the Registration Statement, Curis shall file and shall use its
commercially reasonable best efforts to have declared effective a "shelf"
registration statement pursuant to Rule 415 under the Securities Act for the
resale of the Excluded Securities and use its commercially reasonable best
efforts to keep such registration statement effective for a period of two (2)
years following the Effective Time or, if shorter, until (i) all Excluded
Securities have been sold pursuant to such registration statement or (ii) the
first date on which each holder of Excluded Securities may sell all of such
Excluded Securities held by such holder without registration pursuant to Rule
144 under the Securities Act within a three-month period.
7.2 Meetings of Stockholders. Each Company shall promptly after the date
hereof take all action necessary in accordance with the provisions of the DGCL
or the TBCA and each of their Certificates or Articles of Incorporation and By-
laws, respectively, to duly call, give notice of and hold its Company Meeting
as soon as practicable following the date upon which the Registration Statement
becomes effective and shall consult with Curis in connection therewith. Once
such Company Meeting has been called and noticed, the Company shall not
postpone or adjourn (other than for the absence of a quorum and then only to a
future date agreed to by the other Parties) such Company Meeting without the
consent of each other Company. The Boards of Directors of each Company shall
have declared that this Agreement and the Merger is advisable and, subject to
Section 6.1(b), recommended that this Agreement and the Merger be approved and
authorized by the stockholders of such Company and include in the Registration
Statement and Joint Proxy Statement a copy of such recommendation; provided,
that each Company, through its Board of Directors, shall submit this Agreement
and the Merger to their respective stockholders whether or not such Board of
Directors at any time subsequent to making such recommendation takes any action
permitted by Section 6.1(b). Each Company shall solicit from their respective
stockholders proxies in favor of the Merger and shall take all other action
necessary or advisable to secure the vote or consent of such stockholders
required by the DGCL or the TBCA to authorize the Merger; provided that this
provision shall not prohibit the Boards of Directors of the Companies from
taking any action permitted by Section 6.1(b).
7.3 Access to Information. Upon reasonable notice, each Company shall (and
shall cause each of its Subsidiaries to) afford to the other Parties' officers,
employees, accountants, counsel and other representatives, reasonable access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments and records and, during such
period, each Company shall (and shall cause each of its Subsidiaries to)
furnish promptly to the other Parties (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws and (ii) all
other information concerning its business, properties and personnel as each
other Party may reasonably request. Unless otherwise required by law, each
Party shall, and shall cause its officers, employees, accountants, counsel and
other representatives or persons who have access to such information to, hold
any such information which is non-public in confidence in accordance with the
Confidentiality Agreements. No information or knowledge obtained in any
investigation pursuant to this Section 7.3 or otherwise shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the Parties to consummate the Merger.
7.4 All Reasonable Efforts; Further Assurances.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each Party shall use all reasonable efforts to take, or cause to be
taken, all appropriate actions, and do, or cause to be done, and to
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assist and cooperate with the other Parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated hereby.
The Parties shall use all reasonable efforts to:
(i) obtain all licenses, permits, consents, waivers, approvals,
authorizations, qualifications or Orders (including all United States and
foreign governmental and regulatory rulings and approvals), required to be
obtained by each of them, or any of their respective Subsidiaries,
respectively, and the Parties shall make all filings (including, without
limitation, all filings with United States and foreign governmental or
regulatory agencies) under applicable Law required in connection with the
authorization, execution and delivery of this Agreement by them and the
consummation by them of the transactions contemplated hereby and thereby,
including the Merger (in connection with which the Parties will cooperate
with each other in connection with the making of all such filings,
including providing copies of all such documents to the non-filing party
and its advisors prior to filings and, if requested, will accept all
reasonable additions, deletions or changes suggested in connection
therewith);
(ii) furnish all information required for any application or other
filing to be made pursuant to any applicable law or any applicable
Regulations of any Governmental Authority (including all information
required to be included in the Joint Proxy Statement or the Registration
Statement) in connection with the transactions contemplated by this
Agreement; and
(iii) lift, rescind or mitigate the effects of any injunction,
restraining order or other order adversely affecting the ability of any
party hereto to consummate the transactions contemplated hereby and thereby
and to prevent, with respect to any threatened injunction, restraining
order or other Order, the issuance or entry thereof,
provided that no Party shall be under any obligation to (x) make proposals,
execute or carry out agreements or submit to Orders providing for the sale or
other disposition or holding separate (through the establishment of a trust or
otherwise) of any assets or categories of assets material (in nature or
amount) to such Party or imposing or seeking to impose any material limitation
on the ability of such Party to conduct its business or own such assets or (y)
otherwise take any step to avoid or eliminate any impediment which may be
asserted under any Law governing competition, monopolies or restrictive trade
practices which, in the reasonable judgment of such Party, might result in a
limitation of the benefit expected to be derived by Curis as a result of the
transactions contemplated hereby or might adversely affect the Parties as a
whole. None of the Parties hereto will take any action which results in any of
the representations or warranties made by such Party pursuant to Articles III
or IV, as the case may be, becoming untrue or inaccurate in any material
respect.
(b) The Parties shall use all reasonable efforts to satisfy or cause to be
satisfied all of the conditions precedent that are set forth in Article VIII,
as applicable to each of them, and to cause the transactions contemplated by
this Agreement to be consummated. Each Party, at the reasonable request of
another Party, shall execute and deliver such other instruments and do and
perform such other reasonable acts and things as may be necessary or desirable
for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
7.5 Stock Options and Warrants.
(a) At the Effective Time, each outstanding Company Stock Option under the
Company Stock Plans, whether vested or unvested, shall, in accordance with the
terms of such Company Stock Option and such Company Stock Plan, by virtue of
the Merger and without any action on the part of the holder thereof, become
and represent an option to acquire, on the same terms and conditions as were
applicable under such Company Stock Option, the same number of shares of
Surviving Company Common Stock as the holder of such Company Stock Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Time (rounded
downward to the nearest whole number), at a price per share (rounded upward to
the nearest whole cent) equal to (i) the aggregate exercise price for shares
of Company Common Stock purchasable pursuant to such Company Stock Option
immediately prior to the Effective Time divided by (ii) the number of full
shares of Surviving Company Common Stock deemed purchasable pursuant to such
Company Stock Option in accordance with the foregoing.
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(b) As soon as practicable after the Effective Time, the Surviving Company
shall deliver to the participants in Company Stock Plans appropriate notice
setting forth such participants' rights pursuant thereto and the grants
pursuant to Company Stock Plans shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section 7.5 after
giving effect to the Merger).
(c) Curis shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Surviving Company Common Stock for delivery
under the Company Stock Plans assumed in accordance with this Section 7.5. As
soon as practicable after the Effective Time, and in any event within 30 days
thereafter, the Surviving Company shall file one or more registration
statements on Form S-8 (or any successor or other appropriate forms) with
respect to the shares of Surviving Company Common Stock subject to such options
and shall use its commercially reasonable best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding.
(d) The Board of Directors of each Company (or Board committee administering
such plans) shall have approved, prior to the date of this Agreement, and shall
take, prior to or as of the Effective Time, all necessary actions, if any,
pursuant to and in accordance with the terms of the Company Stock Plans and the
instruments evidencing the Company Stock Options, to provide for the conversion
of the Company Stock Options into options to acquire Surviving Company Common
Stock in accordance with this Section 7.5, and to provide that no consent of
the holders of the Company Stock Options is required in connection with such
conversion.
(e) At the Effective Time, each outstanding Company Warrant (other than any
Company Warrant that by its terms otherwise expires by virtue of the Merger)
shall, in accordance with the terms of such Company Warrant, by virtue of the
Merger and without any action on the part of the holder thereof, become and
represent a warrant to acquire, on the same terms and conditions as were
applicable under such Company Warrant, the same number of shares of Surviving
Company Common Stock as the holder of such Company Warrant would have been
entitled to receive pursuant to the Merger (including with respect to the
treatment of fractional shares) had such holder exercised such Company Warrant
in full immediately prior to the Effective Time, at a price per share (rounded
upward to the nearest whole cent) equal to (i) the aggregate exercise price for
the shares of Company Common Stock purchasable pursuant to such Company Warrant
immediately prior to the Effective Time divided by (ii) the number of full
shares of Surviving Company Common Stock deemed purchasable pursuant to such
Company Warrant in accordance with the foregoing.
(f) The Board of Directors of each Company shall have approved, prior to the
date of this Agreement, and shall take, prior to or as of the Effective Time,
all necessary actions, pursuant to and in accordance with the terms of the
Company Warrants, to provide for the conversion of the Company Warrants into
warrants to acquire Surviving Company Common Stock in accordance with this
Section 7.5, and to provide that no consent of the holders of any Company
Warrant is required in connection with such conversion.
(g) Immediately prior to the Effective Time, the Subordinated Note of
Ontogeny payable to Atwill Holdings Limited (the "Ontogeny Convertible Note")
shall in accordance with the terms of the Ontogeny Convertible Note and the
Common Stock Purchase Agreement pursuant to which such Ontogeny Convertible
Note was issued, by virtue of the Merger and without any action on the part of
the holder thereof, become and represent (and Ontogeny will issue to the holder
of such note) an aggregate of 819,673 shares of Ontogeny Common Stock.
7.6 Notification of Certain Matters.
(a) A Party shall give prompt notice to the other Parties of the occurrence,
or non-occurrence, of any event the occurrence, or non-occurrence, of which
results in any representation or warranty contained in this Agreement being
untrue or inaccurate in any material respect (or, in the case of any
representation or warranty qualified by its terms by materiality or Material
Adverse Effect, then untrue or inaccurate in any respect) and any failure of
the Parties, as the case may be, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 7.6 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
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(b) A Party shall give prompt notice to the other Parties of (i) any notice
or other communication from any Person alleging that the consent of such Person
is or may be required in connection with the Merger; (ii) any notice or other
communication from any Governmental Authority in connection with the Merger;
(iii) any Litigation, relating to or involving or otherwise affecting such
Party that relates to the consummation of the Merger; (iv) the occurrence of a
default or event that, with notice or lapse of time or both, will become a
default under any contract which is material to Curis or any Company Material
Contract of such Party; and (v) any change that is reasonably likely to have a
Material Adverse Effect on such Party or is likely to delay or impede the
ability of any Party to consummate the transactions contemplated by this
Agreement or to fulfill their respective obligations set forth herein.
(c) Each of the Parties shall give (or shall cause their respective
Subsidiaries to give) any notices to third Persons, and use, and cause their
respective Subsidiaries to use, all reasonable efforts to obtain any consents
from third Persons (i) necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, (ii) otherwise required under any
contracts, licenses, leases or other agreements in connection with the
consummation of the transactions contemplated hereby or (iii) required to
prevent a Material Adverse Effect on any of the Parties from occurring. If any
Party shall fail to obtain any such consent from a third Person, such Party
shall use all reasonable efforts, and will take any such actions reasonably
requested by the other Parties, to limit the adverse effect upon them, their
respective Subsidiaries, and their respective businesses resulting, or which
would result after the Effective Time, from the failure to obtain such consent.
7.7 Listing on the NASDAQ. Curis shall use its commercially reasonable best
efforts to cause the Surviving Company Common Stock to be issued in the Merger
to be approved for listing on NASDAQ National Market, subject to official
notice of issuance, prior to the Effective Time.
7.8 Public Announcements. A Party shall consult with and obtain the approval
of the other Parties before issuing any press release or other public
announcement with respect to the Merger or this Agreement and shall not issue
any such press release prior to such consultation and approval, except as may
be required by applicable law or any listing agreement related to the trading
of the shares of either party on any national securities exchange or national
automated quotation system, in which case the Party proposing to issue such
press release or make such public announcement shall use reasonable efforts to
consult in good faith with each other Party before issuing any such press
release or making any such public announcement.
7.9 Accountant's Letters. Upon reasonable notice, the Parties shall use
reasonable efforts to cause their respective independent public accountants to
deliver to the other Parties, as the case may be, a letter covering such
matters as are requested by the requesting Party, as the case may be, and as
are customarily addressed in accountant's "comfort" letters in connection with
registration statements similar to Form S-4.
7.10 Indemnification of Directors and Officers.
(a) From and after the Effective Time, Curis (as the Surviving Company)
shall, to the fullest extent permitted by Law, honor all of each Company's
obligations to indemnify (including any obligations to advance funds for
expenses) the current or former directors or officers of such Company for acts
or omissions by such directors and officers occurring prior to the Effective
Time to the extent that such obligations of such Company to indemnify and
advance expenses exist on the date of this Agreement, whether pursuant to a
Company's Certificate or Articles of Incorporation, a Company's By-laws,
individual indemnity agreements or otherwise, and such obligations shall
survive the Merger and shall continue in full force and effect in accordance
with the terms of the Companies' Certificates or Articles of Incorporations,
By-laws and such individual indemnity agreements from the Effective Time until
the later of (i) the expiration of the applicable statute of limitations with
respect to any claims against such directors or officers arising out of such
acts or omissions or (ii) in the case of any claims made prior to the
expiration of the applicable statute of limitations, the final disposition of
such claims.
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(b) For a period of six years after the Effective Time, Curis (as the
Surviving Company) shall maintain in effect, if available, directors' and
officers' liability insurance covering those Persons who, as of immediately
prior to the Effective Time, are covered by each Company's directors' and
officers' liability insurance policy (the "Insured Parties") on terms no less
favorable to the Insured Parties than those of such Company's present
directors' and officers' liability insurance policy.
(c) The provisions of this Section 7.10 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
7.11 Covenants for Tax-Free Status. Prior to and after the Effective Time,
each Party shall use all commercially reasonable efforts to cause the Merger to
qualify as a reorganization within the meaning of Section 368(a) of the Code,
and will not take any action reasonably likely to cause the Merger not to so
qualify. After the Effective Time, Curis (as the Surviving Company) shall
continue at least one significant historic business line of each Company, or
use at least a significant portion of each Company's historic business assets
in a business, in each case within the meaning of Treasury Regulation Section
1.368-1(d).
7.12 Stockholder Agreements.
(a) Concurrently with the execution of this Agreement, each Company is
delivering to the Other Companies a Stockholder Agreement in the form of
Exhibit A attached hereto executed by each director and officer of such
Company, and each of their respective Affiliates, from whom such Company has by
then obtained such a Stockholder Agreement. If and to the extent the following
has not already been accomplished at the time of execution of this Agreement,
then, within 14 days after the date hereof, (i) Creative shall use its best
efforts to cause a Stockholder Agreement in the form of Exhibit A attached
hereto to be executed and delivered to the other Companies by each of
Creative's directors and officers, and each of their respective Affiliates, and
any other Affiliates of Creative (the "Creative Voting Commitment"), (ii)
Ontogeny shall use its best efforts to cause such a Stockholder Agreement to be
executed and delivered to the other Companies by each of Ontogeny's directors
and officers, and each of their respective Affiliates, and such of its other
stockholders as are necessary to obtain the requisite vote of the stockholders
of Ontogeny to approve this Agreement and the Merger, as well as the amendment
of the Ontogeny Certificate of Incorporation in substantially the form of
Exhibit G attached hereto, in accordance with the DGCL and its Certificate of
Incorporation (the "Ontogeny Required Stockholder Vote"), and (iii)
Reprogenesis shall use its best efforts to cause such a Stockholder Agreement
to be executed and delivered to the other Companies by each of Reprogenesis'
directors and officers, and each of their respective Affiliates, and such of
its other stockholders as are necessary to obtain the requisite vote of the
stockholders of Reprogenesis to approve this Agreement and the Merger, as well
as the amendment of the Reprogenesis Articles of Incorporation in substantially
the form of Exhibit H attached hereto, in accordance with the TBCA and its
Articles of Incorporation (the "Reprogenesis Required Stockholder Vote");
provided, however, that the obligation of Ontogeny to deliver the Stockholder
Agreements representing the Ontogeny Required Stockholder Vote, and the
obligation of Reprogenesis to deliver Stockholder Agreements representing the
Reprogenesis Required Stockholder Vote, is subject to the satisfaction of such
obligation by the other such Company.
(b) If, within 14 days after the date of this Agreement, Ontogeny has been
able to obtain Stockholder Agreements representing the Ontogeny Required
Stockholder Vote, except that it has not been able to obtain Stockholder
Agreements from stockholders whose vote is sufficient to approve amendment of
any or all of Sections D.4(h) or E.4(h) of Article Fourth of the Ontogeny
Certificate of Incorporation, Section 4(h) of the Certificate of Designation of
the Series C-1 Convertible Preferred Stock thereunder, or Section 4(h) of the
Certificate of Designation of the Series G Convertible Preferred Stock
thereunder (as the case may be, the "Applicable Preferred Stock Provisions") in
substantially the manner contemplated by Exhibit G attached hereto (the
Ontogeny Required Stockholder Vote, excluding the requisite stockholder vote
described in the foregoing exception, being referred to herein as the "Ontogeny
Minimum Required Stockholder Vote"), and if
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Reprogenesis has been able to obtain Stockholder Agreements representing the
Reprogenesis Stockholder Vote, then Curis and the Companies shall cooperate in
good faith, within 28 days after the date of this Agreement, to prepare and
adopt mutually acceptable amendments to the Certificate of Incorporation of
Curis and to this Agreement that will (i) authorize a class or series of
convertible capital stock of Curis which has the minimum rights necessary to
satisfy the requirements of the Applicable Preferred Stock Provisions as they
apply to the Merger, (ii) provide for the conversion of the shares of Ontogeny
Preferred Stock to which the Applicable Preferred Stock Provisions relate into
such new class or series of convertible stock of Curis (rather than into Common
Stock of Curis) on a basis otherwise consistent with Section 2.1(b), and (iii)
make such other changes, if any, as may be necessary or appropriate to give
effect to the foregoing.
(c) Each Company acknowledges and agrees to be bound by and comply with the
provisions of paragraph 2 of each of the Stockholder Agreements, as applicable
to such Company, as if a party thereto, with respect to transfers of record of
ownership of shares of Company Stock, and agrees to notify the transfer agent
for any such shares and provide such documentation and do such other things as
may be necessary to effectuate the provisions of such Stockholder Agreements.
7.13 Affiliate Agreements.
(a) Identified in Section 7.13 of each Company Disclosure Schedule is a list
of each Person who is a director or executive officer of the Company and, to
the Company's best Knowledge, each Person who is a holder of 10% or more of the
outstanding Voting Stock of such Company, and such Persons are, in the
reasonable judgment of such Company, all Persons who are "affiliates" of such
Company within the meaning of Rule 145 promulgated under the Securities Act
("Rule 145"). Each Company shall provide such information and documents as any
other Party shall reasonably request for purposes of reviewing such list and
shall notify such other Parties in writing regarding any change in the identity
of its affiliates prior to the Closing Date. Each Company shall use its best
efforts to deliver or cause to be delivered to the other Parties no later than
the date of the filing of the Registration Statement from each of their
respective affiliates, an executed agreement, in substantially the form
attached hereto as Exhibit E (an "Affiliate Agreement"), by which each such
affiliate agrees to comply with the applicable requirements of Rule 145 and
other applicable securities laws. Curis shall be entitled to place appropriate
legends on the certificates evidencing any Surviving Company Common Stock to be
received by such affiliates pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for the
Surviving Company Common Stock, consistent with the terms of the Affiliate
Agreements (provided that such legends or stop transfer instructions shall be
promptly removed, after the required restricted period).
(b) Curis shall, at all times during the two (2) year period beginning on
the Closing Date, whether or not it is subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act, comply with the current public
information requirements of Rule 144(c)(1) promulgated under the Securities
Act.
7.14 SEC Filings. Prior to the Effective Time, each Company that is a Public
Company shall (a) timely file with the SEC each periodic or current report
required to be filed by it under the Exchange Act and (b) promptly after filing
such report, furnish each other Party with a copy.
7.15 Maintenance, Prosecution and Filing Obligations. Each Company shall pay
the costs of preparation for filing, prosecution and maintenance of each of
their respective Intellectual Property Rights as required and shall not permit
the lapse of any filings following the execution of this Agreement, except in
its reasonable business judgment in light of the transactions contemplated
hereby. Each Company shall provide copies of all filings and evidence of
payments under this Section 7.15 to the other Parties.
7.16 Certain Agreements. Each Company irrevocably and unconditionally agrees
that it (a) will vote all of the shares of Curis Common Stock owned by it in
favor of the Merger Agreement and the Merger at any meeting or meetings of
Curis's stockholders called to vote upon the Merger Agreement and the Merger;
(b) will not vote such shares (or otherwise provide a proxy or consent or a
voting agreement with respect thereto) in
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favor of any other Acquisition Proposal; and (c) will timely take all action
necessary to (i) elect as directors of Curis the persons designated on or
pursuant to Schedule 1.5, (ii) amend the Curis Certificate of Incorporation to
eliminate the ability of Curis stockholders to act by written consent and (iii)
approve a Curis employee, director and consultant stock plan.
7.17 Lock-Up Agreements. Each Company shall use its best efforts to deliver
or cause to be delivered to the other Parties no later than the date of the
filing of the Registration Statement from each Company officer and director and
each Person who is an Affiliate of each such officer and director, an executed
agreement, in substantially the form attached hereto as Exhibit F (a "Lock-Up
Agreement"); provided, however, that no Company shall be obligated to deliver
its Lock-Up Agreements to the other Companies unless both other Companies also
deliver all of their required Lock-Up Agreements. The Surviving Company may
impose stop-transfer instructions with respect to the shares subject to the
foregoing restriction until the end of said period.
7.18 Curis Board Authorization. In connection with obtaining the exemption
of certain transactions from the requirements of Section 16 of the Exchange Act
pursuant to Rule 16b-3 thereunder, Curis shall use its best efforts to approve,
by resolution of its Board of Directors, the acquisition of Surviving Company
Common Stock by its officers and directors in the Merger.
7.19 Best Efforts Obligations. Where provisions of this Agreement
(including, without limitation, Sections 7.4, 7.12, 7.13, 7.17 and 7.18)
require a Company to use its best efforts or its reasonable efforts to obtain
consents, waivers, approvals, authorizations, agreements (including Stockholder
Agreements, Affiliate Agreements and Lock-Up Agreements) or the like from any
other Person, or otherwise to cause any other Person to take action or refrain
from taking action, such Company shall not be obligated to pay any amount or
provide anything of value (other than filing fees and other required amounts in
the case of Governmental Authorities) to such other Person to induce such
Person to act in the desired manner.
ARTICLE VIII
Conditions of Merger
8.1 Conditions to Obligation of All Parties to Effect the Merger. The
respective obligations of each Party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Effectiveness of the Registration Statements. The Registration Statement
and the Exchange Act Registration Statement shall have been declared effective;
no stop order suspending the effectiveness of the Registration Statement or the
Exchange Act Registration Statement shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated; and no similar
proceeding in respect of the Joint Proxy Statement shall have been initiated
or, to the Knowledge of any Party, threatened by the SEC.
(b) Stockholder Approval. This Agreement and the Merger shall have been
authorized by the requisite vote of the stockholders of each Company in
accordance with the provisions of the DGCL or the TBCA (as the case may be) and
the Certificate or Articles of Incorporation and By-laws of each respective
Party.
(c) HSR Act. The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(d) No Injunctions or Restraints; Illegality. No Court or Governmental
Authority having jurisdiction over any Party shall have enacted, issued,
promulgated, enforced or entered any Law, Regulation or Order (whether
temporary, preliminary or permanent) which is then in effect and which has the
effect of making the Merger illegal or otherwise preventing or prohibiting
consummation of the Merger.
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(e) NASDAQ. The shares of Surviving Company Common Stock issuable to the
stockholders of the Companies pursuant to this Agreement shall have been
approved for listing on NASDAQ National Market subject to official notice of
issuance.
(f) Appraisal Shares. The Appraisal Shares of Ontogeny shall comprise not
more than 5% of the issued and outstanding Ontogeny Common Stock and not more
than 5% of the issued and outstanding Ontogeny Preferred Stock.
(g) Dissenting Shares. The Dissenting Shares of Reprogenesis shall comprise
not more than 5% of the issued and outstanding Reprogenesis Common Stock and
not more than 5% of the issued and outstanding Reprogenesis Preferred Stock.
(h) Charter Amendments. An amendment to the Amended and Restated Certificate
of Incorporation of Ontogeny in substantially the form of Exhibit G attached
hereto shall have been duly adopted and filed with the Secretary of State of
the State of Delaware, unless Section 7.12(b) of this Agreement has become
applicable, in which case such amendment shall not include an amendment of the
Applicable Preferred Stock Provisions. Articles of Amendment to the Articles of
Incorporation of Reprogenesis in substantially the form of Exhibit H attached
hereto shall have been duly adopted and filed with the Secretary of State of
the State of Texas. If Section 7.12(b) has become applicable, an amendment to
the Curis Certificate of Incorporation as contemplated by Section 7.12(b) shall
have been duly adopted and filed with the Secretary of State of the State of
Delaware.
8.2 Additional Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each Party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the additional
following conditions by each other Party, any or all of which may be waived by
such Party, in whole or in part, to the extent permitted by applicable Law:
(a) Representations and Warranties. The representations and warranties of
each other Party contained in this Agreement shall be true and correct in all
material respects on and as of the Effective Time, except for (x) changes
contemplated by this Agreement (including the Disclosure Schedules hereto), (y)
those representations and warranties that are qualified by materiality or by
Company Material Adverse Effect or Curis Material Adverse Effect, as the case
may be, in which case such representations and warranties shall be true and
correct in all respects subject to such qualifications and (z) those
representations and warranties which address matters only as of a particular
date (in which case such representations and warranties shall be true and
correct in all material respects, on and as of such particular date, with the
same force and effect as if made on and as of the Effective Time), and such
Party shall have received certificates to such effect signed by the Chief
Executive Officer and Chief Financial Officer of each other Party.
(b) Agreements and Covenants. Each other Party shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and such Party shall have received certificates to such effect
signed by the Chief Executive Officer and Chief Financial Officer of each of
other Party.
(c) Regulatory Approvals. All approvals and consents of applicable Courts
and/or Governmental Authorities required for each other Party to consummate the
Merger shall have been received, except for such approvals and consents the
failure of which to have been so received, shall not have had, or be reasonably
be expected to have, a Company Material Adverse Effect or a Curis Material
Adverse Effect, as the case may be.
(d) Third Party Consents. Such Party shall have received evidence, in form
and substance reasonably satisfactory to it, that the licenses, permits,
consents, waivers, approvals, authorizations, qualifications or Orders of
Governmental Authorities and other third parties required by each of the other
Parties as described in the Company Disclosure Schedule of such other Parties
have been obtained, except where failure to have been so obtained, either
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect or a Curis Material Adverse Effect, as the case may be.
Notwithstanding the foregoing, (i) Creative shall
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have received evidence, in form and substance reasonably satisfactory to it,
that the licenses, permits, consents, waivers, approvals, authorizations,
qualifications or Orders of Governmental Authorities and other third parties
set forth on Schedule 8.2(d) of the Company Disclosure Schedules of each of the
other two Companies shall have been obtained; (ii) Ontogeny shall have received
evidence, in form and substance reasonably satisfactory to it, that the
licenses, permits, consents, waivers, approvals, authorizations, qualifications
or Orders of Governmental Authorities and other third parties set forth on
Schedule 8.2(d) of the Company Disclosure Schedules of each of the other two
Companies shall have been obtained; and (iii) Reprogenesis shall have received
evidence, in form and substance reasonably satisfactory to it, that the
licenses, permits, consents, waivers, approvals, authorizations, qualifications
or Orders of Governmental Authorities and other third parties set forth on
Schedule 8.2(d) of the Company Disclosure Schedules of each of the other two
Companies shall have been obtained.
(e) Tax Opinions. Such Party shall have received a written opinion from its
counsel to the effect that the Merger will be treated for federal income tax
purposes as a tax-free reorganization within the meaning of Section 368(a) of
the Code; provided that if such counsel does not render such opinion, this
condition shall nonetheless be deemed satisfied if counsel for any other
Company renders such opinion to such Party (it being agreed that each Company
shall provide reasonable cooperation, including making reasonable
representations, to each Company counsel to enable it to render such opinion).
ARTICLE IX
Termination, Amendment and Waiver
9.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of each Party:
(a) By mutual written consent duly authorized by the Boards of Directors of
each Party; or
(b) By any Company if the Merger shall not have been consummated on or
before August 31, 2000; provided, that the right to terminate this Agreement
under this Section 9.1(b) shall not be available to any Company whose failure
to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Merger to have been consummated on or before
such date; or
(c) By any Company if a Court of competent jurisdiction or Governmental
Authority shall have issued an Order, decree or ruling or taken any other
action, in each case which has become final and non-appealable, which
restrains, enjoins or otherwise prohibits the Merger; or
(d) By any Company, if, at the Company Meeting of any other Company
(including any adjournment or postponement thereof), the requisite vote of the
stockholders of such other Company to authorize this Agreement shall not have
been obtained; provided that the right to terminate this Agreement under this
Section 9.1(d) shall not be available to any Company where the failure to
obtain such stockholder approval shall have been caused by the action or
failure to act of such Company in breach of this Agreement; or
(e) By any Company, if the Board of Directors of any other Company or any
committee thereof (the "Defaulting Party") shall have (1) approved or
recommended any Acquisition Proposal other than the Merger, (2) failed to
present and recommend the authorization of this Agreement and the Merger to the
stockholders of such other Company, or withdrawn or modified in a manner
adverse to such Company, its recommendation of the Merger, this Agreement or
the transactions contemplated hereby, (3) failed to mail the Joint Proxy
Statement to its stockholders within five (5) Business Days of when the Joint
Proxy Statement was available for mailing or failed to include therein such
approval and recommendation (including the recommendation that the stockholders
of such other Party vote in favor of the Merger), (4) upon a request by any
Party to reaffirm the approval and recommendation of the Merger, failed to do
so within five (5) Business Days after such request is
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made, (5) entered, or caused such other Company to enter, into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement related to any Acquisition Proposal, (6) recommended to the
stockholders of such other Company, following the commencement of a tender or
exchange offer for outstanding shares of such other Company's Common Stock,
that such stockholders tender their shares in such tender or exchange offer or
failed, within 10 days of the commencement of such offer, to recommend against
acceptance of such offer, (7) taken any action prohibited by Section 6.1, or
(8) resolved by the Board of Directors of such other Company or announced its
intention to do any of the foregoing;
(f) By any Company, if such Company is not in material breach of its
obligations or its representations and warranties under this Agreement, and if
(i) there has been a breach at any time by any other Company of any of their
respective representations and warranties hereunder such that Section 8.2(a) of
this Agreement would not be satisfied (treating such time as if it were the
Effective Time for purposes of this Section 9.1(f)) or (ii) there has been the
willful breach on the part of any other Company of any of its covenants or
agreements contained in this Agreement (other than the breach of a covenant
which is dealt with in Section 9.1(e) above) such that Section 8.2(b) of this
Agreement would not be satisfied (treating such time as if it were the
Effective Time for purposes of this Section 9.1(f)), and, in the case of either
clause (i) or (ii) above, such breach (if curable) has not been cured within 30
days after written notice to both other Companies;
(g) By Creative, no later than 21 days after the date of this Agreement, if
Ontogeny shall have failed to deliver Stockholder Agreements representing the
Ontogeny Minimum Required Stockholder Vote, or Reprogenesis shall have failed
to deliver Stockholder Agreements representing the Reprogenesis Required
Stockholder Vote, in either case within 14 days after the date of this
Agreement;
(h) By Ontogeny, no later than 21 days after the date of this Agreement, if
Creative shall have failed to deliver Stockholder Agreements representing the
Creative Voting Commitment, or Reprogenesis shall have failed to deliver
Stockholder Agreements representing the Reprogenesis Required Stockholder Vote,
in either case within 14 days after the date of this Agreement; or
(i) By Reprogenesis, no later than 21 days after the date of this Agreement,
if Ontogeny shall have failed to deliver Stockholder Agreements representing
the Ontogeny Minimum Required Stockholder Vote, or Creative shall have failed
to deliver Stockholder Agreements representing the Creative Voting Commitment,
in either case within 14 days after the date of this Agreement.
9.2 Effect of Termination. Except as provided in this Section 9.2, in the
event of the termination of this Agreement pursuant to Section 9.1, this
Agreement (other than this Section 9.2 and Sections 5.3, 9.3 and Article X
hereof, which shall survive such termination) will forthwith become void, and
there will be no liability on the part of any Party or any of their respective
officers or directors to the other and all rights and obligations of any Party
hereto will cease, except that nothing herein will relieve any Party from
liability for any breach, prior to termination of this Agreement in accordance
with its terms, of any representation, warranty, covenant or agreement
contained in this Agreement.
9.3 Fees and Expenses.
(a) Except as set forth in this Section 9.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the Party incurring such expenses, whether or not the Merger
is consummated; provided that each Company shall share pro rata, in proportion
to its proposed relative ownership of Curis upon consummation of the Merger,
all fees and expenses, other than attorneys' fees, incurred in relation to the
printing and filing of the Joint Proxy Statement (including any preliminary
materials related thereto), the Registration Statement (including financial
statements and exhibits) and any amendments or supplements thereto, and any
fees and expenses required to be paid by Curis (it being understood that the
HSR Act filing fee shall be borne equally by the Companies).
(b) In the event that any of the following occurs:
(i) any Party terminates this Agreement pursuant to Section 9.1(e)
hereof; or
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(ii) (A) any Company or Companies (as applicable) terminates this
Agreement pursuant to (y) Section 9.1(d) hereof as a result of the failure
to receive the requisite vote of the stockholders of any other Company (the
"Breaching Party") at the Company Meeting of the Breaching Party if, at the
time of such failure an Acquisition Proposal to the Breaching Party shall
have been made, or proposed, communicated or disclosed in a manner which is
or otherwise becomes public (including being known by any stockholder of
such Party) or (z) Section 9.1(f) hereof after a breach by any other
Company (the "Breaching Party") of any of the Breaching Party's covenants
or agreements contained in this Agreement and (B) within one year of such
termination, either (1) the Breaching Party or any of its Subsidiaries
enters into an agreement with any Person with respect to an Acquisition
Proposal which provides for (x) transfer or issuance of securities
representing more than 50% of the equity or voting interests in the
Breaching Party, (y) a merger, consolidation, recapitalization or another
transaction resulting in the issuance of cash or securities of any Person
(other than a reincorporation or a holding company merger that results in
the stockholders of the Breaching Party owning all of the equity interests
in the surviving corporation) to the stockholders of the Breaching Party in
exchange for more than 50% of the equity or voting interests in the
Breaching Party or (z) transfer of assets, securities or ownership
interests representing more than 50% of the consolidated assets or earning
power of the Breaching Party or (2) any Person commences a tender offer
that results in the acquisition by the Person making the tender offer of a
majority of the outstanding Company Common Stock,
then the Defaulting Party or the Breaching Party, as the case may be, shall pay
to each other Company that is not in material breach of its obligations or its
representations and warranties under this Agreement at the time of such
termination (and, only in the case of clause (ii)(A)(y) above, that has
received the requisite vote of its stockholders at its Company Meeting to
approve this Agreement), a fee in cash in the amount of $5 million (and
therefore a total of $10,000,000 to both other Companies, if both are entitled
to receive such fees), plus the amount of such Company's Stipulated Expenses
(the "Termination Fee"), which Termination Fee shall be payable by wire
transfer of immediately available funds (i) in the case of a termination
pursuant to Section 9.1(e), at the time of such termination or (ii) in the case
of a termination pursuant to Section 9.1(d) or 9.1(f), at the time such
agreement is entered into or such tender offer is commenced, as the case may
be, except as otherwise provided in Section 9.3(c) with respect to Stipulated
Expenses. Termination by any Company pursuant to Section 9.1(d) or 9.1(f) under
circumstances where the Termination Fee is then payable shall not be effective
with respect to the Company owing such Termination Fee until receipt of the
Termination Fee by the other Companies.
(c) If this Agreement is terminated pursuant to Section 9.1(f) (other than
due to an event after the date of this Agreement that results in a breach of a
representation or warranty, which event is entirely outside the control of the
Breaching Party and due to no act or omission to act of the Breaching Party),
then the Breaching Party causing such termination shall reimburse each other
Party for all Stipulated Expenses not later than two (2) Business Days after
the date of such termination.
(d) As used in this Agreement, the term "Stipulated Expenses" shall mean
those reasonable fees and expenses actually incurred by any Company in
connection with this Agreement and the transactions contemplated hereby,
including fees and expenses of counsel, investment bankers, accountants,
experts, consultants and other Representatives, including (y) such Company's
efforts to merge and (z) salaries, travel costs and expenses incurred by such
Company as a result of changes to its business plan in contemplation of the
Merger; provided that the Stipulated Expenses of any Company shall not exceed
$750,000.
(e) Nothing in this Section 9.3 shall be deemed to be exclusive of any other
rights or remedies any Party may have hereunder or at law or in equity for any
breach of this Agreement.
(f) In the event that Reprogenesis terminates this Agreement pursuant to
Section 9.1(d) hereof as a result of the failure to receive the requisite vote
of the Stockholders of Creative at the Company Meeting of Creative, then
Creative shall pay Reprogenesis a fee in the aggregate amount of $1,500,000,
which shall be payable by wire transfer of immediately available funds within
five (5) business days of such termination.
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(g) In the event that (i) any Company or Companies, as applicable,
terminates this Agreement pursuant to Section 9.1(d) hereof as a result of the
failure to receive the requisite vote of the stockholders of any other Company
(the "Failing Party") at its Company Meeting to approve this Agreement, and
(ii) each such terminating Company has received the requisite vote of its
stockholders at its Company Meeting to approve this Agreement, and (iii) within
one year of such termination, the Failing Party or its Subsidiaries enters into
an agreement with any Person with respect to an Equity Financing (as defined
below) providing the Failing Company with gross proceeds equal to or greater
than $50,000,000, then the Failing Party shall pay, to each other Company that
both has received the requisite vote of its stockholders at its Company Meeting
to approve this Agreement and is not in material breach of its obligations or
its representations and warranties under this Agreement at the time of such
termination, a fee in the amount of $5,000,000 (and therefore a total of
$10,000,000 to both other Companies, if both are entitled to receive such
fees). Such fee shall be payable by wire transfer of immediately available
funds at the time the Failing Party has received at least $50,000,000 of gross
proceeds from such Equity Financing. Termination by any Company pursuant to
Section 9.1(d) under circumstances where the fee under this Section 9.3(g) is
then payable shall not be effective with respect to the Failing Party until
receipt of such fee by each Company entitled to receive it. As used is this
Section 9.3, the term "Equity Financing" means a financing transaction (or
series of related transactions) in which a Company raises proceeds by selling
shares of its capital stock or any security convertible into, or exchangeable
or exercisable for, its capital stock.
(h) In the event that (i) any Company or Companies, as applicable,
terminates this Agreement pursuant to Section 9.1(f) hereof after a breach by
any other Company (the "Breaching Party") of any of the Breaching Party's
covenants or agreements contained in this Agreement, and (ii) within one year
of such termination, the Breaching Party or its Subsidiaries enters into an
agreement with any Person with respect to an Equity Financing providing the
Breaching Company with gross proceeds equal to or greater than $50,000,000,
then the Breaching Party shall pay, to each other Company that is not in
material breach of its obligations or its representations and warranties under
this Agreement at the time of such termination, a fee in the amount of
$5,000,000 (and therefore a total of $10,000,000 to both other Companies, if
both are entitled to receive such fees). Such fee shall be payable by wire
transfer of immediately available funds at the time the Breaching Party has
received at least $50,000,000 of gross proceeds from such Equity Financing.
Termination by any Company pursuant to Section 9.1(f) under circumstances where
the fee under this Section 9.3(h) is then payable shall not be effective with
respect to the Breaching Party until receipt of such fee by each Company
entitled to receive it.
(i) Notwithstanding any other provision hereof to the contrary, (i) the
maximum amount of the fees that any Company shall be obligated to pay to any
other Company pursuant to Sections 9.3(b), 9.3(f), 9.3(g) and 9.3(h), even if
more than one of such Sections is applicable, shall be $5,000,000 (and
therefore a total of $10,000,000 to both other Companies, if both are entitled
to receive such fees), and (ii) any Company shall be obligated to pay the
Stipulated Expenses of any other Company only once pursuant to Sections 9.3(b)
and 9.3(c), even if more than one of such Sections is applicable.
9.4 Amendment. This Agreement may be amended by the Parties hereto by action
taken by or on behalf of their respective Boards of Directors at any time prior
to the Effective Time, subject to Section 252 of the DGCL. This Agreement may
not be amended except by an instrument in writing signed by all of the Parties
hereto.
9.5 Waiver. At any time prior to the Effective Time, any Party hereto may
extend the time for the performance by any other Party of any of the
obligations or other acts required hereunder, waive any inaccuracies in the
representations and warranties of any other Party contained herein or in any
document delivered pursuant hereto and waive compliance by any other Party with
any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid if set forth in an instrument in writing signed by the
Party or Parties to be bound thereby.
A-37
<PAGE>
ARTICLE X
General Provisions
10.1 Survival of Representations and Warranties.
(a) Except as set forth in Section 10.1(b) of this Agreement, the
representations, warranties and agreements of each Party hereto will remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other Party hereto, any Person controlling any such Party
or any of their officers, directors, representatives or agents whether prior to
or after the execution of this Agreement.
(b) The representations and warranties in this Agreement will terminate at
the Effective Time; provided, however, this Section 10.1(b) shall in no way
limit any covenant or agreement of the Parties which by its terms contemplates
performance after the Effective Time or after the termination of this Agreement
pursuant to Article IX.
10.2 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by a nationally-recognized overnight courier or by registered or
certified mail, postage prepaid, return receipt requested, or by electronic
mail, with a copy thereof to be delivered by mail (as aforesaid) within 24
hours of such electronic mail, or by telecopier, with confirmation as provided
above addressed as follows:
If to Creative:Creative Biomolecules, Inc.
101 Huntington Avenue
Boston, Massachusetts 02111
Telecopier:(617) 912-2995
Attention:Michael Tarnow, President
Cheryl Lawton, Esq., General Counsel
and Vice President, Administration
With a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Telecopier:(617) 542-2211
Attention:Jeffrey M. Wiesen, Esq.
Lewis J. Geffen, Esq.
If to Reprogenesis:Reprogenesis, Inc.
21 Erie Street
Cambridge, MA 02139
Telecopier:(617) 499-2927
Attention:Daniel R. Omstead, President
With a copy to:
Baker Botts LLP
One Shell Plaza
910 Louisana
Houston, TX 77002
Telecopier:(713) 229-1522
Attention:Walter J. Smith, Esq.
A-38
<PAGE>
If to Ontogeny:Ontogeny, Inc.
45 Moulton Street
Cambridge, Massachusetts 02138
Telecopier:(617) 876-0866
Attention:Doros Platika, President
Bruce A. Leicher, Vice President and General
Counsel
With a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Telecopier:(617) 832-7000
Attention:Robert Birnbaum, Esq.
Jonathan Hulbert, Esq.
If to Curis:to each of the Companies (with copies to its counsel).
or to such other address as the Party to whom notice is to be given may have
furnished to the other Parties in writing in accordance herewith. All such
notices or communications shall be deemed to be received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of a
nationally-recognized overnight courier, on the next Business Day after the
date when sent (c) in the case of facsimile transmission or telecopier or
electronic mail, upon confirmed receipt, and (d) in the case of mailing, on
the third Business Day following the date on which the piece of mail
containing such communication was posted.
10.3 Certain Definitions. For purposes of this Agreement, the term:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such Person.
"Business Day" means any day other than a Saturday, Sunday or day on which
banks are permitted to close in the State of New York or in the State of
Delaware.
"Control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or policies of
a Person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise.
"Court" means any court or arbitration tribunal of the United States, any
domestic state, or any foreign country, and any political subdivision thereof.
"Exchange Agent" means any bank or trust company organized under the Laws
of the United States or any of the states thereof and having a net worth in
excess of $100 million designated and appointed to act in the capacities
required under Section 2.6.
"Governmental Authority" means any governmental agency or authority (other
than a Court) of the United States, any domestic state, or any foreign
country, and any political subdivision or agency thereof, and includes any
authority having governmental or quasi-governmental powers.
"Knowledge" means (i) in the case an individual, knowledge of a particular
fact or other matter if such individual is actually aware of such fact or
other matter and (ii) in the case of an entity (other than an individual) such
entity will be deemed to have "Knowledge" of a particular fact or other matter
if any individual who is serving, or has at any time served, as a director,
officer, partner, executor, or trustee of such Person has (while such
individual is serving in such capacity), or at any time had (while such
individual was serving in such capacity), Knowledge of such fact or other
matter.
A-39
<PAGE>
"Law" means all laws, statutes and ordinances of any Governmental Agency
including all decisions of Courts having the effect of law within its
jurisdiction.
"Lien" means any mortgage, pledge, security interest, attachment,
encumbrance, lien (statutory or otherwise), option, conditional sale
agreement, right of first refusal, first offer, termination, participation or
purchase or charge of any kind (including any agreement to give any of the
foregoing); provided, however, that the term "Lien" shall not include (i)
statutory liens for Taxes, which are not yet due and payable or are being
contested in good faith by appropriate proceedings, (ii) statutory or common
law liens to secure landlords, lessors or renters under leases or rental
agreements confined to the premises rented, (iii) deposits or pledges made in
connection with, or to secure payment of, workers' compensation, unemployment
insurance, old age pension or other social security programs mandated under
applicable Laws, (iv) statutory or common law liens in favor of carriers,
warehousemen, mechanics and materialmen, to secure claims for labor, materials
or supplies and other like liens, and (v) restrictions on transfer of
securities imposed by applicable state and federal securities Laws.
"Litigation" means any suit, action, arbitration, cause of action, claim,
complaint, criminal prosecution, investigation, demand letter, governmental or
other administrative proceeding, whether at law or at equity, before or by any
Court or Governmental Authority, or before any arbitrator or other tribunal.
"Order" means any judgment, order, writ, injunction or decree of any Court
or Governmental Authority.
"Person" means an individual, corporation, partnership, association, trust,
unincorporated organization, limited liability company, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act).
"Regulation" means any rule or regulation of any Governmental Authority
having the effect of Law.
"Subsidiary" or "Subsidiaries" of any Party or any other Person means any
corporation, partnership, joint venture, limited liability company or other
legal entity of which such Party or such other Person, as the case may be,
(either alone or through or together with any other Subsidiary) owns, directly
or indirectly, 50% or more of the stock or other equity interests the holders
of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
"Voting Stock" of any Company means the capital stock of such Company
entitled to vote upon the election of directors and upon other matters
generally submitted to stockholders of such Company for voting purposes.
10.4 Interpretation. When a reference is made in this Agreement to
Sections, subsections, Schedules or Exhibits, such reference shall be to a
Section, subsection, Schedule or Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The word "herein" and similar references mean, except where a specific Section
or Article reference is expressly indicated, the entire Agreement rather than
any specific Section or Article. The table of contents and the headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
10.5 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any Party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
A-40
<PAGE>
10.6 Entire Agreement. This Agreement (including all exhibits and schedules
hereto) constitutes the entire agreement and supersedes all prior agreements
and undertakings (other than the Confidentiality Agreements), both written and
oral, among the Parties, or any of them, with respect to the subject matter
hereof and, except as otherwise expressly provided herein, are not intended to
confer upon any other Person any rights or remedies hereunder.
10.7 Assignment. This Agreement shall not be assigned by operation of law or
otherwise.
10.8 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each Party hereto, and other than with respect to
Section 7.10 which the Parties intend to establish third party beneficiary
rights, nothing in this Agreement, express or implied, is intended to or shall
confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
10.9 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any Party hereto in the exercise of any right hereunder
will impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor will any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive to, and not exclusive of, any
rights or remedies otherwise available.
10.10 Governing Law. This agreement and the agreements, instruments and
documents contemplated hereby will be governed by and construed in accordance
with the Law of the State of Delaware (exclusive of conflicts of law
principles). State Courts within the State of Delaware and, more particularly
to the fullest extent such Court shall have subject matter jurisdiction over
the matter, the Court of Chancery of the State of Delaware, will have exclusive
jurisdiction over any and all disputes between the Parties, whether in law or
equity, arising out of or relating to this Agreement and the agreements,
instruments and documents contemplated hereby. The Parties consent to and agree
to submit to the jurisdiction of such Courts, provided, however, that such
consent to jurisdiction is solely for the purpose referred to in this Section
10.10 and shall not be deemed to be a general submission to the jurisdiction of
such Courts or in the State of Delaware other than for such purpose. Each Party
hereby waives, and agrees not to assert in any such dispute, to the fullest
extent permitted by applicable Delaware Law, any claim that (i) such Party is
not personally subject to the jurisdiction of such Courts, (ii) such Party and
such Party's property is immune from any legal process issued by such Courts or
(iii) any Litigation commenced in such Courts is brought in an inconvenient
forum.
10.11 Counterparts. This Agreement may be executed in one or more
counterparts, and by the Parties in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
A-41
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement and Plan of
Merger to be executed as of the date first written above by their respective
officers thereunto duly authorized.
Creative Biomolecules, Inc.
/s/ Michael M. Tarnow
By___________________________________
Name: Michael M. Tarnow
Title: President and CEO
Reprogenesis, Inc.
/s/ Daniel R. Omstead
By___________________________________
Name: Daniel R. Omstead
Title: President and CEO
Ontogeny, Inc.
/s/ Doros Platika
By___________________________________
Name: Doros Platika
Title: President and CEO
Curis, Inc.
/s/ Doros Platika
By___________________________________
Name: Doros Platika
Title: President and CEO
A-42
<PAGE>
Index of Defined Terms
<TABLE>
<S> <C>
Acquisition Proposal..................................... 6.1(a)
Affiliate................................................ 10.3
Affiliate Agreement...................................... 7.13
Agreement................................................ Caption
Appraisal Shares......................................... 2.11
Bankruptcy and Equity Exception.......................... 3.3(a)
Breaching Party.......................................... 9.3(b), 9.3(h)
Business Day............................................. 10.3
Certificate of Merger.................................... 1.2
Certificates............................................. 2.6(c)
Closing.................................................. 2.8
Closing Date............................................. 2.8
Code..................................................... Recitals
Company.................................................. Caption
Company Balance Sheet.................................... 3.4(b)
Company Common Stock..................................... 3.2(a)
Company Disclosure Schedule.............................. Article III Caption
Company Employee Plans................................... 3.14(a)
Company Financial Statements............................. 3.4(a)
Company Intellectual Property Rights..................... 3.9(b)
Company Material Adverse Effect.......................... 3.1
Company Material Contract................................ 3.11
Company Meeting.......................................... 3.18
Company Preferred Stock.................................. 3.2(a)
Company Stock............................................ 2.1(f)
Company Stock Option..................................... 3.2(a)
Company Stock Plan....................................... 3.2(a)
Company Warrants......................................... 3.2
Confidentiality Agreements............................... 5.3
Control.................................................. 10.3
Court.................................................... 10.3
Creative Common Stock.................................... 2.1(a)
Creative Exchange Ratio.................................. 2.1(a)
Creative Merger Consideration............................ 2.1(a)
Creative Voting Commitment............................... 7.12(a)
Curis Certificate of Incorporation....................... 4.1
Curis Material Adverse Effect............................ 4.1
DGCL..................................................... Preamble
Effective Time........................................... 1.2
Environmental Law........................................ 3.13(b)
Equity Financing......................................... 9.3(g)
ERISA.................................................... 3.14(a)
ERISA Affiliate.......................................... 3.14(a)
Exchange Act............................................. 3.3(c)
Exchange Agent........................................... 10.3
Exchange Ratio........................................... 2.1(d)
Exchange Act Registration Statement...................... 7.1(d)
Failing Party............................................ 9.3(g)
FDA...................................................... 3.10
GAAP..................................................... 3.4(b)
</TABLE>
A-43
<PAGE>
<TABLE>
<S> <C>
GLP............................................................. 3.16(b)
GMP............................................................. 3.16(b)
Governmental Authority.......................................... 10.3
Hazardous Substance............................................. 3.13(c)
HSR Act......................................................... 3.3(c)
Intellectual Property Rights.................................... 3.9(b)
IP Assignee..................................................... 3.9(e)
IPO............................................................. 9.3(g)
IRS............................................................. 3.7(b)
Joint Proxy Statement........................................... 3.18
Knowledge....................................................... 10.3
Law............................................................. 10.3
Lien............................................................ 10.3
Litigation...................................................... 10.3
Merger.......................................................... Preamble
Merger Consideration............................................ 2.1(d)
Ongoing Clinical Programs....................................... 3.9(b)
Ontogeny Exchange Ratio......................................... 2.1(b)
Ontogeny Minimum Required Stockholder Vote...................... 7.12(b)
Ontogeny Merger Consideration................................... 2.1(b)
Ontogeny Common Stock........................................... 2.1(b)
Ontogeny Preferred Stock........................................ 2.1(b)
Ontogeny Required Stockholder Vote.............................. 7.12(a)
Order........................................................... 10.3
Person.......................................................... 10.3
Public Company.................................................. 3.1
Registration Statement.......................................... 3.18
Regulation...................................................... 10.3
Representatives................................................. 6.1(a)
Reprogenesis Common Stock....................................... 2.1(c)
Reprogenesis Exchange Ratio..................................... 2.1(c)
Reprogenesis Fully Diluted Merger Consideration................. 2.1(c)
Reprogenesis Merger Consideration............................... 2.1(c)
Reprogenesis Preferred Stock.................................... 2.1(c)
Reprogenesis Required Stockholder Vote.......................... 7.12(a)
Reprogenesis Series A Consideration............................. 2.1(c)
Rule 145........................................................ 7.13
SEC............................................................. 3.3
Section 262..................................................... 2.11
Securities Act.................................................. 2.3(b)
Stipulated Expenses............................................. 9.3(d)
Stockholder Agreement........................................... Preamble
Subsidiary, Subsidiaries........................................ 10.3
Superior Proposal............................................... 6.1(b)
Surviving Company............................................... 1.1
Tax............................................................. 3.7(a)
Taxes........................................................... 3.7(a)
Tax Returns..................................................... 3.7(b)
Termination Fee................................................. 9.3(b)
Third Party Licenses............................................ 9.3(a)
Voting Stock.................................................... 10.3
</TABLE>
A-44
<PAGE>
SCHEDULE 1.5
Directors and Officers
DIRECTORS:
Class I:
James R. McNab, Jr.
James Tobin
Doros Platika
Class II:
Douglas A. Melton
Michael Rosenblatt
[Person as yet to be determined]
Class III:
Ruth B. Kunath
Martyn Greenacre
OFFICERS:
The Officers at the Effective Time shall be appointed by the Board of
Directors.
A-45
<PAGE>
EXHIBIT A
Form of Stockholder Agreement
February , 2000
<TABLE>
<S> <C> <C>
Creative Biomolecules, Inc. Reprogenesis, Inc. Ontogeny, Inc
101 Huntington Ave. 21 Erie Street 45 Moulton Street
Boston, MA 02111 Cambridge, MA 02139 Cambridge, MA 02138
Attention: President Attention: President Attention: President
</TABLE>
Re: Stockholder Agreement
Gentlemen:
The undersigned (the "Stockholder") owns of record and beneficially the
number of shares (the "Owned Shares") of common stock [and/or preferred stock]
of [Name of Company], a [Delaware] [Texas] corporation ("Company"), as set
forth below. [On even date herewith], the Company, and (the "Other
Companies") and Curis [intend to enter] into an Agreement and Plan of Merger
(the "Merger Agreement") with respect to the merger (the "Merger") of the
Company and the Other Companies with and into Curis. Such Company common stock
[and/or preferred stock] will be converted in the Merger into shares of the
common stock, par value $.01 per share, of Curis (the "Surviving Company Common
Stock"). The Stockholder wishes to facilitate the proposed Merger, acknowledges
that the proposed Merger will benefit the Stockholder and agrees that the Other
Companies [would not enter into the Merger Agreement] unless the Stockholder
enters into this Agreement. For all purposes of this Agreement, the term "Owned
Shares" shall include any additional shares of Company capital stock as to
which the Stockholder acquires beneficial ownership after the execution hereof.
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and intending to be legally bound hereby, the Stockholder agrees as follows:
1. The Stockholder irrevocably and unconditionally agrees that he, she
or it (a) will vote all of the Owned Shares in favor of the Merger
Agreement and the Merger at any meeting or meetings of the Company's
stockholders called to vote upon the Merger Agreement and the Merger and
(b) will not vote such shares (or otherwise provide a proxy or consent or a
voting agreement with respect thereto) in favor of any other Acquisition
Proposal (as defined in the Merger Agreement) [and (c) will vote to amend
the Certificate/Articles of Incorporation of the Company as contemplated by
Section 8.1(h) of the Merger Agreement.]
2. The Stockholder agrees that he, she or it will not (a) directly or
indirectly, sell, transfer, pledge, assign or otherwise dispose of, or
enter into any contract, option, commitment or other arrangement or
understanding with respect to the sale, transfer, pledge, assignment or
other disposition of, any of the Owned Shares or (b) take any action or
omit to take any action which would prohibit, prevent or preclude
Stockholder from performing its obligations under this Agreement.
3. The Stockholder agrees that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed by it
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Company and each other Company shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement by the Stockholder and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which it is
entitled at law or in equity, and that the Stockholder waives the posting
of any bond or security in connection with any proceeding related thereto.
A-46
<PAGE>
4. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to constitute an original. This Agreement shall
become effective when one counterpart signature page has been signed by the
Stockholder and delivered to the Company (which delivery may be by
facsimile).
5. The Stockholder agrees to execute and deliver all such further
documents, certificates and instruments and take all such further
reasonable action as may be necessary or appropriate, in order to
consummate the transactions contemplated hereby. The Stockholder hereby
agrees not to engage in any transaction involving any securities of the
Other Companies that would violate applicable securities laws.
6. Notwithstanding anything in this Agreement to the contrary, the
Company and the Other Companies understand and agree that (i) Owned Shares
may be subject to liens, encumbrances or restrictions (other than those
relating to voting) arising in connection with pledges of Owned Shares by
the Stockholder or its affiliates that exist as of the date hereof and (ii)
any transfer of Owned Shares pursuant to any bona fide foreclosure under
any such pledge shall not violate this Agreement.
7. The Stockholder represents and warrants to the Company and the Other
Companies that:
(a) the Stockholder has all necessary power and authority to execute
this letter agreement including the irrevocable proxy attached hereto;
(b) the Stockholder owns or controls (regardless of in what
capacity) the number of Owned Shares set forth below free from any
lien, encumbrance or restriction whatsoever (except as otherwise
permitted by Section 6 above) and with full power to vote the Owned
Shares without the consent or approval of any other person;
(c) this letter agreement and the attached proxy have been duly
executed and delivered by the Stockholder and each constitutes a valid
and binding agreement of the Stockholder, enforceable in accordance
with its terms; and
(d) neither the execution nor delivery of this letter agreement and
the attached proxy by the Stockholder will (i) require the consent,
waiver, approval, license or authorization, or any filing with, any
person or public authority, (ii) with or without the giving of notice
or the lapse of time, or both, conflict with or constitute a violation
of, or default under, or give rise to any right of acceleration under
any indenture, contract, commitment, agreement, arrangement or other
instrument of any kind to which the Stockholder is a party or by which
the Stockholder is bound, or (iii) violate any applicable law, rule,
regulation, judgment, order or decree of any governmental
instrumentality or court having jurisdiction over the Stockholder.
8. The Agreement shall terminate on the termination of the Merger
Agreement or at the Effective Time of the Merger provided for in the Merger
Agreement, as the case may be.
A-47
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
and year first above written.
Stockholder:
_____________________________________
Name: _______________________________
Address: ____________________________
_____________________________________
_____________________________________
Spouse (if applicable)
Name: _______________________________
Number of Shares of
Common Stock _______________________
[Number of Shares of Series A
Preferred Stock ____________________
Number of Shares of Series B
Preferred Stock ____________________]
[Number of Shares of Series C
Preferred Stock _____________________
Number of Shares of Series C-1
Preferred Stock ____________________]
[Number of Shares of Series D
Preferred Stock _____________________
Number of Shares of Series E
Preferred Stock ____________________]
[Number of Shares of Series F
Preferred Stock _____________________
Number of Shares of Series G
Preferred Stock ____________________]
A-48
<PAGE>
IRREVOCABLE PROXY FOR THE
STOCKHOLDER AGREEMENT OF COMPANY
By its execution hereof and in order to secure the obligations of the
undersigned set forth in the Stockholder Agreement ("Stockholder Agreement")
dated February , 2000, by and among (the "Company"), the Other Companies
and the undersigned, the undersigned hereby irrevocably constitutes and
appoints the President and the Secretary of each Other Company, and each of
such officers singly, as its true and lawful attorneys-in-fact, to : (1) vote,
in accordance with the Stockholder Agreement, all shares of capital stock of
the Company which the undersigned may be entitled to vote upon the matters set
forth in the Stockholder Agreement at any annual or special meeting of the
stockholders of the Company (but not to vote such shares on any other matter);
(2) to exercise written consent in lieu of voting with respect to the matters
set forth in clause (1); and (3) to execute, acknowledge, swear to and file in
the undersigned's name, place and stead any consent, approval, or other
documents to be executed by the stockholders in connection with the items in
clauses (1) and (2). The Proxy hereby granted is irrevocable and shall be
deemed coupled with an interest in the Stockholder Agreement for the term
stated therein and it shall survive the undersigned's insolvency.
IN WITNESS WHEREOF, the undersigned has executed this Irrevocable Proxy this
day of February, 2000.
_____________________________________
Name: _______________________________
Address: ____________________________
_______________________________
_______________________________
Spouse (if applicable)
_____________________________________
Name: _______________________________
A-49
<PAGE>
EXHIBIT B
FORM OF
CERTIFICATE OF MERGER
OF
EACH OF
CREATIVE BIOMOLECULES, INC., a Delaware Corporation,
ONTOGENY, INC., a Delaware Corporation and
REPROGENESIS, INC., a Texas Corporation
WITH AND INTO
CURIS, INC., a Delaware Corporation
Pursuant to Section 252 of the General Corporation Law of the State of
Delaware, the undersigned corporations organized and existing under and by
virtue of the General Corporation Law of the State of Delaware and the Texas
Business Corporation Act, DO HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the constituent
corporations are as follows:
<TABLE>
<CAPTION>
State Of
Name Incorporation
---- -------------
<C> <S> <C>
Creative Biomolecules,
1. Inc. Delaware
2. Ontogeny, Inc. Delaware
3. Reprogenesis, Inc. Texas
4. Curis, Inc. Delaware
</TABLE>
SECOND: That an Agreement and Plan of Merger dated as of February 14, 2000
by and among Creative Biomolecules, Inc., Ontogeny, Inc., Reprogenesis, Inc.
and Curis, Inc. has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with the
requirements of Section 252 of the General Corporation Law of the state of
Delaware.
THIRD: That the name of the surviving corporation of the merger is Curis,
Inc. (the "Surviving Corporation").
FOURTH: That the Certificate of Incorporation of CURIS shall be the
Certificate of Incorporation of the Surviving Corporation.
FIFTH: That the executed copy of the Agreement and Plan of Merger is on
file at an office of the Surviving Corporation. The address of such office is:
Curis, Inc.
__________________________________
__________________________________
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<PAGE>
SIXTH: That a copy of the Agreement and Plan of Merger will be furnished by
the Surviving Corporation, on request and without cost, to any stockholder of
the constituent corporations.
SEVENTH: That the authorized capital stock of Reprogenesis, Inc. is as
follows:
<TABLE>
<S> <C> <C>
Common Stock: 30,084,501
Preferred
Stock: 7,747,153
Series A: 2,702,702
Series B: 5,044,451
Total: 37,831,654
</TABLE>
IN WITNESS WHEREOF, the undersigned, being the President of CURIS, does
hereby execute this Certificate of Merger and so certifies, affirms and
acknowledges under penalties of perjury that this is his free act and deed and
that the facts stated herein are true, this , 2000.
[ ]
By: _________________________________
, President
A-51
<PAGE>
EXHIBIT C
ARTICLES OF MERGER
merging
REPROGENESIS, INC.
(a Texas corporation),
ONTOGENY, INC.
(a Delaware corporation),
and
CREATIVE BIOMOLECULES, INC.
(a Delaware corporation)
with and into
CURIS, INC.
(a Delaware corporation)
Pursuant to the provisions of Article 5.04 of the Texas Business Corporation
Act (the "TBCA"), Reprogenesis, Inc., a Texas corporation (the "Company"),
Ontogeny, Inc., a Delaware corporation ("Ontogeny"), Creative Biomolecules,
Inc., a Delaware corporation ("Creative"), and Curis, Inc., a Delaware
corporation (the "Surviving Corporation"), hereby adopt the following Articles
of Merger for the purpose of effecting the merger (the "Merger") of the
Company, Ontogeny and Creative with and into the Surviving Corporation, with
the Surviving Corporation continuing in existence following the Merger as the
surviving corporation:
FIRST: The name and state of incorporation of each party (the "Constituent
Entities") to the Agreement and Plan of Merger attached as Exhibit A (the
"Agreement and Plan of Merger") are as follows:
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
Reprogenesis, Inc. Texas
Ontogeny, Inc. Delaware
Creative Biomolecules, Inc. Delaware
Curis, Inc. Delaware
</TABLE>
SECOND: The Agreement and Plan of Merger was approved by the stockholders of
the Company in the manner required by Article 5.03 of the TBCA and by the
stockholders of each of Ontogeny, Creative and the Surviving Corporation in the
manner required by Section 252 of the Delaware General Corporation Law.
THIRD: An executed copy of the Agreement and Plan of Merger is on file at
the principal place of business of the Surviving Corporation at 45 Moulton
Street, Cambridge, Massachusetts 02138, and a copy of the Agreement and Plan of
Merger will be furnished by such entity, on written request and without cost,
to any shareholder of any of the Constituent Entities.
FOURTH: The outstanding capital stock of the Company consists of 14,744,524
shares of common stock, par value $0.01 per share (the "Company Common Stock"),
2,702,702 shares of Series A Convertible Preferred Stock, par value $0.01 per
share (the "Company Series A Preferred Stock") and 4,729,134 shares of Series B
Convertible Preferred Stock, par value $0.01 per share (the "Company Series B
Preferred Stock" and, together with the Company Series A Preferred Stock, the
"Company Preferred Stock"). shares of the Company Common Stock and the
Company Preferred Stock were voted in favor of and shares of the
A-52
<PAGE>
Company Common Stock and the Company Preferred Stock were voted against the
Merger pursuant to the terms and conditions of the Agreement and Plan of
Merger. of the shares of the Company Series A Preferred Stock and shares
of the Company Series B Preferred Stock were voted in favor of and shares
of the Company Series A Shares and shares of Company Series B Shares were
voted against the Merger pursuant to the terms and conditions of the Agreement
and Plan of Merger.
FIFTH: The outstanding capital stock of Creative consists of 37,138,705
shares of common stock, par value $0.01 per share (the "Creative Common
Stock"). shares of the Creative Common Stock were voted in favor of and
shares of Creative Common Stock were voted against the Merger pursuant to the
terms and conditions of the Agreement and Plan of Merger.
SIXTH: The outstanding capital stock of Ontogeny consists of 2,892,815
shares of common stock, par value $0.01 per share (the "Ontogeny Common
Stock"), 4,853,334 shares of Series A Convertible Preferred Stock, par value
$0.01 per share (the "Ontogeny Series A Preferred Stock"), 7,447,223 shares of
Series B Convertible Preferred Stock, par value $0.01 per share (the "Ontogeny
Series B Preferred Stock"), 400,000 shares of Series C Convertible Preferred
Stock, par value $0.01 per share (the "Ontogeny Series C Preferred Stock"),
800,000 shares of Series C-1 Convertible Preferred Stock, par value $0.01 per
share (the "Ontogeny Series C-1 Preferred Stock"), 600,000 shares of Series D
Convertible Preferred Stock, par value $0.01 per share (the "Ontogeny Series D
Preferred Stock"), 10,000,000 shares of Series E Convertible Preferred Stock,
par value $0.01 per share (the "Ontogeny Series E Preferred Stock"), 8,379,593
shares of Series F Convertible Preferred Stock, par value $0.01 per share (the
"Ontogeny Series F Preferred Stock"), and 400,000 shares of Series G
Convertible Preferred Stock, par value $0.01 per share (the "Ontogeny Series G
Preferred Stock" and, together with the Ontogeny Series A Preferred Stock,
Ontogeny Series B Preferred Stock, Ontogeny Series C Preferred Stock, Ontogeny
Series C-1 Preferred Stock, Ontogeny Series D Preferred Stock, Ontogeny Series
E Preferred Stock and Ontogeny Series F Preferred Stock, the "Ontogeny
Preferred Stock"). shares of the Ontogeny Common Stock and Ontogeny
Preferred Stock were voted in favor of and shares of Ontogeny Common Stock
and Ontogeny Preferred Stock were voted against the Merger pursuant to the
terms and conditions of the Agreement and Plan of Merger. shares of
Ontogeny Series A Preferred Stock, Ontogeny Series B Preferred Stock, Ontogeny
Series E Preferred Stock and Ontogeny Series F Preferred Stock were voted in
favor of and shares of Ontogeny Series A Preferred Stock, Ontogeny Series B
Preferred Stock, Ontogeny Series E Preferred Stock and Ontogeny Series F
Preferred Stock were voted against the Merger pursuant to the terms and
conditions of the Agreement and Plan of Merger.
SEVENTH: The outstanding capital stock of the Surviving Corporation consists
of 300 shares of common stock, par value $0.01 per share ("Surviving
Corporation Common Stock"). Each of the Company, Ontogeny and Creative owns 100
shares of the Surviving Corporation's Common Stock. All shares of Surviving
Corporation Common Stock were voted in favor of the Merger pursuant to the
terms and conditions of the Agreement and Plan of Merger.
EIGHTH: The Agreement and Plan of Merger and the performance of its terms
were duly authorized by all action required by the laws of the State of
Delaware and by the constituent documents of each of Ontogeny, Creative and the
Surviving Corporation.
NINTH: The Agreement and Plan of Merger and the performance of its terms
were duly authorized by all actions required by the laws of the State of Texas
and by the constituent documents of the Company.
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned corporations has caused these
Articles of Merger to be executed on its behalf on , 2000.
REPROGENESIS, INC.
a Texas corporation
By: _________________________________
Name:
Title:
ONTOGENY, INC.
a Delaware corporation
By: _________________________________
Name:
Title:
CREATIVE BIOMOLECULES, INC.
a Delaware corporation
By: _________________________________
Name:
Title:
CURIS, INC.
a Delaware corporation
By: _________________________________
Name:
Title:
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<PAGE>
EXHIBIT D
FORM OF CURIS CERTIFICATE OF INCORPORATION
CERTIFICATE OF INCORPORATION
OF
CURIS, INC.
FIRST: The name of this corporation (the "Corporation") is Curis, Inc.
SECOND: The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle, and the name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The Corporation is authorized to issue two classes of capital stock,
one of which is designated as common stock, $.01 par value per share ("Common
Stock"), and the other of which is designated as preferred stock, $.01 par
value per share ("Preferred Stock"). The total number of shares of both classes
of capital stock that the Corporation shall have authority to issue is 145
million shares, consisting of 125 million shares of Common Stock and 20 million
shares of Preferred Stock. The Preferred Stock may be issued from time to time
in one or more series as set forth in Section (b) of this Article FOURTH. The
following is a statement of the designations and the powers, preferences and
rights of, and the qualifications, limitations or restrictions applicable to,
each class of capital stock of the Corporation.
(a) Common Stock
(1) General. The voting, dividend and liquidation rights of holders of
Common Stock are subject to and qualified by the rights of holders of
Preferred Stock of any series as may be designated in any resolution or
resolutions providing for the issue of such series as may be adopted by the
board of directors as hereinafter provided.
(2) Voting. Holders of Common Stock are entitled to one vote for each
share held at all meetings of stockholders. The number of authorized shares
of Common Stock may be increased or deceased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of
a majority of the capital stock of the Corporation entitled to vote,
irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of the State of Delaware.
(3) Dividends. Dividends may be declared and paid on Common Stock from
funds lawfully available therefor, as and when determined by the board of
directors and subject to any preferential dividend rights of any series of
Preferred Stock then outstanding.
(4) Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled
to receive all assets of the Corporation available for distribution to
stockholders of the Corporation, subject to any preferential rights of any
series of Preferred Stock then outstanding.
(b) Preferred Stock
(1) Issuance. Preferred Stock may be issued from time to time in one or
more series, each of which series shall have such terms as are set forth
herein and in any resolution or resolutions providing for the issue of such
series as may be adopted by the board of directors as hereinafter provided.
Any shares of Preferred Stock that may be redeemed, purchased or acquired
by the Corporation may be reissued except as otherwise expressly provided
in this Certificate of Incorporation or provided by law. Different series
of Preferred Stock shall not be construed to constitute different classes
of capital stock for the purposes of voting by classes unless expressly
provided.
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<PAGE>
(2) Authority of Board. Authority is hereby expressly granted to the
board of directors to provide for the issuance of Preferred Stock from time
to time in one or more series, and in connection with the creation of any
such series, to determine and fix such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative
participating, optional or other special rights thereof, and
qualifications, limitations or restrictions applicable thereto, as shall be
stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of the State of
Delaware. Without limiting the generality of the foregoing, a resolution or
resolutions providing for issuance of any series of Preferred Stock may
provide for dividend rights, conversion rights, redemption privileges and
liquidation preferences applicable to such series and may provide that such
series shall rank superior, equal or junior to the Preferred Stock of any
other series, in each case except as otherwise expressly provided in this
Certificate of Incorporation or as provided by law. Except as otherwise
provided in this Certificate of Incorporation, no vote of holders of Common
Stock or holders of Preferred Stock shall be a prerequisite to the
designation or issuance of any shares of any series of Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation.
FIFTH: Special meetings of stockholders may be called at any time by the
Chairman of the Board, the Chief Executive Officer (or if there is no Chief
Executive Officer, the President) or the board of directors. Business
transacted at any special meeting of stockholders shall be limited to matters
relating to the purpose or purposes stated in the notice of the general
meeting.
SIXTH: No director shall be personally liable to the Corporation or to any
of its stockholders for monetary damages arising out of such director's breach
of fiduciary duty as a director of the Corporation, except to the extent that
the elimination or limitation of such liability is not permitted by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter
be amended. No amendment to or repeal of the provisions of this Article SIXTH
shall deprive any director of the Corporation of the benefit of the provisions
of this Article SIXTH with respect to any act or failure to act of any director
occurring prior to such amendment or repeal.
SEVENTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided that:
(a) Amendment of By-Laws
Subject to the limitations and exceptions, if any, contained in the by-laws
of the Corporation, the by-laws may be adopted, amended or repealed by the
board of directors.
(b) Election of Directors
Elections of directors need not be by written ballot unless otherwise
provided in the by-laws of the Corporation.
(c) Location of Corporate Books
Subject to any applicable requirements of the General Corporation Law of the
State of Delaware, the books of the Corporation may be kept outside the State
of Delaware at such location or locations as may be designated from time to
time by the board of directors or in the by-laws of the Corporation.
EIGHTH: The Corporation shall indemnify each person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that such person is or was, or has agreed to become, a
director or officer of the Corporation, or is or was serving or has agreed to
serve, at the request of the Corporation, as a director, officer or trustee of,
or in a similar capacity with, another corporation (including any partially or
wholly owned subsidiary of the Corporation), partnership, joint venture, trust
or other enterprise (including any employee benefit plan), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any such action, suit or
proceeding to the maximum extent permitted by the
A-56
<PAGE>
General Corporation Law of Delaware. The foregoing right of indemnification
shall in no way be exclusive of any other rights of indemnification to which
any such director or officer may be entitled, under any by-law, agreement, vote
of directors or stockholders or otherwise. No amendment to or repeal of the
provisions of this paragraph shall deprive a person of the benefit of this
paragraph with respect to any act or failure to act of such person occurring
prior to such amendment or repeal.
NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them or between the Corporation
and its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under Section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for the Corporation under Section 279
of Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by the General Corporation Law of the State of Delaware
and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding
any provision of law, any other provision of this Certificate of Incorporation
or any provision of the by-laws of the Corporation, the affirmative vote of the
holders of three- fourths of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with, any provision of Article
FIFTH or this Article TENTH.
ELEVENTH: The name of the sole incorporator of the Corporation is Jonathan
H. Hulbert and his mailing address is c/o Foley, Hoag & Eliot LLP, One Post
Office Square, Boston, Massachusetts 02109.
IN WITNESS WHEREOF, I have hereunto set my hand as of February 14, 2000.
-------------------------------------
Jonathan H. Hulbert
Sole Incorporator
A-57
<PAGE>
EXHIBIT E
FORM OF AFFILIATE AGREEMENT
, 2000
Curis, Inc.
_____________________________________
_____________________________________
Attention: President
[Name of Company]
_____________________________________
_____________________________________
Attention: President
Ladies and Gentlemen:
I/We have been advised that I/we might be considered to be an "affiliate" of
[Company Name] (the "Company") for purposes of Rule 145 ("Rule 145") under the
Securities Act of 1933, as amended (the "Securities Act"), as promulgated by
the Securities and Exchange Commission (the "SEC").
, , ("Curis") and the Company have entered into an Agreement and
Plan of Merger dated as of the 14th day of February, 2000 (the "Plan of
Merger"). Upon consummation of the transactions contemplated by the Plan of
Merger (the "Merger"), I/we will receive shares of capital stock of Curis for
all of the shares of capital stock of the Company owned by me/us or as to which
I/we may be deemed a beneficial owner. I/We own shares of the common stock,
[$.01] par value per share, of the Company (the "Company's Common Stock")
[and/or shares of Preferred Stock, [$.01] par value per share (the "Preferred
Stock")] [and/or options to acquire shares of the Company's Common Stock
(the "Options")] [and/or warrants to acquire shares of the Company's Common
Stock (the "Warrants")]. The Company's Common Stock [the Company's Preferred
Stock] will be converted in the Merger into shares of the common stock, $.01
par value per share, of Curis (the "Curis Common Stock") as described in the
Plan of Merger. The shares of Curis Common Stock received by me/us in the
Merger are hereinafter collectively referred to as the "Exchange Stock". This
agreement is hereinafter referred to as the "Affiliate Agreement".
I/We represent and warrant to, and agree with, , , Curis and the
Company that:
A. I/We have read this Affiliate Agreement and the Plan of Merger and have
discussed their requirements and other applicable limitations upon my/our
ability to sell, transfer or otherwise dispose of the Exchange Stock, to the
extent I/we felt necessary, with my/our counsel or counsel for the Company.
B. I/We understand that my/our resale of Exchange Stock issued to me/us in
the Merger will be subject to certain restrictions on transfer in accordance
with Rule 145 under the Securities Act, and in connection therewith I/we agree
not to offer, sell, pledge, transfer or otherwise dispose of any of such shares
of Exchange Stock unless at such time either: (i) such transaction shall be
permitted pursuant to the provisions of Rule 145; (ii) I/we shall have
furnished to Curis an opinion of counsel, satisfactory to Curis, to the effect
that no registration under the Securities Act would be required in connection
with the proposed offer, sale, pledge, transfer or other disposition; (iii) a
registration statement under the Securities Act covering the proposed offer,
sale, pledge, transfer or other disposition shall be effective under the
Securities Act; or (iv) an authorized representative of the SEC shall have
rendered written advice to me/us to the effect that the SEC will take no
action, or that the staff of the SEC will not recommend that the SEC take
action, with respect to the proposed offer, sale, pledge transfer or other
disposition if consummated.
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<PAGE>
C. I/We understand that all certificates representing the Exchange Stock
delivered to me/us pursuant to the Merger shall, until the occurrence of one of
the events referred to in paragraph B. above, bear a legend substantially as
follows:
"The shares represented by this certificate may not be offered, sold,
pledged, transferred or otherwise disposed of except in accordance with the
requirements of Rule 145 of the Securities Act of 1933, as amended."
D. I/We also understand and agree that Curis, in its discretion and in a
manner consistent with the legend set forth above, may cause stop transfer
orders to be placed with its transfer agent with respect to the certificates
for the shares of Exchange Stock which are required to bear the foregoing
legend.
E. I/we agree to comply with the prohibition described in Section 6.1(a) of
the Agreement.
It is understood and agreed that this Affiliate Agreement shall terminate
and be of no further force and effect if the Plan of Merger is terminated
pursuant to the terms thereof.
This Affiliate Agreement shall be binding on my/our heirs, legal
representatives and successors.
Very truly yours,
_____________________________________
Name:
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<PAGE>
EXHIBIT F
FORM OF LOCK-UP AGREEMENT
, 2000
Curis, Inc. (the "Surviving Company")
_____________________
_____________________
Re: Proposed Merger
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
common stock and/or preferred stock of [Name of Company] (the "Company") or
securities convertible into or exchangeable or exercisable for common stock. It
is contemplated that the Company will merge (the "Merger") with and into the
Surviving Company pursuant to an Agreement and Plan of Merger (the "Agreement")
dated as of February 14, 2000. Pursuant to the Merger, each outstanding share
of capital stock of the Company will be exchanged and converted into shares of
Common Stock of the Surviving Company (the "Common Stock"), and securities
convertible into or exchangeable or exercisable for common stock of the Company
will become convertible into or exchangeable or exercisable for Common Stock,
all as more specifically provided in the Agreement. The undersigned wishes to
facilitate the proposed Merger and acknowledges that the proposed Merger will
be of benefit to the undersigned.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, until the earlier of the end of the [90] [180] day period
following from the Effective Time (as defined in the Agreement), or termination
of the Agreement in accordance with its terms, (1) offer, sell, contract to
sell, grant any option to purchase or acquire any right to dispose or otherwise
dispose for value, any shares of Common Stock or any securities convertible
into, or exchangeable for, or warrants to purchase, any shares of Common Stock
(including, without limitation, Common Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations promulgated under the federal securities laws), or (2) enter into
any swap, short sale, hedge or other agreement that transfers, in whole or in
part, the economic risk of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, other than (a)
pursuant to bona fide gifts, (b) transfers which will not result in any change
in beneficial ownership, including, but not limited to, pro rata partnership
distributions and transfers into trusts for the benefit of the original holder
or (c) pursuant to the laws of testamentary or intestate descent, provided,
that, in any of the foregoing circumstances the donees or transferees agree, in
writing, to be bound by the provisions of this Lock Up Agreement. The
undersigned also agrees and consents to the entry of stop transfer instructions
imposed by the Surviving Company with the Surviving Company's transfer agent
and registrar against the transfer of shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock held by the
undersigned except in compliance with the foregoing restrictions.
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<PAGE>
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
Very truly yours,
_____________________________________
Printed Name of Holder
By: _________________________________
Signature
_____________________________________
Printed Name of Person Signing
(and indicate capacity of person
signing
if signing as custodian, trustee, or
on behalf of an entity)
Dated: , 2000
A-61
<PAGE>
EXHIBIT G
FORM OF CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ONTOGENY, INC.
ONTOGENY, INC. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation duly adopted
resolutions proposing and declaring advisable that the Amended and Restated
Certificate of Incorporation of the Corporation be amended in the manner set
forth below and that said amendments be submitted to the stockholders of the
Corporation for their consideration:
SECOND: That in lieu of a meeting and vote of stockholders, the stockholders
have given written consent to said amendments in accordance with the provisions
of Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
THIRD: That the Certificate of Incorporation of the Corporation, as
previously amended and restated, is further amended as follows:
1. The following sentence shall be inserted at the end of Subsection
C.2(c) of Article FOURTH:
"Notwithstanding the foregoing, the provisions of this Subsection
2(c) shall not apply to a merger of the Corporation with and into
Curis, Inc., a Delaware corporation, (the "Excluded Merger") pursuant
to the Agreement and Plan of Merger dated as of February 14, 2000 among
the Corporation, Curis, Inc., Creative Biomolecules, Inc., a Delaware
corporation, and Reprogenesis, Inc., a Texas corporation, as such
agreement may be amended from time to time in accordance with the
provisions thereof, and the Excluded Merger shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation."
2. The following sentence shall be inserted at the end of Subsection
C.4(i) of Article FOURTH:
"Notwithstanding the foregoing, the provisions of this Subsection
4(i) shall not apply to the Excluded Merger."
3. The following sentence shall be inserted at the end of Subsection
D.4(h) of Article FOURTH:
"Notwithstanding the foregoing, the provisions of this Subsection
4(h) shall not apply to the Excluded Merger."
4. The following sentence shall be inserted at the end of Subsection
E.4(h) of Article FOURTH:
"Notwithstanding the foregoing, the provisions of this Subsection
4(h) shall not apply to the Excluded Merger."
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<PAGE>
5. The following sentence shall be inserted at the end of Subsection
4(h) of the Certificate of Designation of the Series C-1 Convertible
Preferred Stock:
"Notwithstanding the foregoing, the provisions of this Subsection
4(h) shall not apply to the Excluded Merger."
6. The following sentence shall be inserted at the end of Subsection
4(h) of the Certificate of Designation of the Series G Convertible
Preferred Stock:
"Notwithstanding the foregoing, the provisions of this Subsection
4(h) shall not apply to the Excluded Merger."
FOURTH: That the aforesaid amendments were duly adopted in accordance with
the applicable provisions of Sections 228 and 242 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, Ontogeny, Inc. has caused this certificate to be signed
by Doros Platika, its President, this day of 2000.
Ontogeny, Inc.
By: _________________________________
Doros Platika
Its: President
A-63
<PAGE>
EXHIBIT H
ARTICLES OF AMENDMENT TO THE
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
REPROGENESIS, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business Corporation
Act (the "TBCA"), Reprogenesis, Inc., a Texas corporation (the "Corporation"),
hereby adopts the following Articles of Amendment to its Second Amended and
Restated Articles of Incorporation, as amended October 13, 1999:
Article I
The name of the corporation is Reprogenesis, Inc.
Article II
These Articles of Amendment to the Second Amended and Restated Articles of
Incorporation of the Corporation, as amended October 13, 1999, were adopted by
the written consent of the holders of the common stock of the Corporation, the
Series A Preferred Stock of the Corporation and the Series B Preferred Stock of
the Corporation as of , 2000.
Article III
In order to clarify the liquidation rights of the Corporation's Series A
Preferred Stock upon the consummation of the proposed merger of the Corporation
with Creative Biomolecules, Inc. ("Creative") and Ontogeny, Inc. ("Ontogeny")
into Curis, Inc. ("Curis"), the following new sentences are added to the last
line of Article Four D.3(a) before the words "After such payment":
Notwithstanding anything to the contrary in this section 3(a), upon the
consummation of the merger of the Corporation with Creative and
Ontogeny into Curis (the "Merger") pursuant to the Agreement and Plan
of Merger among Creative, Ontogeny, the Corporation and Curis dated as
of February 14, 2000, each holder of a share of Series A Preferred
shall be entitled to receive in respect of each share of Series A
Preferred that such holders own, in full satisfaction of the
liquidation preference specified in this section 3(a), the number of
fully paid and nonassessable shares of common stock, par value $0.01
per share, of the surviving entity (the "Surviving Company Common
Stock") equal to the Series A Consideration divided by 2,702,702. In
addition, each holder of Series A Preferred who would otherwise be
entitled to a fraction of a share shall receive cash in lieu of any
fraction of a share of Surviving Company Common Stock. "Series A
Consideration" shall mean the lesser of (A) the number of fully paid
and nonassessable shares of Surviving Company Common Stock whose
aggregate Trailing Average Market Price equals $6,000,000, and (B) the
Fully Diluted Merger Consideration. For the purposes of this section
3(a), "Trailing Average Market Price" shall mean the average of the
daily Market Price for each business day on the twenty (20) consecutive
business days the last day of which shall be the fifth business day
prior to the effective time of the Merger, divided by 0.30; "Fully
Diluted Merger Consideration" shall mean the product of 0.1956 and the
aggregate number of shares of Common Stock and Series Preferred either
issued or outstanding or subject to outstanding options or warrants to
purchase immediately prior to the consummation of the Merger [(other
than any such shares held in the treasury of the Corporation)]; and
"Market Price" at any date shall be deemed to be the last reported sale
price of common stock, par value $0.01 per share, of Creative, or, in
case no such reported sale takes place on such day, the average of the
bid and asked prices, in either case as officially reported by the
Nasdaq National Market, or, if the Nasdaq National Market is no longer
reporting such information, as reasonably determined in good faith by
resolution of the Board of Directors of the Corporation.
A-64
<PAGE>
Article IV
The designation and number of outstanding shares of each class or series
entitled to vote thereon and the number of shares which have signed a consent
in writing pursuant to Article 9.10A of the TBCA adopting said Articles of
Amendment were as follows:
<TABLE>
<CAPTION>
Number of Number
Shares of
Outstanding Shares
and Signing
Entitled to Written
Vote Consent
----------- -------
<S> <C> <C>
Common Stock, par value $0.01........
Series A Preferred Stock, par value
$0.01...............................
Series B Preferred Stock, par value
$0.01...............................
</TABLE>
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to the Amended and Restated Articles of Incorporation to be duly executed as of
the day of , 2000.
REPROGENESIS, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
A-65
<PAGE>
EXHIBIT 3.1
FORM OF CURIS CERTIFICATE OF INCORPORATION
CERTIFICATE OF INCORPORATION
OF
CURIS, INC.
FIRST: The name of this corporation (the "Corporation") is Curis, Inc.
SECOND: The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle, and the name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The Corporation is authorized to issue two classes of capital stock,
one of which is designated as common stock, $.01 par value per share ("Common
Stock"), and the other of which is designated as preferred stock, $.01 par
value per share ("Preferred Stock"). The total number of shares of both classes
of capital stock that the Corporation shall have authority to issue is 145
million shares, consisting of 125 million shares of Common Stock and 20 million
shares of Preferred Stock. The Preferred Stock may be issued from time to time
in one or more series as set forth in Section (b) of this Article FOURTH. The
following is a statement of the designations and the powers, preferences and
rights of, and the qualifications, limitations or restrictions applicable to,
each class of capital stock of the Corporation.
(a) Common Stock
(1) General. The voting, dividend and liquidation rights of holders of
Common Stock are subject to and qualified by the rights of holders of
Preferred Stock of any series as may be designated in any resolution or
resolutions providing for the issue of such series as may be adopted by the
board of directors as hereinafter provided.
(2) Voting. Holders of Common Stock are entitled to one vote for each
share held at all meetings of stockholders. The number of authorized shares
of Common Stock may be increased or deceased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of
a majority of the capital stock of the Corporation entitled to vote,
irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of the State of Delaware.
(3) Dividends. Dividends may be declared and paid on Common Stock from
funds lawfully available therefor, as and when determined by the board of
directors and subject to any preferential dividend rights of any series of
Preferred Stock then outstanding.
(4) Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled
to receive all assets of the Corporation available for distribution to
stockholders of the Corporation, subject to any preferential rights of any
series of Preferred Stock then outstanding.
(b) Preferred Stock
(1) Issuance. Preferred Stock may be issued from time to time in one or
more series, each of which series shall have such terms as are set forth
herein and in any resolution or resolutions providing for the issue of such
series as may be adopted by the board of directors as hereinafter provided.
Any shares of Preferred Stock that may be redeemed, purchased or acquired
by the Corporation may be reissued except as otherwise expressly provided
in this Certificate of Incorporation or provided by law. Different series
of Preferred Stock shall not be construed to constitute different classes
of capital stock for the purposes of voting by classes unless expressly
provided.
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<PAGE>
(2) Authority of Board. Authority is hereby expressly granted to the
board of directors to provide for the issuance of Preferred Stock from time
to time in one or more series, and in connection with the creation of any
such series, to determine and fix such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative
participating, optional or other special rights thereof, and
qualifications, limitations or restrictions applicable thereto, as shall be
stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of the State of
Delaware. Without limiting the generality of the foregoing, a resolution or
resolutions providing for issuance of any series of Preferred Stock may
provide for dividend rights, conversion rights, redemption privileges and
liquidation preferences applicable to such series and may provide that such
series shall rank superior, equal or junior to the Preferred Stock of any
other series, in each case except as otherwise expressly provided in this
Certificate of Incorporation or as provided by law. Except as otherwise
provided in this Certificate of Incorporation, no vote of holders of Common
Stock or holders of Preferred Stock shall be a prerequisite to the
designation or issuance of any shares of any series of Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation.
FIFTH: Special meetings of stockholders may be called at any time by the
Chairman of the Board, the Chief Executive Officer (or if there is no Chief
Executive Officer, the President) or the board of directors. Business
transacted at any special meeting of stockholders shall be limited to matters
relating to the purpose or purposes stated in the notice of the general
meeting.
SIXTH: No director shall be personally liable to the Corporation or to any
of its stockholders for monetary damages arising out of such director's breach
of fiduciary duty as a director of the Corporation, except to the extent that
the elimination or limitation of such liability is not permitted by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter
be amended. No amendment to or repeal of the provisions of this Article SIXTH
shall deprive any director of the Corporation of the benefit of the provisions
of this Article SIXTH with respect to any act or failure to act of any director
occurring prior to such amendment or repeal.
SEVENTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided that:
(a) Amendment of By-Laws
Subject to the limitations and exceptions, if any, contained in the by-laws
of the Corporation, the by-laws may be adopted, amended or repealed by the
board of directors.
(b) Election of Directors
Elections of directors need not be by written ballot unless otherwise
provided in the by-laws of the Corporation.
(c) Location of Corporate Books
Subject to any applicable requirements of the General Corporation Law of the
State of Delaware, the books of the Corporation may be kept outside the State
of Delaware at such location or locations as may be designated from time to
time by the board of directors or in the by-laws of the Corporation.
EIGHTH: The Corporation shall indemnify each person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that such person is or was, or has agreed to become, a
director or officer of the Corporation, or is or was serving or has agreed to
serve, at the request of the Corporation, as a director, officer or trustee of,
or in a similar capacity with, another corporation (including any partially or
wholly owned subsidiary of the Corporation), partnership, joint venture, trust
or other enterprise (including any employee benefit plan), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any such action, suit or
proceeding to the maximum extent permitted by the
E-2
<PAGE>
General Corporation Law of Delaware. The foregoing right of indemnification
shall in no way be exclusive of any other rights of indemnification to which
any such director or officer may be entitled, under any by-law, agreement, vote
of directors or stockholders or otherwise. No amendment to or repeal of the
provisions of this paragraph shall deprive a person of the benefit of this
paragraph with respect to any act or failure to act of such person occurring
prior to such amendment or repeal.
NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them or between the Corporation
and its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under Section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for the Corporation under Section 279
of Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by the General Corporation Law of the State of Delaware
and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding
any provision of law, any other provision of this Certificate of Incorporation
or any provision of the by-laws of the Corporation, the affirmative vote of the
holders of three- fourths of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with, any provision of Article
FIFTH or this Article TENTH.
ELEVENTH: The name of the sole incorporator of the Corporation is Jonathan
H. Hulbert and his mailing address is c/o Foley, Hoag & Eliot LLP, One Post
Office Square, Boston, Massachusetts 02109.
IN WITNESS WHEREOF, I have hereunto set my hand as of February 14, 2000.
-------------------------------------
Jonathan H. Hulbert
Sole Incorporator
E-3
<PAGE>
EXHIBIT 3.2
CURIS, INC.
BY-LAWS
Adopted as of February 14, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. CERTIFICATE OF INCORPORATION AND BY-LAWS ........................ 1
1.1. Conflicts .................................................. 1
1.2. References ................................................. 1
SECTION 2. OFFICES ......................................................... 1
2.1. Registered Office .......................................... 1
2.2. Other Offices .............................................. 1
SECTION 3. STOCKHOLDERS .................................................... 1
3.1. Location of Meetings ....................................... 1
3.2. Annual Meeting ............................................. 1
3.3. Special Meeting in Place of Annual Meeting ................. 1
3.4. Notice of Annual Meeting ................................... 1
3.5. Other Special Meetings ..................................... 2
3.6. Notice of Special Meeting .................................. 2
3.7. Stockholder List ........................................... 2
3.8. Quorum of Stockholders ..................................... 2
3.9. Adjournment ................................................ 2
3.10. Proxy Representation ....................................... 3
3.11. Inspectors ................................................. 3
3.12. Action by Vote ............................................. 3
3.13. Nomination of Directors .................................... 3
3.14. Notice of Business at Annual Meetings ...................... 4
3.15. Organization ............................................... 4
3.16. Action Without Meetings .................................... 5
SECTION 4. DIRECTORS ....................................................... 5
4.1. Powers ..................................................... 5
4.2. Number ..................................................... 5
4.3. Vacancies .................................................. 5
4.4. Classes of Directors ....................................... 5
4.5. Terms of Office ............................................ 6
4.6. Committees ................................................. 6
4.7. Regular Meetings ........................................... 6
4.8. Special Meetings ........................................... 6
4.9. Notice ..................................................... 6
4.10. Quorum ..................................................... 6
4.11. Action by Vote ............................................. 7
4.12. Action Without a Meeting ................................... 7
4.13. Participation in Meetings by Conference Telephone .......... 7
4.14. Compensation ............................................... 7
4.15. Removal or Resignation of Directors ........................ 7
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<PAGE>
SECTION 5. NOTICES ......................................................... 7
5.1. Form of Notice ............................................. 7
5.2. Waiver of Notice ........................................... 8
SECTION 6. OFFICERS AND AGENTS ............................................. 8
6.1. Enumeration; Qualification ................................. 8
6.2. Election ................................................... 8
6.3. Tenure ..................................................... 8
6.4. Powers ..................................................... 8
6.5. President .................................................. 8
6.6. Vice President ............................................. 9
6.7. Secretary and Assistant Secretaries ........................ 9
6.8. Treasurer and Assistant Treasurers ......................... 9
6.9. Resignation and Removal .................................... 10
6.10. Vacancies .................................................. 10
SECTION 7. CAPITAL STOCK ................................................... 10
7.1. Stock Certificates ......................................... 10
7.2. Stock Issuances ............................................ 10
7.3. Stock Transfers ............................................ 11
7.4. Lost, Stolen or Destroyed Certificates ..................... 11
7.5. Record Date ................................................ 11
SECTION 8. GENERAL PROVISIONS .............................................. 11
8.1. Fiscal Year ................................................ 12
8.2. Seal ....................................................... 12
8.3. Dividends .................................................. 12
8.4. Checks ..................................................... 12
8.5. Voting of Securities ....................................... 12
8.6. Evidence of Authority ...................................... 12
8.7. Interested Parties ......................................... 12
8.8. Construction; Definitions .................................. 13
8.10. Provisions Contrary to Provisions of Law ................... 13
SECTION 9. AMENDMENT OF BY-LAWS ............................................ 13
9.1. By Board of Directors ...................................... 13
9.2. By Stockholders ............................................ 13
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<PAGE>
SECTION 1. CERTIFICATE OF INCORPORATION AND BY-LAWS.
1.1. Conflicts. In the event of any conflict between the provisions of
these by-laws and the provisions of the certificate of incorporation of Curis,
Inc. (the "Corporation"), the provisions of the certificate of incorporation
shall govern.
1.2. References. In these by-laws, references to the certificate of
incorporation and by-laws mean the provisions of the certificate of
incorporation of the Corporation and these by-laws, respectively, as are from
time to time in effect.
SECTION 2. OFFICES.
2.1. Registered Office. The registered office of the Corporation shall be
as fixed in the certificate of incorporation of the Corporation.
2.2. Other Offices. The Corporation may also have offices at such other
places within or without the State of Delaware as the board of directors may
from time to time determine or the business of the Corporation may require.
SECTION 3. STOCKHOLDERS.
3.1. Location of Meetings. All meetings of stockholders shall be held at
such places within or without the State of Delaware as shall be designated from
time to time by the board of directors or the Chief Executive Officer (or if
there is no Chief Executive Officer, the President) or, if not so designated, at
the principal office of the Corporation. Any adjourned session of any meeting
shall be held at the place designated in the vote of adjournment.
3.2. Annual Meeting. The annual meeting of stockholders shall be held at 10
A.M. on the second Wednesday in May in each year (unless that day shall be a
legal holiday at the location where the meeting is to be held, in which case the
meeting shall be held at 10 A.M. on the next succeeding day that is not a legal
holiday) or at such other time and date as shall be designated from time to time
by the board of directors or the President, at which the stockholders shall
elect a board of directors and transact such other business as may be required
by law or these by-laws or as may otherwise properly come before the meeting.
3.3. Special Meeting in Place of Annual Meeting. If the election of
directors shall not be held on the day designated by these by-laws, the board of
directors shall cause the election to be held as soon thereafter as convenient.
To that end, if the annual meeting is not held on the day provided in Subsection
3.2 or if the election of directors is not held at the annual meeting, a special
meeting of the stockholders may be held in place of such omitted meeting or
election and any business transacted or election held at such special meeting
shall have the same effect as if transacted or held at the annual meeting. In
such case all references in these by-laws to the annual meeting of the
stockholders, or to the annual election of directors, shall be deemed to refer
to or include such special meeting. Any such special meeting shall be called,
and the purposes thereof shall be specified in the call, as provided in
Subsection 3.4.
3.4. Notice of Annual Meeting. Written notice of the annual meeting stating
the place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting. Such notice may specify the business to be
transacted and actions to be taken at such meeting. No action shall be taken at
such meeting unless such
1
<PAGE>
notice is given, or unless waiver of such notice is given by the holders of
outstanding capital stock having not less than the minimum number of votes
necessary to take such action at a meeting at which all shares entitled to vote
thereon were voted. Prompt notice of all actions taken in connection with such
waiver of notice shall be given to all stockholders not present or represented
at such meeting. If mailed, notice shall be deemed to have been given when the
notice is deposited in the United States mail, postage prepaid, directed to the
stockholder at the stockholder's address as it appears on the records of the
Corporation. An affidavit of the mailing or other means of giving any notice of
any stockholders' meeting, executed by the Secretary, any Assistant Secretary or
any transfer agent of the Corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
3.5. Other Special Meetings. Special meetings of the stockholders may be
called for any purpose or purposes by the Chairman of the Board, the Chief
Executive Officer (or if there is no Chief Executive Officer, the President) or
the board of directors. Business transacted at any special meeting of
stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting.
3.6. Notice of Special Meeting. Unless otherwise prescribed by law, written
notice of each special meeting stating the place, date and hour of the meeting
and the purpose or purposes for which the meeting is called shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, notice shall be deemed
to have been given when the notice is deposited in the United States mail,
postage prepaid, directed to the stockholder at the stockholder's address as it
appears on the records of the Corporation. An affidavit of the mailing or other
means of giving any notice of any stockholders' meeting, executed by the
Secretary, any Assistant Secretary or any transfer agent of the Corporation
giving the notice, shall be prima facie evidence of the giving of such notice.
3.7. Stockholder List. The officer who has charge of the stock record books
of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
3.8. Quorum of Stockholders. The holders of a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders for the transaction of business except as
otherwise required by law, the certificate of incorporation or these by-laws.
Except as otherwise provided by law, no stockholder present at a meeting may
withhold shares owned by such stockholder from the quorum count by declaring
those shares to be absent from the meeting.
3.9. Adjournment. Any meeting of stockholders may be adjourned from time to
time to any other time and place at which a meeting of stockholders may be held
under these by-laws, which time and place shall be announced at the meeting, by
a majority of votes cast upon the question, whether or not a quorum is present,
or, if no stockholder is present, by any officer entitled to preside at or to
act as secretary of such meeting. If a quorum shall be present or represented at
any adjourned meeting, any business may be transacted that might have been
transacted at the original meeting. If the adjournment is for less than thirty
days and the time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, it shall not be necessary to notify any
stockholder of the adjournment unless
2
<PAGE>
after the adjournment a new record date is fixed for the adjourned meeting. If
the adjournment is for more than thirty days, the time and place of the
adjourned meeting are not announced at the meeting at which adjournment is
taken, or a new record date is fixed for the adjourned meeting after the
adjournment, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
3.10. Proxy Representation. Any stockholder may authorize another person or
persons to act for such stockholder by proxy in all matters in which the
stockholder is entitled to participate, whether by waiving notice of any
meeting, objecting to or voting or participating at a meeting, or expressing
consent or dissent without a meeting. Every proxy must be signed by the
stockholder or the stockholder's attorney-in-fact. No proxy shall be voted or
acted upon after three years from its date unless such proxy provides for a
longer period. Except as provided by law, a revocable proxy shall be deemed
revoked if the stockholder is present at the meeting for which the proxy was
given. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and, if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally. The
authorization of a proxy may but need not be limited to specified action,
provided, however, that if a proxy limits its authorization to a meeting or
meetings of stockholders, unless otherwise specifically provided such proxy
shall entitle the holder thereof to vote at any adjourned session but shall not
be valid after the final adjournment thereof.
3.11. Inspectors. The directors or the person presiding at the meeting may,
but need not, appoint one or more inspectors of election and any substitute
inspectors to act at the meeting or any adjournment thereof. Before entering
upon the discharge of the duties of inspector, each inspector shall take and
sign an oath to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of the inspector's ability. The
inspectors, if any, shall (a) determine the number of shares of capital stock
outstanding and the voting power of each, the shares of capital stock
represented at the meeting, the existence of a quorum and the validity and
effect of proxies, and (b) receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all stockholders. On request of the person presiding at the meeting, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them.
3.12. Action by Vote. When a quorum is present at any meeting, whether an
original or adjourned session, a plurality of the votes properly cast for
election to any office shall elect to such office and a majority of the votes
(or if there are two or more classes of capital stock entitled to vote as
separate classes, then in the case of each such class, the holders of a majority
of the capital stock of that class) properly cast upon any question other than
an election to an office shall decide such question, except when a larger vote
is required by law, the certificate of incorporation or these by-laws. No ballot
shall be required for any election unless requested by a stockholder present or
represented at the meeting and entitled to vote in the election.
3.13. Nomination of Directors. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nomination for election to the board of directors at a meeting of stockholders
may be made by the board of directors or by any stockholder of the Corporation
entitled to vote for the election of directors at such meeting who complies with
the notice procedures set forth in this Subsection 3.13. Such nominations, other
than those made by or on behalf of the board of directors, shall be made by
notice in writing delivered or mailed by first class United States mail, postage
prepaid, to the Secretary, and received not less than sixty days nor more than
ninety days prior to such meeting; provided, however, that if less than seventy
days' notice or prior public disclosure of the date of the meeting is given to
stockholders, such nomination shall have been mailed or delivered
3
<PAGE>
to the Secretary not later than the close of business on the tenth day following
the date on which the notice of the meeting was mailed or such public disclosure
was made, whichever occurs first. Such notice shall set forth: (a) as to each
proposed nominee, (i) the name, age, business address and, if known, residence
address of each such nominee, (ii) the principal occupation or employment of
each such nominee, (iii) the number of shares of capital stock of the
Corporation beneficially owned by each such nominee, and (iv) any other
information concerning the nominee that must be disclosed as to nominees in
proxy solicitations pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (including such person's written consent to be named as a
nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice, (i) the name and address, as they appear on the Corporation's
books, of such stockholder and (ii) the number of shares of each class and
series of capital stock of the Corporation beneficially owned by such
stockholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as a director. The chairman of
the meeting may, if the facts warrant, determine and declare at the meeting that
a nomination was not made in accordance with the foregoing procedure, and if the
chairman should so determine, the chairman shall so declare at the meeting and
the defective nomination shall be disregarded.
3.14. Notice of Business at Annual Meetings. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before an annual meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, if such business relates to the election of directors of the
Corporation, the procedures in Subsection 3.13 must be complied with, and if
such business relates to any other matter, the stockholder must have given
timely notice thereof in writing to the Secretary. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than sixty days nor more than ninety days
prior to the meeting; provided, however, that in the event that less than
seventy days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the tenth day following the
date on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever occurs first. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the number
of shares of each class and series of capital stock of the Corporation
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these by-laws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Subsection 3.14 and except that
any stockholder proposal that complied with Rule 14a-8 (or any successor
provision) under the Securities Exchange Act of 1934, as amended, and is to be
included in the Corporation's proxy statement for an annual meeting of
stockholders shall be deemed to comply with the requirements of this Subsection
3.14. The chairman of the meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Subsection 3.14, and if the chairman
should so determine, the chairman shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
3.15. Organization. The Chairman of the Board or, in the absence thereof,
the Chief Executive Officer (or if there is no Chief Executive Officer, the
President) shall call meetings of stockholders to order and shall act as
chairman of such meeting, provided, however, that the board of directors may
appoint any stockholder to act as chairman of any meeting in the absence of the
Chairman of the Board.
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The Secretary shall act as secretary at all meetings of the stockholders, but in
the absence of the Secretary at any meeting of the stockholders, the chairman
may appoint any person to act as secretary of the meeting.
3.16. Action Without Meetings. Unless otherwise provided in the certificate
of incorporation, any action required to be taken at any annual or special
meeting of stockholders of the Corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
SECTION 4. DIRECTORS.
4.1. Powers. The business of the Corporation shall be managed by or under
the direction of the board of directors, which shall have and may exercise all
the powers of the Corporation and do all such lawful acts and things as are not
by law, the certificate of incorporation or these by-laws directed or required
to be exercised or done by the stockholders.
4.2. Number. The number of directors that shall constitute the board of
directors shall be determined by resolution of the board of directors, but in no
event shall be less than one. The number of directors may be increased or
decreased at any time and from time to time by vote of a majority of the
directors then in office, except that any such decrease shall only be made to
eliminate vacancies existing by reason of the death, resignation, removal or
expiration of the term of one or more directors. The directors shall be elected
at the annual meeting of the stockholders, except as provided in Subsection 4.3
of these by-laws. Directors need not be stockholders.
4.3. Vacancies. Newly created directorships resulting from any increase in
the number of directors and other vacancies may be filled by vote of a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. When one or more directors shall resign from the board of
directors, effective at a future date, a majority of the directors then in
office, including those who have resigned, shall have power to fill such vacancy
or vacancies, the vote or action by writing thereon to take effect when such
resignation or resignations shall become effective. The directors shall have and
may exercise all their powers notwithstanding the existence of one or more
vacancies in their number, subject to any requirements of law or of the
certificate of incorporation or of these by-laws as to the number of directors
required for a quorum or for any vote or other actions. A director elected to
fill a vacancy shall be elected for the unexpired term of such director's
predecessor in office, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next election
of the class for which such director shall have been chosen, subject to the
election and qualification of any such director's successor and to any such
director's earlier death, resignation or removal.
4.4. Classes of Directors. The board of directors shall be divided into
three classes, consisting of Class I, Class II and Class III. No class of
directors shall have more than one director more than any other class. If a
fraction is contained in the quotient arrived at by dividing the designated
number of directors by three, then, if such fraction is one-third, the extra
director shall be a member of Class III, and if such fraction is two-thirds, one
of the extra directors shall be a member of Class III and one of the extra
directors shall be a member of Class II, except as otherwise may be provided
from time to time by the board of directors.
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4.5. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided that each initial director in Class I shall serve
for a term ending on the date of the annual meeting of stockholders in 2000,
each initial director in Class II shall serve for a term ending on the date of
the annual meeting of stockholders in 2001 and each initial director in Class
III shall serve for a term ending on the date of the annual meeting of
stockholders in 2002 and provided further that the term of each director shall
be subject to the election and qualification of a successor to such director and
to the earlier death, resignation or removal of such director.
4.6. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (1) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (2) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the board of directors among the
three classes of directors so as to ensure that the classes have as nearly as
possible the same number of directors. To the extent possible, consistent with
the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the board of directors.
4.7. Committees. The board of directors may, by vote of a majority of the
whole board: (a) designate, change the membership of or terminate the existence
of any committee or committees, each committee to consist of one or more of the
directors; (b) designate one or more directors as alternate members of any such
committee who may replace any absent or disqualified member at any meeting of
the committee; and (c) determine the extent to which each such committee shall
have and may exercise the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, including the power
to authorize the seal of the Corporation to be affixed to all papers that
require it and the power and authority to declare dividends or to authorize the
issuance of capital stock; excepting, however, such powers that by law, the
certificate of incorporation or these by-laws the board is prohibited from so
delegating. In the absence or disqualification of any member of a committee and
such member's alternate, if any, the member or members thereof present at any
meeting and not disqualified from voting, whether or not constituting a quorum,
may unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Except as the
board of directors may otherwise determine, any committee may make rules for the
conduct of its business, but unless otherwise provided by the board or such
rules, its business shall be conducted as nearly as may be in the same manner as
is provided by these by-laws for the conduct of business by the board of
directors. Each committee shall keep regular minutes of its meetings and report
the same to the board of directors upon request.
4.8. Regular Meetings. Regular meetings of the board of directors may be
held without call or notice at such times and at such places, within or without
the State of Delaware, as the board of directors may from time to time
determine, provided that any director who was absent when such determination was
made shall be given notice of the determination. A regular meeting of the
directors may be held without call or notice immediately after and at the same
place as an annual meeting of the stockholders.
4.9. Special Meetings. Special meetings of the board of directors may be
held at such times and at such places, within or without the State of Delaware,
designated in a notice of the meeting, when called by the Chairman of the Board
or the Chief Executive Officer (or if there is no Chief Executive Officer, the
President) or by two or more directors, reasonable notice thereof being given to
each director by the Secretary, the officer or any of the directors calling the
meeting.
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4.10. Notice. It shall be reasonable and sufficient notice to a director:
(a) to send notice by mail at least forty-eight hours, or by telegram, telex,
facsimile or hand at least twenty-four hours, before the meeting, directed to
the director at the director's usual or last known business or residence
address; or (b) to give notice to the director in person or by telephone at
least twenty-four hours before the meeting. Notice of a meeting need not be
given to any director if a written waiver of notice, executed by the director
before or after the meeting, is filed with the records of the meeting, or to any
director who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to the director. Neither notice of a meeting nor
a waiver of a notice need specify the purposes of the meeting.
4.11. Quorum. Except as may be otherwise provided by law, the certificate
of incorporation or these by-laws, at any meeting of the board of directors a
majority of the directors then in office shall constitute a quorum. A quorum
shall not in any case be less than one-third of the total number of directors
constituting the whole board. In the event one or more of the directors shall be
disqualified to vote at any meeting, then the required quorum shall be reduced
by one for each such director so disqualified, subject to the preceding
sentence. Any meeting may be adjourned from time to time by a majority of the
directors present at the meeting, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
4.12. Action by Vote. Except as may be otherwise provided by law, the
certificate of incorporation or these by-laws, when a quorum is present at any
meeting the vote of a majority of the directors present shall be the act of the
board of directors.
4.13. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the board of directors or of any committee thereof may
be taken without a meeting if all the members of the board or such committee, as
the case may be, consent to the action in writing, and the written consent is
filed with the records of the meetings of the board or such committee. Such
consent shall be treated for all purposes as the act of the board or of such
committee, as the case may be.
4.14. Participation in Meetings by Conference Telephone. Members of the
board of directors or of any committee thereof may participate in a meeting of
such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person at such meeting.
4.15. Compensation. The board of directors shall have the authority to fix
from time to time the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the board of directors and
the performance of their responsibilities as directors and may be paid a fixed
sum for attendance at each meeting of the board of directors and/or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation or its parent or subsidiary corporations in any other capacity and
receiving compensation therefor. The board of directors may also allow
compensation for members of special or standing committees for service on such
committees.
4.16. Removal or Resignation of Directors. Directors may be removed only
for cause by the affirmative vote of the holders of three-fourths of the shares
of capital stock of the Corporation issued, outstanding and entitled to vote.
Any director may resign at any time by delivering a resignation in writing to
the Chief Executive Officer (or if there is no Chief Executive Officer, the
President) or the Secretary or to a meeting of the board of directors. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time and without in either case the necessity of its being accepted,
unless the resignation shall so state. No director resigning and (except where a
right to receive compensation shall be expressly provided in a duly authorized
written agreement with the Corporation)
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no director removed shall have any right to receive compensation as such
director for any period following the director's resignation or removal, or any
right to damages on account of such removal, whether the director's compensation
be by the month or by the year or otherwise; unless in the case of a
resignation, the directors, or in the case of removal, the body acting on the
removal, shall in their or its discretion provide for compensation.
SECTION 5. NOTICES.
5.1. Form of Notice. Whenever, under the provisions of law, or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, such notice may be given by mail, addressed to
such director or stockholder, at the director's or stockholder's address as it
appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Unless written notice by mail is required
by law, written notice may also be given by telegram, cable, facsimile,
commercial delivery service, telex or similar means, addressed to such director
or stockholder at the address thereof as such address appears on the records of
the Corporation, in which case such notice shall be deemed to be given when
delivered into the control of the persons charged with effecting such
transmission, the transmission charge to be paid by the Corporation or the
person sending such notice and not by the addressee. Oral notice or other
in-hand delivery (in person or by telephone) shall be deemed given at the time
it is actually given.
5.2. Waiver of Notice. Whenever notice is required to be given under the
provisions of law, the certificate of incorporation or these by-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any meeting of the stockholders, directors or members of a
committee of the board of directors need be specified in any written waiver of
notice.
SECTION 6. OFFICERS AND AGENTS.
6.1. Enumeration; Qualification. The officers of the Corporation shall
consist of a President, a Treasurer, a Secretary and such other officers, if
any, as the board of directors from time to time may in its discretion elect or
appoint, including a Chairman of the Board, a Chief Executive Officer, a Chief
Financial Officer, a Chief Legal Officer and one or more Vice Presidents,
Assistant Treasurers and Assistant Secretaries. Any officer may be, but none
need be, a director or stockholder. Any two or more offices may be held by the
same person. Any officer may be required by the board of directors to secure the
faithful performance of the officer's duties to the Corporation by giving bond
in such amount and with sureties or otherwise as the board of directors may
determine.
6.2. Election. The board of directors shall choose a President, a Secretary
and a Treasurer at the first meeting of the board following each annual meeting
of stockholders. Other officers may be appointed by the board of directors at
such meeting, at any other meeting or by written consent. At any time or from
time to time, the directors may delegate to any officer their power to elect or
appoint any other officer or any agents.
6.3. Tenure. Except as otherwise provided by law, the certificate of
incorporation or these by-laws, each officer shall hold office until a successor
is elected and qualified, unless a shorter period shall have been specified in
the vote approving the officer's election or appointment, or until the officer
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sooner dies, resigns or is removed. Each agent of the Corporation shall retain
authority at the pleasure of the directors, or the officer by whom the agent was
appointed or by the officer who then holds agent appointive power.
6.4. Powers. Subject to law, the certificate of incorporation and these
by-laws, each officer shall have, in addition to the duties and powers herein
set forth, such duties and powers as are commonly incident to the officer's
office and such additional duties and powers as the board of directors may from
time to time designate.
6.5. President. If there is no Chief Executive Officer, the President of
the Corporation shall be the chief executive officer of the Corporation. The
President shall, when and in the absence of a Chairman of the Board, preside at
all meetings of the stockholders and at all meetings of the board of directors.
The President may sign all authorized contracts in the name of the Corporation,
shall have general charge and supervision of the business of the Corporation,
subject to the control of the board of directors, and shall be the medium of
communication of the board of directors and any board committee of reports,
proposals and recommendations for their respective consideration or action. The
President may sign certificates representing capital stock of the Corporation as
provided in Subsection 7.1, and the President shall do and perform such other
duties as may be assigned from time to time by the board of directors. All
officers shall report to the President or according to the President's direction
in respect of any matters within the President's jurisdiction. The board of
directors may delegate from time to time certain or all of the aforesaid powers
and responsibilities to the Chief Executive Officer, if any.
6.6. Vice President. The Vice President, or if there shall be more than
one, the Vice Presidents in the order determined by the board of directors,
shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe. If a Vice President is designated as the chief operating officer of
the Corporation, then such Vice President shall be deemed to be the most senior
Vice President of the Corporation.
6.7. Secretary and Assistant Secretaries.
(a) The Secretary shall attend all meetings of the board of directors
and all meetings of the stockholders and record all the proceedings of the
meetings of the stockholders and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing
committees when required. The Secretary shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the
board of directors, and shall perform such other duties as may be
prescribed by the board of directors or the Chief Executive Officer (or if
there is no Chief Executive Officer, the President), under whose
supervision the Secretary shall be. The Secretary shall keep in safe
custody the seal of the Corporation and, when authorized by the board of
directors, affix the same to any instrument requiring it and, when so
affixed, it shall be attested by his signature or by the signature of an
Assistant Secretary.
(b) The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the board of directors,
shall, in the absence or disability of the Secretary, perform the duties
and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the board of directors may from time
to time prescribe.
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6.8. Treasurer and Assistant Treasurers.
(a) If there is no Chief Financial Officer, the Treasurer shall be the
chief financial officer of the Corporation. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the board of directors. The Treasurer shall disburse funds of
the Corporation as may be ordered by the board of directors, taking proper
vouchers for such disbursements, and shall render to the Chief Executive
Officer (or if there is no Chief Executive Officer, the President) and the
board of directors, at its regular meetings, or when the board of directors
so requires, an account of all such officer's transactions as Treasurer and
of the financial condition of the Corporation. If required by the board of
directors, the Treasurer shall give the Corporation a bond (which shall be
renewed as and when required) in such sum and with such surety and sureties
as shall be satisfactory to the board of directors for the faithful
performance of the duties of the Treasurer's office and for the restoration
of the Corporation, in case of the Treasurer's death, resignation or
removal from office, of all books, papers, vouchers, money and other
property of whatever kind in the Treasurer's possession or under the
Treasurer's control belonging to the Corporation. The board of directors
may delegate from time to time certain or all of the aforesaid powers and
responsibilities to the Chief Financial Officer, if any.
(b) The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the board of directors,
shall in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties
and have such other powers as the board of directors may from time to time
prescribe.
6.9. Resignation and Removal. Any officer may resign at any time by
delivering a resignation in writing to the Chief Executive Officer (or if there
is no Chief Executive Officer, the President), the Secretary or a meeting of the
board of directors. Such resignation shall be effective upon receipt unless
specified to be effective at some other time, and without in any case the
necessity of its being accepted unless the resignation shall so state. The board
of directors may, by a majority vote, at any time remove any officer either with
or without cause. The board of directors may at any time terminate or modify the
authority of any agent. No officer resigning and (except where a right to
receive compensation shall be expressly provided in a duly authorized written
agreement with the Corporation) no officer removed shall have any right to any
compensation as such officer for any period following the officer's resignation
or removal, or any right to damages on account of such removal, whether the
officer's compensation be by the month or by the year or otherwise, unless in
the case of a resignation, the directors, or in the case of removal, the body
acting on the removal, shall in their or its discretion provide for
compensation.
6.10. Vacancies. The board of directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of the President, the
Treasurer and the Secretary. Each such successor shall hold office for the
unexpired term of the predecessor and until a successor is elected and
qualified, or in each case until such officer sooner dies, resigns or is
removed.
SECTION 70 CAPITAL STOCK.
7.1. Stock Certificates. Each stockholder shall be entitled to a
certificate stating the number and the class and the designation of the class
and series, if any, of the shares held by the stockholder, in such form as
shall, in conformity to law, the certificate of incorporation and the by-laws,
be prescribed
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from time to time by the board of directors. Such certificate shall be signed
by, or in the name of the Corporation by, (a) the Chief Executive Officer, the
President or a Vice President and (b) the Chief Financial Officer, the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary. Any
of the signatures on the certificate may be facsimiles. In case an officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed on such certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if the signatory were such officer, transfer
agent, or registrar at the time of its issue.
7.2. Stock Issuances. Unless otherwise voted by the stockholders and
subject to the provisions of the certificate of incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the Corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the board of directors in such manner, for such
consideration and on such terms as the board of directors may determine.
7.3. Stock Transfers. Subject to any restrictions with respect to the
transfer of shares of capital stock, shares of capital stock may be transferred
on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate therefor properly endorsed or accompanied by a
written assignment and power of attorney properly executed, with necessary
transfer stamps affixed, and with such proof of the authenticity of signature as
the board of directors or the transfer agent of the Corporation may reasonably
require. Except as may be otherwise required by law, the certificate of
incorporation or these by-laws, the Corporation shall be entitled to treat the
record holder of capital stock as shown on its books as the owner of such
capital stock for all purposes, including the payment of dividends and the right
to receive notice and to vote or to give any consent with respect thereto and to
be held liable for such calls and assessments, if any, as may lawfully be made
thereon, regardless of any transfer, pledge or other disposition of such capital
stock until the shares have been properly transferred on the books of the
Corporation. It shall be the duty of each stockholder to notify the Corporation
of the stockholder's post office address.
7.4. Lost, Stolen or Destroyed Certificates. The board of directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
board of directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or such owner's legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
7.5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty days nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action to which
such record date relates. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting. If no record date is fixed:
(a) the record date for determining stockholders entitled to notice of
or to
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vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held;
(b) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which
the first written consent is expressed; and
(c) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of
directors adopts the resolution relating to such purpose.
SECTION 80 GENERAL PROVISIONS.
8.1. Fiscal Year. The fiscal year of the Corporation shall begin on the
first day of January and shall end on the last day of December in each calendar
year.
8.2. Seal. The board of directors may, by resolution, adopt a corporate
seal. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the board
of directors.
8.3. Dividends. Dividends upon the capital stock of the Corporation may be
declared by the board of directors at any regular or special meeting or by
written consent, pursuant to law. Dividends may be paid in cash, property or
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
8.4. Checks. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
8.5. Voting of Securities. Except as the directors may otherwise designate,
the Chief Executive Officer, the President, the Chief Financial Officer, the
Treasurer or the Chief Legal Officer may waive notice of, and act as, or appoint
any person or persons to act as, proxy or attorney-in-fact for the Corporation
(with or without power of substitution) at any meeting of stockholders of any
other corporation or organization of which the Corporation holds securities.
8.6. Evidence of Authority. A certificate of the Secretary, an Assistant
Secretary or a temporary Secretary as to any action taken by the stockholders,
the board of directors or a committee thereof, or any officer or representative
of the Corporation shall be conclusive evidence of such action as to all persons
who rely on the certificate in good faith.
8.7. Interested Parties.
(a) No contract or transaction between the Corporation and one or more
of
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its directors or officers, or between the Corporation and any other
corporation, partnership, association or other organization in which one or
more of the Corporation's directors or officers are directors or officers
or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or
participates in the meeting of the board of directors or committee thereof
that authorizes the contract or transaction, or solely because the vote of
any such person is counted for such purpose, if:
(1) the material facts as to the relationship or interest of the
director or officer and the contract or transaction are disclosed
or known to the board of directors or the committee, and the
board or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors
do not constitute a quorum;
(2) the material facts as to the relationship or interest of the
director or officer and the contract or transaction are disclosed
or known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by
vote of the stockholders; or
(3) the contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified by the board of
directors, a committee thereof or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a
committee thereof that authorizes the contract or transaction.
8.8. Construction; Definitions. Unless the context requires otherwise, the
general provisions, rules of construction and definitions in the General
Corporation Law of Delaware shall govern the construction of these by-laws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular and the term "person"
includes both a corporation and a natural person. The term "including" as used
herein shall not be construed so as to exclude any other thing not referred to
or described.
8.9. Provisions Additional to Provisions of Law. All restrictions,
limitations, requirements and other provisions of these by-laws shall be
construed, insofar as possible, as supplemental and additional to all provisions
of law applicable to the subject matter thereof and shall be fully complied with
in addition to such provisions of law unless such compliance shall be illegal.
8.10. Provisions Contrary to Provisions of Law. Any section, subsection,
subdivision, sentence, clause or phrase of these by-laws that, upon being
construed in the manner provided in Section 8.9 of these by-laws, shall be
contrary to or inconsistent with any applicable provision of law, shall not
apply so long as said provision of law shall remain in effect. Any such result
shall not affect the validity or applicability of any other portion of these
by-laws, it being hereby declared that these by-laws would have been adopted
irrespective of the fact that any one or more sections, subsections,
subdivisions, sentences, clauses or phrases of these by-laws is or are illegal.
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SECTION 9. AMENDMENT OF BY-LAWS.
9.1. By Board of Directors. These by-laws may be altered, amended, or
repealed, or new by-laws may be adopted by, the affirmative vote of a majority
of the directors present at any regular or special meeting of the board of
directors at which a quorum is present.
9.2. By Stockholders. These by-laws may be altered, amended or repealed, or
new by-laws may be adopted by, the affirmative vote of the holders of a majority
of the shares of capital stock of the Corporation issued, outstanding and
entitled to vote at any regular or special meeting of stockholders, provided
notice of such alteration, amendment, repeal or adoption of new by-laws shall
have been stated in the notice of such regular or special meeting.
Notwithstanding the foregoing or any other provision of law, the certificate of
incorporation or these by-laws, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of
three-fourths of the shares of the capital stock of the Corporation issued,
outstanding and entitled to vote shall be required for the stockholders to amend
or repeal, or to adopt any provision inconsistent with, Subsections 3.5, 3.13,
3.14 and 3.16, Section 4 or Section 9 of these by-laws.
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Exhibit 10.36
LEASE
by and between
21 ERIE REALTY TRUST,
Landlord
and
REPROGENESIS, INC.,
Tenant
<PAGE>
ARTICLE I
REFERENCE DATA
1.1 SUBJECTS REFERRED TO:
<TABLE>
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APPROXIMATE TERM: Ten (10) years plus additional months as set forth
in Section 2.2
BUILDING: The Building of which the Premises are a part,
known and numbered as 21 Erie Street, Cambridge,
Massachusetts, currently containing approximately
49,304 r.s.f. subject to remeasurement in
accordance with the provisions of Section 2.1
BUILDING ADDRESS: 21 Erie Street
Cambridge, Massachusetts
ANNUAL BASE RENT: $10.00 per rentable square foot ("r.s.f.")
INITIAL ESTIMATED ANNUAL
ADDITIONAL RENT: $5.50 per r.s.f.
LANDLORD: David E. Clem and David M. Roby, Trustees of 21
Erie Realty Trust
LANDLORD'S MANAGING AGENT'S ADDRESS: c/o McNeil Management, Inc.
320 Norwood Park South
Norwood, MA 02062
LANDLORD'S REPRESENTATIVE: David Clem
LEASE YEAR: Each consecutive period of twelve (12) calendar
months commencing on the Commencement Date.
LOT: The land shown on Exhibit A-1 and more
particularly described on Exhibit A-2 attached
hereto.
OPTIONS TO EXTEND: One (1) five (5) year term
PERMITTED USES: General office, research and development,
laboratory and light manufacturing.
</TABLE>
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PREMISES: Approximately 32,725 r.s.f. of space in the
Building, as shown on Exhibit A, consisting of
---------
Suites 1 through 5 on the First Floor of the
Building and Suites 4, 5, 6 and 9 on the Second
Floor of the Building (hereinafter referred to as
the "Premises") subject to remeasurement in
accordance with the provisions of Article 2.1.
PUBLIC LIABILITY INSURANCE LIMITS: Bodily injury: $10,000,000
Property Damage: $10,000,000
RIGHT OF FIRST REFUSAL: Approximately 18,000 r.s.f. of space on the Second
Floor of the Building and any additional space
added to the Building
TERM COMMENCEMENT DATE: (a) September 25, 1997 as to First Floor, Suite 5
--
(b) October 1, 1997 as to Second Floor Suites 4,
5 and 6;
(c) January 1, 1998 as to Suites 1, 2, 3 and 4 on
First Floor and Suite 9 on Second Floor
SECURITY DEPOSIT: Four Months Rent, subject to adjustment in
accordance with Section 10.11 hereof).
TENANT: Reprogenesis, Inc.
TENANT'S ADDRESS 800 Huntington Avenue
(For Notice and Billing): Boston, MA 02115
TENANT ALLOWANCE: N/A
TENANT'S DESIGN COMPLETION DATE: N/A
TENANT'S PROPORTIONATE FRACTION: 66.4%, subject to adjustment in connection with
the remeasurement as provided in Section 2.1
hereof.
TERM EXPIRATION DATE: December 31, 2007
</TABLE>
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1.2 EXHIBITS.
The Exhibits listed below in this section are incorporated in this Lease by
reference and are to be construed as a part of this Lease:
EXHIBIT A. Leased Premises
EXHIBIT A-1. Lot Site Plan
EXHIBIT A-2. Legal Description of Lot
EXHIBIT B. Plans and Specifications
EXHIBIT C. Rules and Regulations
EXHIBIT D. Floor Load Limits
EXHIBIT E. Landlord's Services
EXHIBIT F. Rentable Square Footage of Suites
Comprising the Premises
1.3 TABLE OF CONTENTS
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ARTICLE I REFERENCE DATA........................................................ 1
1.1 Subjects Referred To:................................................. 1
1.2 Exhibits.............................................................. 3
1.3 Table Of Contents..................................................... 3
ARTICLE II PREMISES AND TERM..................................................... 6
2.1 Premises.............................................................. 6
2.2 Term.................................................................. 6
2.3 Access................................................................ 7
ARTICLE III IMPROVEMENTS.......................................................... 7
3.1 As Is; Initial Construction........................................... 7
3.2 Preparation Of Premises For Occupancy................................. 7
3.3 General Provisions Applicable To Construction......................... 8
3.4 Construction Representatives.......................................... 8
3.5 Alterations And Additions............................................. 8
ARTICLE IV RENT.................................................................. 9
4.1 Fixed Rent............................................................ 9
4.2 Additional Rent....................................................... 10
4.2.1 Real Estate Taxes..................................................... 10
4.2.2 Insurance............................................................. 11
4.2.3 Utilities............................................................. 13
4.2.4 Common Area Maintenance and Expenses.................................. 14
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4.2.5 Payments on Account of Taxes, Insurance and Utilities................. 18
4.2.6 Equitable Adjustment of Additional Rent............................... 19
4.3 Late Payment Of Rent.................................................. 19
ARTICLE V TENANT'S ADDITIONAL COVENANTS......................................... 19
5.1 Affirmative Covenants................................................. 19
5.1.1 Perform Obligations................................................... 19
5.1.2 Occupancy and Use..................................................... 19
5.1.3 Repair and Maintenance................................................ 20
5.1.4 Compliance with Law................................................... 21
5.1.5 Tenant's Work......................................................... 23
5.1.6 Indemnity............................................................. 24
5.1.7 Landlord's Right to Enter............................................. 24
5.1.8 Personal Property at Tenant's Risk.................................... 25
5.1.9 Payment of Landlord's Cost of Enforcement............................. 25
5.1.10 Yield Up.............................................................. 25
5.1.11 Estoppel Certificate.................................................. 25
5.1.12 Landlord's Expenses Re Consents....................................... 26
5.1.13 Rules and Regulations................................................. 26
5.1.14 Loading............................................................... 26
5.1.15 Holdover.............................................................. 26
5.2 Negative Covenants.................................................... 27
5.2.1 Assignment and Subletting; Mortgaging................................. 27
5.2.2 Nuisance.............................................................. 29
ARTICLE VI CASUALTY OR TAKING.................................................... 30
6.1 Termination........................................................... 30
6.2 Restoration........................................................... 30
6.3 Award................................................................. 30
ARTICLE VII. DEFAULTS.............................................................. 31
7.1 Events Of Default..................................................... 31
7.2 Remedies.............................................................. 32
7.3 Remedies Cumulative................................................... 33
7.4 Landlord's Right To Cure Defaults..................................... 33
7.5 Effect Of Waivers Of Default.......................................... 33
7.6 No Accord And Satisfaction............................................ 33
ARTICLE VIII MORTGAGES............................................................. 34
8.1 Rights Of Mortgage Holders............................................ 34
8.2 Priority Of Lease; Subordination...................................... 34
</TABLE>
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8.3 Lease Amendments...................................................... 35
8.4 No Existing Mortgage.................................................. 35
ARTICLE IX LANDLORD'S ADDITIONAL COVENANTS....................................... 35
9.1 Affirmative Covenants................................................. 35
9.1.1 Perform Obligations................................................... 35
9.1.2 Repairs............................................................... 36
9.1.3 Compliance with Law................................................... 36
9.1.4 Indemnity............................................................. 36
9.1.5 Estoppel Certificate.................................................. 37
9.1.6 Utilities............................................................. 37
ARTICLE X MISCELLANEOUS PROVISIONS.............................................. 37
10.1 Notices From One Party To The Other................................... 37
10.2 Quiet Enjoyment....................................................... 37
10.3 Easements; Changes To Lot Lines....................................... 37
10.4 Lease Not To Be Recorded.............................................. 38
10.5 Bind And Inure; Limitation Of Landlord's Liability.................... 38
10.6 Acts Of God........................................................... 38
10.7 Landlord's Default.................................................... 38
10.8 Brokerage............................................................. 39
10.9 Applicable Law And Construction....................................... 39
10.10 Submission Not An Offer............................................... 39
10.11 Security Deposit...................................................... 39
10.12 Options To Extend..................................................... 40
10.13 Right Of First Refusal................................................ 41
10.14 Confidential Information.............................................. 42
10.15 Signage............................................................... 42
10.16 Parking............................................................... 42
</TABLE>
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ARTICLE II
PREMISES AND TERM
2.1 PREMISES.
Landlord hereby leases and demises to Tenant and Tenant hereby leases from
Landlord, subject to and with the benefit of the terms, covenants, conditions
and provisions of this Lease, the Premises. Tenant shall have, as appurtenant
to the Premises, the right to use in common with others entitled thereto (i) the
common facilities included in the Building or on the Lot, and (ii) the building
service fixtures and equipment serving the Premises. In addition, Landlord
together with the affiliates referred to in Section 10.16, hereby grant Tenant
the parking rights more particularly set forth in Section 10.16, and Tenant
agrees to lease certain parking spaces, all subject to the terms and conditions
of Section 10.16.
The rentable area of the Premises shall be measured upon completion of the
second floor corridor in accordance with the Building owners and Managers
Association International ANSI Z 65.1 Method @ 1990 (the "BOMA Method") and said
calculation shall be used, retroactive to the Term Commencement Date, as the
actual rentable square footage of the Premises as defined herein and in Article
1.1.
Landlord reserves the right from time to time, upon reasonable advance
notice (except in the case of an emergency), without unreasonable interference
with Tenant's use, (a) to install, repair, replace, use, maintain and relocate
for service to the Premises and to other parts of the Building or either,
building service fixtures and equipment wherever located in the Building,
provided, however, that the Annual Fixed Rent, Additional Rent (as defined in
Section 4.2 hereof) and other charges payable hereunder by Tenant shall be
proportionally reduced in the event that any such installation or relocation of
service reduces the usable floor area of the Premises (other than a temporary
reduction to accommodate installation, repair, replacement, maintenance and
relocation of such service) (in no event, however, shall such activities by
Landlord cause a material reduction in the square footage of the Premises) ; and
(b) to alter or relocate any common facilities, provided that in all events (1)
substitutions are in compliance with applicable zoning and other laws and (2)
substitutions are substantially equivalent. Landlord shall give Tenant a
reasonable opportunity to have any such access by Landlord described in this
Section 2.1 supervised by a Tenant representative.
The Premises shall be subject to expansion in accordance with the terms of
Section 10.13.
2.2 TERM.
To have and to hold for a period (the "Term") commencing on the Term
Commencement Date (excluding, however, Tenant's occupying of Suite 2, Second
Floor of the Building) as set forth in Section 1.1 and continuing until the Term
Expiration Date, unless sooner terminated as provided in Section 3.2 or in
Article VII, and subject to extension in accordance with the terms of Section
10.12 hereof.
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2.3 ACCESS.
Tenant shall have access to the Building by separate entrance to the
Building on Erie Street as shown on the Plans and Specifications (as defined
hereinafter) and the Premises twenty-four (24) hours a day, seven (7) days a
week, three hundred sixty-five (365) days a year. Tenant's access after Normal
Business Hours (as defined hereafter) is by a telephone intercom system
installed in the Building. Tenant is responsible for security of the Premises
after Normal Business Hours. "Normal Business Hours" shall mean the hours of
7:00 a.m. through 6:00 p.m. Monday through Friday and no hours on legal
holidays, Saturdays and Sundays.
ARTICLE III
IMPROVEMENTS
3.1 AS IS; INITIAL CONSTRUCTION.
Tenant acknowledges that it has had an opportunity to inspect the Premises.
The Premises shall be delivered to Tenant As Is, Where Is, with all faults and
without representation, warranty or guaranty of any kind by Landlord to Tenant.
Nothing in the preceding sentence is intended to relieve Landlord of any of its
maintenance and repair responsibilities set forth in this Lease. Tenant at its
sole cost and expense shall prepare all construction drawings and specifications
(the "Plans and Specifications") shown on Exhibit B for initial improvements
---------
("Leasehold Improvements") to the Premises and submit the same to Landlord for
Landlord's review and written approval, which approval shall not be unreasonably
withheld or delayed. The approval rights of Landlord and the construction
obligations of Landlord are subject to the remaining provisions of this Article
III.
3.2 PREPARATION OF PREMISES FOR OCCUPANCY.
Tenant agrees to diligently perform the Leasehold Improvements and to use
best efforts to complete the Leasehold Improvements. Landlord shall permit
Tenant access to the Building and the Premises for purposes of constructing the
Leasehold Improvements immediately upon full execution of this Lease, which
occupancy by Tenant shall be subject to all of the terms and conditions of the
Lease.
Tenant shall have thirty (30) days from the date of execution of this Lease
to engage Aries Engineering and/or any other environmental engineering firm
selected by Tenant for the purpose of conducting a Phase-I Environmental Site
Assessment (the "Site Assessment") of the Premises. Landlord shall provide
reasonable access to the Premises for the purpose of conducting the Site
Assessment. In the event the Site Assessment is unsatisfactory to Tenant in its
reasonable discretion, Tenant shall have the right within said thirty (30) days
to terminate this Lease by written notice to Landlord ("Notice of Termination").
Tenant's right to terminate this Lease shall be Tenant's sole and exclusive
remedy without further recourse to either party. In the event Tenant does not
deliver the Notice of Termination to Landlord, Tenant shall be deemed to have
waived its right to terminate the Lease under this Section 3.2.
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<PAGE>
3.3 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION.
All construction work required or permitted by this Lease, shall be done by
Tenant in a good and workmanlike manner and in compliance with all applicable
laws and all lawful ordinances, regulations and orders of any governmental
authority and insurers of the Building and the Lot (provided that Landlord shall
be responsible for such compliance with respect to the Building, other than the
Premises). Landlord may inspect the work of Tenant at reasonable times and
shall give notice of observed defects.
3.4 CONSTRUCTION REPRESENTATIVES.
Each party authorizes the other to rely in connection with their respective
rights and obligations under this Article III upon approval and other actions on
the party's behalf by any person designated by such party as its Representative
by notice to the party relying.
3.5 ALTERATIONS AND ADDITIONS.
This Section 3.5 shall apply before and during the Term and shall apply to
the initial Leasehold Improvements. Tenant shall not make any alterations and
additions to the Premises except in accordance with the Plans and Specifications
first approved by Landlord, which approval shall not be unreasonably withheld or
delayed. However, any alterations or additions that do not affect structural or
exterior elements of the Building or Building mechanical systems, not exceeding
$25,000.00 in value may be performed without being required to obtain such
approval. However, Tenant shall be required to ascertain from Landlord what
Landlord will require Tenant to remove from the Premises upon termination of the
Lease prior to construction of such alterations or improvements. Landlord shall
not unreasonably withhold its approval of Tenant's Plans and Specifications
provided that, if any alterations or additions affect structural or exterior
elements of the Building or Building mechanical systems, said alterations will
not materially interfere with the use of the Building by other tenants and
occupants and is in compliance with all applicable codes, laws, regulations and
ordinances. At the time Landlord approves Tenant's Plans and Specifications,
Landlord must advise Tenant which improvements Tenant shall be responsible for
removing upon termination of the Lease. Landlord agrees that Tenant may, but
shall not be required to, remove any of its initial installations and Leasehold
Improvements and that all of said Leasehold Improvements that Landlord does not
require Tenant to remove and Tenant elects not to remove, shall become the
property of the Landlord upon expiration or termination of this Lease. If,
after completion of Tenant's initial Leasehold Improvements as approved by
Landlord, Tenant alters substantially the initial installations and Leasehold
Improvements in the Premises and such alterations involve substantial demolition
costs, Landlord may require Tenant to demolish the same at the end of the Term.
All of Tenant's alterations and additions including initial Tenant Improvements
and installation and delivery of telephone systems, computer systems,
furnishings, and equipment shall be performed in such manner, and by such
persons as shall maintain harmonious labor relations and not cause any damage to
the Building or interference with Building construction or operation and, except
for installation of furnishings, equipment and telephone systems, and except as
otherwise expressly set forth herein, shall be performed by general contractors
first approved by Landlord. Landlord shall not unreasonably withhold or delay
its approval of Tenant's contractor and subcontractors provided that said
contractor in Landlord's reasonable opinion, uses first quality materials and
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<PAGE>
provides good workmanship and services. Before commencing any work Tenant
shall: secure all licenses and permits necessary therefor (Landlord agreeing to
reasonably cooperate with Tenant to obtain such licenses and approvals provided
that Tenant pay all of Landlord's out-of-pocket expenses, if any, incurred in
connection therewith); deliver to Landlord a statement of the names of all its
contractors and subcontractors (the identity of which must have been previously
approved by Landlord as hereinabove contemplated) and the estimated cost of all
labor and material to be furnished by them; and cause each contractor to carry
(i) workmen's compensation insurance in statutory amounts covering all the
contractor's and subcontractor's employees and (ii) comprehensive public
liability insurance with such limits as Landlord may reasonably require, but in
no event less than a combined single limit of $3,000,000 (all such insurance to
be written in companies reasonably approved by Landlord and insuring Landlord
and Tenant as well as the contractors), and to deliver to Landlord certificates
of all such insurance. Tenant agrees to pay promptly when due, and to defend
and indemnify Landlord from and against, the entire cost of any work done on the
Premises by Tenant, its agents, employees or independent contractors, and not to
cause or permit any liens for labor or materials performed or furnished in
connection therewith to attach to the Building or the Lot and to discharge
within ten (10) days after notice to Tenant or after Tenant becomes aware of the
existence of any such liens which may so attach. Tenant shall pay to Landlord,
as additional rent, a sum equal to all reasonable out-of-pocket costs reasonably
incurred by Landlord in reviewing and approving any alterations or additions.
ARTICLE IV
RENT
4.1 FIXED RENT.
(a) Monthly Installments; Definitions. Tenant covenants and agrees to pay
---------------------------------
rent to Landlord, without any offset or reduction whatsoever (except as may be
made in accordance with the express provisions of this Lease), at the address of
Landlord's Managing Agent or at such other place or to such other person or
entity as Landlord may by notice to Tenant from time to time direct, at the
Annual Base Rent Rate set forth in Article I, in, equal installments equal to
1/12th of the Annual Base Rent Rate in advance on the first day of each calendar
month included in the Term; and for any portion of a calendar month at the
beginning or end of the Term, at that rate payable in advance for such portion.
Landlord and Tenant hereby agree that the Annual Base Rent Rate shall be
initially based on square footage calculations set forth in Section 1.1, based
on the r.s.f of the Premises from time to time. Attached hereto as Exhibit F is
a list of suites and their respective r.s.f. Upon the recalculation of the
r.s.f. of the Premises, a reconciliation shall be made between Landlord and
Tenant.
(b) Adjustment for CPI. On January 1, 2003 (the "Adjustment Date"), the
------------------
Annual Base Rent Rate shall be increased by multiplying said rate by a fraction,
the numerator of which shall be the Price Index (as hereinafter defined) most
recently established prior to the Adjustment Date, and the denominator of which
shall be the Base Price Index (as hereinafter defined), compounded monthly over
the first five (5) years of the Term of this Lease. As used herein, the
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term "Price Index" shall mean and refer to the "Consumer Price Index for Urban
Wage Earners and Clerical Workers, for the Boston, Massachusetts area, All Items
(1982-84=100)" published by the Bureau of Labor Statistics of the United States
Department of Labor or successor or substitute index appropriately adjusted, and
the term "Base Price Index" shall mean and refer to the Price Index most
recently established prior to January 1, 1998. In the event the Price Index (or
a successor or substitute index) shall not be published for the City of Boston,
or for the months indicated above, the corresponding index for the United States
City Average (and if this is not available, a reliable governmental or other
nonpartisan publication evaluating similar or equivalent information as used in
the Price Index) shall be used. In the event the Price Index ceases to use the
1982-84 average of 100 as the basis of calculation, or if a substantial change
is made in the terms or numbers of items contained in the Price Index, then the
Price Index shall be adjusted to the figure that would have been arrived at had
the manner of computing the Price Index in effect at the date of this Lease not
been changed.
4.2 ADDITIONAL RENT.
In order that the Fixed Rent shall be absolutely net to Landlord, Tenant
covenants and agrees to pay, as Additional Rent, without any offset or reduction
whatsoever (except as may be made in accordance with the express provisions of
the Lease), Tenant's proportionate fraction of real estate taxes, municipal or
state betterment assessments, insurance costs, common area utility charges and
Annual Maintenance Charges with respect to the Premises as provided in this
Section 4.2 as follows:
As used herein, the term "Estimated Annual Additional Rent" shall mean and
refer to Landlord's estimate of the total amount of Additional Rent which may be
due from Tenant for any particular Lease Year. Landlord shall furnish Tenant
with a statement as soon as reasonably practicable after the commencement of
each Lease Year setting forth the amount of Landlord's Estimated Annual
Additional Rent for such Lease Year. Landlord's good faith estimate of the
Estimated Annual Additional Rent for the first fiscal year of the Term is set
forth in Section 1.1 as the "Initial Estimated Annual Additional Rent".
4.2.1 Real Estate Taxes. Subject to Section 4.2.6, Tenant shall pay
directly to the Landlord Tenant's Proportionate Fraction of: (i) all ad valorem
real estate taxes, betterment assessments (special or otherwise), levies, fees,
water and sewer rents and charges, and all other similar government levies and
charges, general and special, ordinary and extraordinary, foreseen and
unforeseen, imposed or levied upon or assessed against the Building in which the
Premises are a part or the Lot and allocable to the Term hereof (collectively
"taxes and assessments" or if singular "tax or assessment"). For each tax or
assessment period, or installment period thereof, wholly included in the Term,
all such payments (prorated if the Term includes any portion of such tax and
assessment period, or installment period thereof) shall be made by Tenant not
later than the later of (i) thirty (30) days after invoice from Landlord to
Tenant accompanied by the relevant substantiation or (ii) five (5) days prior to
the last date on which the same may be paid without interest or penalty. At
Landlord's option, Tenant shall pay taxes and assessments in accordance with
Section 4.2.5 hereof.
In the event that Tenant, requests that Landlord apply for any abatement
of, or otherwise contest, any tax or assessment, Landlord shall file such
abatement or otherwise contest such tax
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or assessment and shall diligently pursue the same to completion, provided that
(i) Landlord receives notice of such request from Tenant at least 30 days prior
to the last day on which such abatement or contest may validly be made under
applicable law, and (ii) the reasonable substantiated expenses of such
proceedings, including, without limitation, any attorneys' fees incurred as a
result thereof, shall be included in the Annual Maintenance Charge of the then
current fiscal year.
Nothing contained in this Lease shall, however, require Tenant to pay any
income taxes, excess profits taxes, excise taxes, franchise taxes ("Excluded
Taxes"), estate, succession, inheritance or similar transfer taxes, provided,
however, that if at any time during the Term the present system of ad valorem
taxation of real property shall be changed so that in lieu of the whole or any
part of the ad valorem tax on real property, there shall be assessed on Landlord
a capital levy or other tax on the gross rents received with respect to the
Building or the Lot, or all of them, or a federal, state, county, municipal, or
other local income, franchise, excise or similar tax, assessment, levy or charge
(distinct from any now in effect) measured by or based, in whole or in part,
upon gross rents, then any and all of such taxes, assessments, levies or
charges, to the extent so measured or based ("Substitute Taxes"), shall
constitute real estate taxes payable under the Section 4.2.1; provided, however,
that (i) the inclusion of the aforesaid Substitute Taxes shall be limited to the
amount thereof as computed at the rates that would be payable if the Building
and Lot were the only property of Landlord, and (ii) only that portion of the
Substitute Taxes in excess of the Excluded Taxes shall be payable by Tenant.
Landlord shall furnish to Tenant a copy of any notice of any public, special or
betterment assessment received by Landlord concerning the Building or Lot.
4.2.2 Insurance.
4.2.2.1 Insurance Taken Out by Tenant.
Tenant shall take out and maintain throughout the Term the
following insurance:
(a) Comprehensive general liability insurance indemnifying
Landlord and Tenant against all claims and demands for (i) injury to or death of
any person or damage to or loss of property, on the Premises or adjoining walks,
streets or ways, or connected with the use, condition or occupancy of any
thereof unless caused by the negligence of Landlord or its servants or agents,
or (ii) any negligence or misconduct of Tenant or its agents, contractors,
licensees, or sublessees, in amounts which shall, at the beginning of the Term,
be at least equal to the limits set forth in Section 1.1, and, from time to time
during the Term, shall be for such higher limits, if any, as are customarily
carried in the area in which the Premises are located on property similar to the
Premises and used for similar purposes; and shall be written on the "Occurrence
Basis" and include Host Liquor liability insurance; and
(b) Worker's compensation insurance with statutory limits
covering all of the Tenant's employees working on the Premises.
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4.2.2.2 Insurance Taken Out by Landlord.
Landlord shall take out and maintain throughout the Term the
following insurance:
(a) Comprehensive general liability insurance for the Building
and Lot of the same nature and type as described in Section 4.2.2.1(a) of this
Lease, and with the same policy limits; and
(b) All risk, fire and casualty insurance on a 100% replacement
cost basis, together with rental loss coverage and, if the Building is located
in a flood zone, flood coverage to the extent the same is available, insuring
the Building and its rental value and
(c) Insurance against loss or damage from sprinklers and from
leakage or explosions or cracking of boilers, pipes carrying steam or water, or
both, pressure vessels or similar apparatus, in the so-called "broad form", in
such amounts as are customary and commercially reasonable for buildings in the
Cambridge, Massachusetts area which are of like kind and quality to the Building
and have laboratory uses, and insurance against such other hazards and in such
amounts as may from time to time be required by any bank, insurance company or
other lending institution holding a first mortgage on the Building and Lot.
Landlord shall have no obligation to insure Tenant's personal property or
chattels, including without limitation, Tenant's trade fixtures.
4.2.2.3 Tenant Reimbursement of Insurance Taken out by Landlord.
Tenant shall from time to time reimburse Landlord within thirty
days (30) of Landlord's invoice for Tenant's Proportionate Fraction of
Landlord's costs incurred in providing the insurance provided pursuant to
Section 4.2.2.2 of this Lease, equitably prorated in the case of blanket
policies to reflect the insurance coverage reasonably attributable to the
Building and Lot, and provided further that Tenant shall reimburse Landlord for
all of Landlord's costs incurred in providing such insurance which is
attributable to any special endorsement or increase in premium resulting from
the business or operations of Tenant, and any special or extraordinary risks or
hazards resulting therefrom, including without limitation, any risks or hazards
associated with the generation, storage and disposal of medical waste. Landlord
shall collect any extra premium from other tenants of the Building to the extent
caused by such other tenant's business operations. At Landlord's option, Tenant
shall reimburse Landlord for insurance costs in accordance with Section 4.2.5
hereof.
4.2.2.4 Certain Requirements Applicable to Insurance Policies.
Policies for insurance provided for under the provisions of
Sections 4.2.2.2(b) and 4.2.2.2(c) shall, in case of loss, be first payable to
the holders of any mortgages on the Building and Lot under a standard
mortgagee's clause and shall be deposited with the holder of any mortgage or
with Landlord, for application under this Lease. All policies for insurance
required to be obtained by either party under the provisions of Section 4.2.2
shall be obtained from responsible companies qualified to do business in the
state in which the Premises are located and in good standing therein, which
companies and the amount of insurance allocated
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thereto shall be subject to Landlord's approval. Each party agrees to furnish
the other with certificates of all such insurance which such party is obligated
to obtain pursuant to Section 4.2.2 prior to the beginning of the Term hereof
and with renewal certificates at least thirty (30) days prior to the expiration
of the policy they renew. In addition, each party agrees to furnish the other
with any policies of insurance which the other is obligated to obtain hereunder,
including any renewal policies, upon request of the other party (provided that
Tenant may redact from such policies any Confidential Information, as defined in
Section 10.14 hereof). Each such policy required to be maintained by Tenant
shall name Landlord and Landlord's Managing Agent as additional insureds and
shall be noncancellable with respect to the interest of Landlord, Landlord's
Managing Agent and such mortgagees without at least 30 days' prior written
notice thereto.
4.2.2.5 Waiver of Subrogation.
All property insurance which is carried by either party with
respect to the Premises whether or not required, shall include provisions which
either designate the other party as one of the insured or deny to the insurer
acquisition by subrogation of rights of recovery against the other party to the
extent such rights have been waived by the insured party prior to occurrence of
loss or injury, insofar as, and to the extent that such provisions may be
effective without making it impossible to obtain insurance coverage from
responsible companies qualified to do business in the state in which the
Premises are located (even though extra premium may result therefrom) and
without voiding the insurance coverage in force between the insurer and the
insured party. In the event that extra premium is payable by either party as a
result of this provision, the other party shall reimburse the party paying such
premium the amount of such extra premium. If at the request of one party, this
non-subrogation provision is waived, then the obligation of reimbursement shall
cease for such period of time as such waiver shall be effective, but nothing
contained in this Section 4.2.2.5 shall derogate from or otherwise affect
releases elsewhere herein contained of either party for claims. Each party shall
be entitled to have duplicates or certificates of any policies containing such
provisions. Each party hereby waives all rights of recovery against the other
for loss or injury against which the waiving party is protected by insurance
containing said provisions, reserving, however, any rights with respect to any
excess of loss or injury over the amount recovered by such insurance. Tenant
shall not acquire as insured under any insurance carried on the Premises under
the provisions of this Section 4.2.2 any right to participate in the adjustment
of loss or to receive insurance proceeds and agrees upon request promptly to
endorse and deliver to Landlord any checks or other instruments in payment of
loss in which Tenant is named as payee.
4.2.3 Utilities.
Tenant shall pay directly to the proper authorities charged with
the collection thereof all charges for water, sewer, gas, electricity, telephone
and other utilities or services used or consumed on the Premises, whether called
charge, tax, assessment, fee or otherwise, including, without limitation, water
and sewer use charges and taxes, if any, all such charges to be paid as the same
from time to time become due. Upon Tenant's request, Landlord shall install at
Tenant's expense separate meters to measure Tenant's consumption of any utility
servicing the Premises. Tenant and Landlord agree that check meters shall be
installed in the other tenant's premises at Landlord's or such other tenant's
expense. A portion of the Premises (Suite 5, Floor
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One) is presently metered separately for electricity. If Tenant is not charged
directly by the respective utility for any of such utilities or services are
being provided to the common areas of the Building and/or Lot, Tenant shall from
time to time, within twenty (20) days of receipt of Landlord's invoice therefor
accompanied by substantiation reasonably acceptable to Tenant, pay to Landlord
Tenant's Proportionate Fraction of the total of such charges for the Building
and Lot, provided that if said utilities or services are provided to less than
all of the rentable space in the Building, Tenant shall pay its share of said
charges based upon the actual consumption shown on any separate meter for such
utility or service, and, in the event there is no such separate meter, based
upon the area of the Premises relative to the area of the entire space to which
utilities are provided, or such greater amount required, in Landlord's
reasonable judgment, by Tenant's disproportionate use of utilities, and provided
further that, at Landlord's option, all such charges payable by Tenant to
Landlord for common area utilities and services shall be payable by Tenant in
accordance with Section 4.2.5. Landlord shall not be liable for any interruption
or failure in the supply of any such utilities to the Premises; provided,
however, that in the event such loss or failure is due to causes other than
Tenant's negligence or willful misconduct. Tenant shall be entitled to abatement
of rent and Additional Rent from and after the third (3rd) day of such
interruption. Without limitation of the foregoing, in the event of a Casualty or
Taking, if Landlord's architect reasonably determines that utilities will not be
repaired or restored so as to be available at the Utility Switching Points
within one year after the occurrence of such Casualty or Taking, then Tenant
shall have the right to terminate this Lease by notice given within thirty (30)
days after the date of such determination.
4.2.4 Common Area Maintenance and Expenses.
Landlord shall maintain the common areas of the Lot and the
common areas of interior and exterior of the Building in a clean and orderly
condition in accordance with Exhibit E, except to the extent repairs or
---------
maintenance are required due to Tenant's negligence or willful misconduct (in
which case Landlord may effect such repairs or maintenance and charge the entire
reasonable cost thereof to Tenant as Additional Rent). Notwithstanding the
foregoing, it is expressly understood and agreed that Landlord shall have no
liability or responsibility for the storage, containment or disposal of any
hazardous or medical waste generated, stored or contained by Tenant, Tenant
hereby agreeing to store, contain and dispose of any and all such hazardous or
medical waste at Tenant's sole cost and expense in accordance with the
provisions of Article V hereof. Tenant shall pay to Landlord as Additional Rent
the Annual Maintenance Charge computed and payable as follows:
(1) The Annual Maintenance Charge shall be equal to the sum of the
Annual Lot Maintenance Charge and the Annual Building Maintenance and
Operation Charge as hereinafter defined and exclude the Exclusions
from Common Area Maintenance and Expenses as hereinafter defined.
(a) The Annual Lot Maintenance Charge shall be equal to the
product obtained by multiplying (x) the reasonable costs incurred by
Landlord during the fiscal year (as hereinafter defined) for which the
Annual Maintenance Charge is being computed (the "Current Fiscal
Year") in providing Lot maintenance, including without limitation
landscaping, street lighting, security (if required, in Landlord's
reasonable judgment), maintenance and snow plowing, maintenance
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of Lot, common signage, maintenance of common utilities, and
management fees not exceeding a competitive market rate management fee
with reference to similar buildings in Cambridge, by (y) Tenant's
Proportionate Fraction.
(b) The Annual Building Maintenance and Operation Charge shall
be equal to Tenant's Proportionate Fraction of the reasonable costs
incurred by Landlord during the Current Fiscal Year in providing
Building maintenance, including without limitation repair, maintenance
and cleaning of common facilities in the Building, and maintenance and
repairing of all common heating, plumbing, electrical, air
conditioning and mechanical fixtures and equipment serving the
Building generally or the Premises, elevators, trash dumpster rental,
trash removal, recycling, performance of such other tasks as Tenant
shall request and Landlord shall agree to perform, management fees
(exclusive of leasing and sale commissions, fees paid in connection
with tenant improvement costs, and such other fees or commissions paid
in connection with the leasing, re-leasing, extension or renewal of
leases for the Building or the Lot) as previously set forth in (a)
above not exceeding a competitive market rate management fee with
reference to similar buildings in Cambridge and amortization of
equipment to the extent used for Building maintenance.
(c) In no event shall any of the following be included in Annual
Maintenance Lot Charge or Annual Building Maintenance and Operation
Charge:
(i) the cost of alterations, capital improvements and
other items which under generally accepted accounting principles
are properly classified as capital expenditures;
(ii) any tenant work performed for, or alteration of
space leased to, Tenant or other tenants or occupants of the
Building, whether such work or alteration is performed for the
initial occupancy of such tenant or occupant or thereafter;
(iii) any cash or other consideration paid by Landlord on
account of, with respect to or in lieu of the tenant work or
alterations described in clause (ii) above;
(iv) ground rent;
(v) depreciation or amortization;
(vi) repairs necessitated by the negligence of Landlord
or other tenants or occupants;
(vii) costs of the negotiation of and enforcement of
leases;
(viii) interest on indebtedness or any costs of financing
or refinancing the Building or any capital expenditures excluded
hereby;
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(ix) compensation paid to officers and executives of
Landlord above the grade of building manager;
(x) leasing commissions, advertising and promotional
expenses;
(xi) legal fees, or other professional or consulting
fees in connection with any items to be excluded hereby;
(xii) the cost of repairs incurred by reason of fire or
other casualty or condemnation to the extent that either (a)
Landlord is compensated therefore through proceeds of insurance
or condemnation; (b) Landlord failed to obtain insurance against
such fire or casualty, if such insurance was generally carried by
the owners of similar buildings in Cambridge; or (c) Landlord is
not fully compensated therefore due to the coinsurance provisions
of its insurance policies on account of Landlord's failure to
obtain a sufficient amount of coverage against such risk;
(xiii) the cost of the future renovations or additions to
the Building, except to the extent the same is offset by cost
saving measures to the tenants in the Building;
(xiv) overtime HVAC costs whether or not charged
separately to other Building tenants;
(xv) the cost of performing additional services or
installations to or for tenants to the extent that such service
exceeds that provided by Landlord to Tenant without charge
hereunder;
(xvi) any amounts payable by Landlord by way of indemnity
or for damages or which constitute a fine, interest or penalty;
(xvii) any improvement installed or work performed or any
other cost or expense incurred by Landlord in order to comply
with the requirements for obtaining of, or renewal of, a
certificate of occupancy for the Building or for any other tenant
space therein;
(xviii) any cost representing an amount paid for services
or materials to a related person, firm or entity to the extent
such amount exceeds the amount that would be paid for such
services or materials at the then existing market rates therefor
to an unrelated person, firm or corporation; and
(xix) expenses, costs and disbursements relating to or
arising in any way, directly or indirectly, from the handling,
removal, treatment, disposal or replacement of asbestos, asbestos
containing materials or other hazardous materials in the Building
and/or the Lot.
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Tenant shall make payments on account of the Annual Maintenance Charge
monthly in advance on the first day of each calendar month during the Term. At
the beginning of every fiscal year, Landlord shall deliver to Tenant its
reasonable estimate of the Annual Maintenance Charge (the "Estimated Annual
Maintenance Charge") for the said fiscal year which estimate may include a
reasonable contingency of up to 5%, and Tenant shall make payments on account of
the Annual Maintenance Charge monthly in advance on the first day of each
calendar month during the Term in the amount of one-twelfth of the Estimated
Annual Maintenance Charge. Landlord reserves the right to reasonably re-
estimate and modify the Estimated Annual Maintenance Charge by notice to Tenant
once annually on or about July 1 of each Lease Year (the "Additional Rent
Adjustment Date"), and Tenant's payments shall thereupon be adjusted
accordingly. Not later than sixty (60) days after the end of each fiscal year
during the Term and after Lease termination, Landlord shall render a statement
("Landlord's Statement") in reasonable detail and according to generally
accepted accounting principles consistently applied certified by Landlord and
showing for the preceding fiscal year or fraction thereof, as the case may be,
the actual Annual Maintenance Charges for the said fiscal year or fraction
thereof, and thereupon any balance owed by Tenant or excess paid by Tenant under
this Section shall be paid to Landlord, or credited to Tenant, as the case may
be, on the next rent payment date. Landlord shall furnish Tenant with copies of
all reasonable documentation and records for the Annual Maintenance Charges for
any fiscal year upon Tenant's request for the same; provided, however, that
Landlord shall not be required to furnish such copies for any fiscal year if
Tenant has not requested such copies within two (2) years after the expiration
of such fiscal year.
For purposes of this Lease, the first "fiscal year" shall be the annual
period commencing on the Commencement Date and ending on December 31 of the year
in which the Commencement Date occurs subsequently, the term "fiscal year" shall
mean each consecutive annual period thereafter, commencing on the day following
the end of the preceding fiscal year. Landlord shall have the right from time
to time to change the periods of accounting under this Section 4.2.4 to any
annual period other than a fiscal year, and upon any such change all items
referred to in this Section shall be appropriately apportioned. In all
Landlord's Statements rendered under this Section, amounts for periods partially
within and partially without the accounting periods shall be appropriately
apportioned, and any items which are not determinable at the time of a
Landlord's Statement shall be included therein on the basis of Landlord's
estimate, and with respect thereto Landlord shall render promptly after
determination a supplemental Landlord's Statement, and appropriate adjustment
shall be made according thereto. All of Landlord's Statements shall be prepared
on an accrual basis of accounting.
Notwithstanding any other provision of this Section 4.2.4, if the Term
expires or is terminated as of a date other than the last day of a fiscal year,
then for such fraction of a fiscal year at the end of the Term, Tenant's last
payment to Landlord under this Section 4.2.4 shall be made on the basis of
Landlord's best reasonable estimate of the items otherwise includable in
Landlord's Statement and shall be made on or before the later of (a) ten (10)
days after Landlord delivers such estimate to Tenant or (b) the last day of the
Term. Landlord shall thereafter prepare a Landlord's Statement showing the
actual Annual Maintenance Charge for such fiscal year, as hereinabove provided,
and an appropriate payment or refund shall thereafter promptly be made upon
submission of such Landlord's Statement to Tenant.
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4.2.5 Payments on Account of Taxes, Insurance and Utilities.
If required by Landlord after not less than thirty (30) days, advance
notice, Tenant shall make payments on account of the Annual Tax, Insurance and
Utility Charge (as hereinafter defined) monthly in advance on the first day of
each calendar month during the Term. At the beginning of every fiscal year,
Landlord shall deliver to Tenant its reasonable estimate of the Annual Tax,
Insurance and Utility Charge ("the Estimated Annual Tax, Insurance and Utility
Charge") for said fiscal year, and Tenant shall make payments on account of the
Annual Tax, Insurance and Utility Charge monthly in advance on the first day of
each calendar month during the Term in the amount of one-twelfth of the
Estimated Annual Tax, Insurance and Utility Charge. Landlord reserves the right
to reasonably re-estimate and modify the Estimated Annual Tax, Insurance and
Utility Charge by notice to Tenant once annually on the Additional Rent
Adjustment Date (as defined in Section 4.2.4 hereof), and Tenant's payments
shall thereupon be adjusted accordingly.
Not later than sixty (60) days after the end of each fiscal year
during the Term and after Lease termination, Landlord shall render a statement
in reasonable detail and according to generally accepted accounting practices
certified by Landlord and showing for the preceding fiscal year or fraction
thereof, as the case may be, the actual Annual Tax, Insurance and Utility Charge
for the said fiscal year or fraction thereof, and thereupon any balance owed by
Tenant or excess paid by Tenant under this Section shall be paid to Landlord, or
credited to Tenant, as the case may be, on the next rent payment date. As used
herein, the term "Annual Tax, Insurance and Utility Charge" shall mean and refer
to the amount of funds paid by Tenant pursuant to Section 4.2.1, 4.2.2 and 4.2.3
for the fiscal year in question for costs actually incurred by Landlord (without
any mark-up for Landlord's overhead or profit). All payments under this Section
shall to the extent thereof relieve Tenant of its obligations under said
Sections 4.2.1, 4.2.2 and 4.2.3 hereof.
Landlord shall have the right from time to time to change the periods
of accounting under this Section 4.2.5 to any annual period other than a fiscal
year, and upon any such change all items referred to in this Section shall be
appropriately apportioned. In all Landlord's annual statements rendered under
this Section, amounts for periods partially within and partially without the
accounting periods shall be appropriately apportioned, and any items which are
not determinable at the time of such a statement shall be included therein on
the basis of Landlord's reasonable estimate, and with respect thereto Landlord
shall render promptly after determination a supplemental statement, and an
appropriate adjustment shall be made according thereto. All of landlord's
statements under this Section shall be prepared on an accrual basis of
accounting.
Notwithstanding any other provision of this Section 4.2.5, if the Term
expires or is terminated as of a date other than the last day of a fiscal year,
then for such fraction of a fiscal year at the end of the Term, Tenant's last
payment to Landlord under this Section 4.2.5 shall be made on the basis of
Landlord's best reasonable estimate of the items otherwise includable in the
annual statement rendered by Landlord under this Section and shall be made on or
before the later of (a) 10 days after Landlord delivers such estimate to Tenant
or (b) the last day of the Term, with an appropriate payment or refund to be
made upon submission of Landlord's statement.
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4.2.6 Equitable Adjustment of Additional Rent.
Notwithstanding any other provision of this Lease to the contrary, if
the amount charged to Tenant as Additional Rent under Section 4.2 for any
Operating Expense (as hereinafter defined) is based upon the proportion which
the Premises Floor Area bears to the Building Floor Area, and such amount is
more or less than the amount reasonably allocable to Tenant based upon the value
(with respect to ad valorem real estate taxes) or use of the Premises, then such
amount may be equitably adjusted by Landlord to reflect such disproportionality.
As used herein, the term "Operating Expense" shall mean and refer to ad valorem
real estate taxes and betterment assessments, utilities, insurance, the Annual
Lot Maintenance Charge and the Annual Building Maintenance and Operation Charge.
4.3 LATE PAYMENT OF RENT.
If any installment of rent is paid after the date the same was due, it
shall bear interest from the due date at the prime commercial rate of
BankBoston, as it may be adjusted from time to time, plus 4% per annum, but in
no event more than the highest rate of interest allowed by applicable law. Any
amounts due under this Section 4.3 shall be Additional Rent.
ARTICLE V
TENANT'S ADDITIONAL COVENANTS
5.1 AFFIRMATIVE COVENANTS.
Tenant covenants at its expense at all times during the Term and for such
further time as Tenant occupies the Premises or any part thereof:
5.1.1 Perform Obligations.
To perform promptly all of the obligations of Tenant set forth in this
Lease; and to pay when due the Fixed Rent and Additional Rent and all charges,
rates and other sums which by the terms of this Lease are to be paid by Tenant.
5.1.2 Occupancy and Use.
Tenant hereby covenants and agrees not to use and occupy the Premises
other than for the Permitted Uses, and to procure all licenses and permits
necessary for the Permitted Uses at Tenant's sole expense. Landlord covenants
and agrees that the Building has a certificate of occupancy which entitles
Tenant to legally occupy the Premises, subject to the foregoing.
Without limitation, Tenant shall strictly comply with all federal,
state, and municipal laws, ordinances, and regulations governing the use of
Tenant's laboratory, scientific experimentation and the generation, storage,
containment and disposal of medical waste. Tenant shall be solely responsible
'for procuring and complying at all times with any and all permits, approvals
and licenses required under any Federal, state and municipal laws, ordinances
and regulations relating or incident to: the conduct of its office and research
activities in the Premises; its scientific experimentation, transportation,
storage, handling, use and disposal of
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any Hazardous Materials (as hereinafter defined) including without limitation
all chemical or radioactive or bacteriological or pathological substances or
organisms or other hazardous wastes or environmentally dangerous substances or
materials or medical waste. Within ten (10) days of a request by Landlord, which
request shall be made not more than once during each period of twelve (12)
consecutive months during the Term hereof, unless otherwise requested by any
mortgagee of Landlord, Tenant shall furnish Landlord with copies of all such
permits which Tenant possesses or has obtained together with a certificate
certifying that such permits are all of the permits, approvals and licenses
which Tenant possesses or has obtained with respect to the Premises. Tenant
shall be entitled to redact any Confidential Information from the copies of such
permits and accompanying certificates of Tenant. Tenant shall promptly give
notice to Landlord of any violations and notices of noncompliance relative to
its use and operation of the Premises from any federal, state, or municipal
agency or by any court of law and shall promptly cure the conditions causing any
such violations or noncompliance. Tenant shall not be deemed to be in default of
its obligations under the preceding sentence to promptly notify Landlord or cure
any condition causing any such violation, nor its compliance obligations
generally under this Section 5.1.2 in the event that, in lieu of such cure,
Tenant shall contest the validity of such violation by appellate or other
proceedings permitted under applicable law, provided that: (i) any such contest
is made reasonably and in good faith, (ii) Tenant makes reasonable provisions,
including, without limitation, posting bond(s) or giving other security,
reasonably acceptable to Landlord to protect Landlord, the Building and the Lot
from any liability, costs, damages or expenses arising in connection with such
violation and failure to cure, (iii) Tenant shall agree to indemnify, defend
(with counsel reasonably acceptable to Landlord) and hold Landlord harmless from
and against any and all liability, costs, damages, or expenses arising in
connection with such condition and/or violation, (iv) Tenant shall promptly cure
any violation in the event that its appeal of such violation is overruled or
rejected beyond right of further appeal, and (v) Tenant shall certify to
Landlord's satisfaction that Tenant's decision to delay such cure shall not
result in any actual or threatened bodily injury or property damage to Landlord,
any tenant or occupant of the Building or the Lot, or any other person or
entity. Landlord agrees that any Confidential Information gained or obtained by
Landlord pursuant to this Section 5.1.2 shall be kept confidential in accordance
with Section 10.15 hereof.
5.1.3 Repair and Maintenance.
Except as otherwise provided in Article VI, to keep the interior of
the Premises including, without limitation, all fixtures and equipment now or
hereafter on the Premises, or exclusively serving the Premises, but excluding
the exterior (exclusive of glass) and structural elements of the Building and
the grounds and parking lot, which Landlord shall maintain and repair unless
such repairs are required because of Tenant's willful misconduct or negligence,
in good order, condition and repair and at least as good order, condition and
repair as they are in on the Commencement Date or may be put in during the Term,
reasonable use and wear only excepted; to keep in a safe, secure and sanitary
condition all trash and rubbish temporarily stored at the Premises; and to make
all repairs and maintenance and to do all other work necessary for the foregoing
purposes whether the same may be ordinary or extraordinary, foreseen or
unforeseen. Tenant shall secure, pay for and keep in force contracts with
appropriate and reputable service companies providing for the regular
maintenance of the heating and air-conditioning systems serving solely the
Premises and which were installed by Tenant and copies of such contracts shall
be furnished to Landlord; provided, however, that it is agreed that Tenant
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shall be responsible only for the repair and maintenance of the heating and air-
conditioning systems and the components thereof located within or exclusively
serving the Premises and which were installed by Tenant. It is further agreed
that the exception of reasonable use and wear shall not apply so as to permit
Tenant to keep the Premises in anything less than suitable, tenantlike, and
efficient and usable condition considering the nature of the Premises and the
use reasonably made thereof, or in less than good and tenantlike repair.
5.1.4 Compliance with Law.
To make all repairs, alterations, additions or replacements to the
Premises required as a result of Tenant's use of the Premises by any law or
ordinance or any order or regulation of any public authority other than major
capital repairs, alterations, additions or replacements to the foundations and
structural elements of the Building which are not required because of Tenant's
failure to comply with the Provisions of Article 5.1.3 hereof; to keep the
Premises equipped with all safety appliances so required; to pay all municipal,
county, or state taxes assessed against Tenant's the leasehold interest
hereunder, or against personal property of any kind owned by Tenant on or about
the Premises; and to comply with the orders and regulations of all governmental
authorities with respect to zoning, building, fire, health and other codes,
regulations, ordinances or laws applicable to the Premises.
The Tenant shall not use, generate, manufacture, produce, handle,
store, release, discharge or dispose of in, on, under or about the Premises or
transport to or from the Premises, or allow its employees, agents, contractors,
invitees or any other person or entity to do so, any Hazardous Materials except
to the extent that the following conditions regarding the use, generation,
manufacture, production, handling, storing, releasing, discharging, disposal or
transport (individually or collectively, the "Use") of Hazardous Materials shall
be satisfied: (i) the Use shall be directly related to the operation of Tenant's
business as permitted herein, (ii) Tenant shall provide Landlord with a copy of
any and all notices or lists of the types and quantities of such proposed
hazardous materials used in, on or at the Premises which Tenant is required to
furnish to any Federal, state or municipal governmental agencies or authorities
or any fire insurance underwriters (collectively "Governmental Authorities") for
purposes of compliance with any Environmental Law (as hereinafter defined), and
shall update such list as necessary for continuing accuracy and legal
compliance, and such other information reasonably satisfactory to Landlord as
Landlord may reasonably require concerning such Use, (iii) such Use shall be in
strict compliance (at Tenant's expense) with all applicable laws, regulations,
licenses and permits including without limitation all Environmental Laws, and
(iv) such use shall not invalidate or limit the coverage or increase the
premiums of any insurance policy affecting or covering the Building or the Lot.
Landlord hereby covenants and agrees that the information contained in any list,
or update thereof, referred to in the foregoing clause (ii) shall be kept
confidential in accordance with Section 10.15 hereof. Notwithstanding the
foregoing, Tenant hereby agrees to consult and coordinate with Landlord prior to
transporting any Hazardous Materials to or from the Premises whenever (i) such
transportation is not of the kind regularly made during the ordinary course of
business by a person or entity operating a laboratory or light manufacturing
facility for the Permitted Uses or (ii) Tenant has reason to believe that such
transportation may result in a public demonstration, protest or other similar
disturbance at the Building or the Lot. If the transportation, generation,
manufacture, production, handling, release, storage, use or disposal of any
hazardous materials anywhere on the Premises in connection with
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the Tenant's use of the Premises results in (1) contamination of the soil,
surface or ground water or any other environmental media or (2) loss or damage
to person(s) or property, then Tenant agrees to respond in accordance with the
following paragraph:
Tenant agrees (i) to notify Landlord immediately of any
contamination, claim of contamination, threat of
contamination, release of Hazardous Materials, threat of
release of Hazardous Materials, loss or damage, (ii) after
consultation and approval by Landlord, to clean up the
contamination in full compliance with all applicable
statutes, regulations and standards, including without
limitation all Environmental Laws, and (iii) to indemnify,
defend (with counsel acceptable to Landlord) and hold
Landlord harmless from and against any claims, suits,
causes of action, costs and fees, including attorneys, and
consultants' fees, arising from or connected with any such
contamination, claim-of contamination, threat of
contamination, release of Hazardous Materials, threat of
release of Hazardous Materials, loss or damage. No consent
or approval of Landlord shall in any way be construed as
imposing upon Landlord any liability for the means,
methods, or manner of removal, containment or other
compliance with applicable law for and with respect to the
foregoing.
Tenant shall promptly notify Landlord upon Tenant's receipt of any
inquiry, notice, or threat to give notice by any government authority or any
other third party with respect to any Hazardous Materials. Notwithstanding the
foregoing, Tenant shall not be liable to Landlord hereunder for any
contamination, claim of contamination, loss or damage arising in connection with
Hazardous Materials to the extent the same is the result of (A) Hazardous
Materials existing in the Building and the Lot prior to Tenant's use or
occupancy of the Premises, (B) migration of Hazardous Materials from any other
site onto the Lot which migration is not caused by Tenant, (C) the generation,
manufacture, production, handling, release, storage, use or disposal of any
Hazardous Materials at the Building or the Lot by Landlord, any other tenant or
occupant, or any so-called "mid-night dumpers" (provided, however, that Tenant
shall be liable for events described in this section (C) where Tenant's agents,
employees, contractors, invitees, assignees or sublessees shall have caused or
contributed to the same), or (D) the Use (as defined above in this Section) by
any party other than Tenant of Hazardous Materials at the Building or the Lot
after the date upon which Tenant has completely vacated the same, including
removal of all of its property (to the extent permitted herein) and Hazardous
Materials. Tenant's indemnification obligations under this Section shall survive
the expiration or earlier termination of this lease.
The term "Hazardous Materials" as used herein shall mean and include any
and all material(s) or substance(s) defined or treated in any federal, state, or
local law, statute, regulation, ordinance, order, by-law, code, requirement, or
directive, including without limitation the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601, et seq., as
-- ---
amended ("CERCLA")(and its implementing regulations), the Resource Conservation
and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq., as amended PIRCRAII)
-- ---
(and its implementing regulations), the Massachusetts Oil and Hazardous
Material
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Release Prevention and Response Act, M.G.L. c. 21E (and its implementing
regulations), and the Massachusetts Hazardous Waste Management Act, M.G.L. c.
21C (and its implementing regulations), as posing potential risk to persons,
property, public health, safety, or welfare or the environment or dangerous,
toxic or hazardous, including without limitation any and all pollutants,
contaminants, chemicals, wastes, lead paint, urea formaldehyde, polychlorinated
biphenyls, asbestos, radioactive materials, explosives, carcinogens,
bacteriological or pathological substances or organisms, oil, petroleum,
petroleum products and any and all other wastes, materials, and substances which
could lead to any liability, costs, damages, and/or penalties under any
Environmental Laws.
"Environmental Law(s)" as used herein shall mean any environmental, health
and safety-related law, statute, regulation, rule, ordinance, by-law, license,
permit, action, policy or authorization relating in any manner to Hazardous
Materials or the existence, use, discharge, release, containment,
transportation, or disposal thereof, at the federal, state, or local level, and
any judicial or administrative or regulatory decree, judgment or order, whether
existing as of the date hereof, previously enforced, or subsequently enacted.
Nothing herein contained shall be construed to limit or impair
Tenant's obligation to comply with any law, code, rule or regulation which
requires Tenant to notify any Governmental Authority or any other person
concerning the Use (as defined above in this Section) of Hazardous Materials by
Tenant at the Premises.
Tenant agrees that, with respect to the Premises, it shall be
responsible for compliance with the Americans with Disabilities Act (42 U.S.C.
(S) 12101 et seq.) and the regulations and Accessibility Guidelines for
-- ---
Buildings and Facilities issued pursuant thereto (collectively, the "ADA
Requirements"). Landlord agrees that otherwise Landlord is responsible for
compliance under the ADA Requirements.
Tenant covenants and agrees that its use of the Premises shall not
cause a discharge of more than its pro rata share on a square foot basis of the
design flow gallonage per day of sanitary (non-industrial) sewage allowed under
the sewage discharge permit(s) for the Building. Discharges in excess of that
amount, and any discharge of industrial sewage, shall only be permitted if
Tenant, at its sole expense, shall have obtained all necessary permits and
licenses therefor, including without limitation permits from state and local
authorities having jurisdiction thereof.
5.1.5 Tenant's Work.
To procure at Tenant's sole expense all necessary permits and licenses
before undertaking any work on the Premises; to do all such work in compliance
with the applicable provisions of Sections 3.3 and 5.2.3 hereof; to do all such
work in a good and workmanlike manner employing materials of good quality and so
as to conform with all applicable zoning, environmental, building, fire, health
and other codes, regulations, ordinances and laws and the ADA Requirements; to
keep the Premises at all times free of liens for labor and materials; to employ
for such work one or more responsible contractors whose labor will work without
interference with other labor working on the Premises; to require such
contractors employed by Tenant to carry worker's compensation insurance in
accordance with statutory requirements and
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comprehensive public liability insurance covering any general contractors on or
about the Premises in amounts required under Section 3.5 and to submit
certificates evidencing such coverage to Landlord prior to the commencement of
such work; and to save Landlord harmless and indemnified from all injury, loss,
claims or damage to any person or property occasioned by or growing out of such
work. Notwithstanding any other provision of this Section 5.1.5 or any other
provision of this Lease to the contrary, Landlord shall not, subject to
applicable law, prohibit Tenant from using non-union labor to perform any work
at the Premises. Without limitation of the foregoing, Landlord shall not require
Tenant's employees to unionize.
5.1.6 Indemnity.
To defend, with counsel reasonably approved by Landlord, all actions
against Landlord, any partner, trustee, stockholder, officer, director, employee
or beneficiary of Landlord, holders of mortgages secured by the Premises or the
Building and Lot and any other party having an interest in the Premises
("Indemnified Parties") with respect to, and to pay, protect, indemnify and save
harmless, to the extent permitted by law, all Indemnified Parties from and
against, any and all liabilities, losses, damages, costs, expenses (including
reasonable attorneys' fees and expenses), causes of action, suits, claims,
demands or judgments of any nature arising from (i) injury to or death of any
person, or damage to or loss of property, on the Premises or on adjoining
sidewalks, streets or ways connected with the use or occupancy thereof by Tenant
or its agents, contractors, licensees, employees, or sublessees, unless and to
the extent caused by the negligence or willful misconduct of Landlord or its
servants or agents, or (ii) any negligence, or willful misconduct of Tenant or
its agents, contractors, licensees, employees, or sublessees.
5.1.7 Landlord's Right to Enter.
Subject to the provisions of Section 2.1 to permit Landlord and its
agents to enter into the Premises at reasonable times and upon reasonable
advance notice (except in case of emergency in which event no prior notice shall
be required but notice shall be given as soon as reasonably practicable) to
examine the Premises, make such repairs and replacements as Landlord may elect,
without however, any obligation to do so except as may be otherwise expressly
set forth in this Lease, and show the Premises to prospective purchasers and
lenders, and, during the last twelve months of the Term, to show the Premises to
prospective tenants. Landlord's right to enter the Premises in accordance with
the foregoing shall be subject to Landlord's obligations pursuant to Section
10.14 hereof and Landlords obligation not to unreasonably disrupt Tenant's
conduct of its business. Notwithstanding the foregoing, Landlord agrees that in
the event that Landlord shows the Premises to any prospective purchaser or
tenant, Landlord shall: (i) provide at least three (3) days' notice to Tenant
identifying the prospective purchaser or tenant, and (ii) only show the Premises
to such purchaser or tenant if Landlord believes in good faith that such person
or entity is a bona fide prospective purchaser or tenant. In all cases Landlord
shall conduct such showings in compliance with such reasonable requests and
instructions as Tenant may make for purposes of protecting Tenant's Confidential
Information.
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5.1.8 Personal Property at Tenant's Risk.
All of the furnishings, fixtures, equipment, effects and property of
every kind, nature and description owned or leased by Tenant or by any person
claiming by, through or under Tenant which, during the continuance of this Lease
or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may
be on the Premises, shall, as between the parties, be at the sole risk and
hazard of Tenant and if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other cause, no part of
said loss or damage is to be charged to or to be borne by Landlord, except that
Landlord shall in no event be indemnified or held harmless or exonerated from
any liability to Tenant or to any other person, for any injury, loss, damage or
liability to the extent such injury, loss, damage or liability is the result of
the negligence or willful misconduct of Landlord, its contractors, agents or
employees, or (ii) such indemnification, agreement to hold harmless or
exoneration is prohibited by law.
5.1.9 Payment of Landlord's Cost of Enforcement.
To pay on demand Landlord's expenses, including reasonable attorney's
fees, incurred in enforcing any obligation of Tenant under this Lease or in
curing any default by Tenant under this Lease as provided in Section 7.4.
5.1.10 Yield Up.
Subject to Section 3.3 hereof, at the expiration of the Term or
earlier termination of this Lease: to surrender all keys to the Premises; to
remove all of its trade fixtures and personal property in the Premises; to
remove such installations and improvements made by Tenant as Landlord may
require as a condition to Landlord's approval of alterations in accordance with
Section 3.5 and all Tenant's signs wherever located; to repair all damage caused
by such removal; and to otherwise yield up the Premises, broom-clean and in the
same good order and repair in which Tenant is obliged to keep and maintain the
Premises by the provisions of this Lease. Subject to Section 3.4 hereof, any
property not so removed shall be deemed abandoned and may be removed and
disposed of by Landlord in such manner as Landlord shall determine and Tenant
shall pay Landlord the entire reasonable cost and expense incurred by Landlord
in effecting such removal and disposition and in making any incidental repairs
and replacements to the Premises and for use and occupancy during the period
after the expiration of the Term and prior to Tenant's performance of its
obligations under this Section 5.1.10. Tenant shall further indemnify Landlord
against all loss, cost and damage resulting from Tenant's failure and delay in
surrendering the Premises as above provided.
5.1.11 Estoppel Certificate.
Upon not less than ten (10) days' prior notice by Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect and that except as
stated therein Tenant has no knowledge of any defenses, offsets or counterclaims
against its obligations to pay the Fixed Rent and Additional Rent and any other
charges and to perform its other covenants under this Lease (or, if there have
been any modifications that the Lease is in full force and effect as modified
and
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stating the modifications and, if there are any defenses, offsets or
counterclaims, setting them forth in reasonable detail), the dates to which the
Fixed Rent and Additional Rent and other charges have been paid and a statement
that, to the best of Tenant's knowledge, Landlord is not in default hereunder
(or if in default, the nature of such default, in reasonable detail) and such
other matters reasonably required by Landlord or any prospective purchaser or
mortgagee of the Premises. Any such statement delivered pursuant to this Section
5.1.11 may be relied upon by any prospective purchaser or mortgagee of the
Premises, or any prospective assignee of any such mortgage.
5.1.12 Landlord's Expenses Re Consents.
To reimburse Landlord promptly on demand for all reasonable legal
expenses incurred by Landlord in connection with all requests by Tenant for
consent or approval under this Lease.
5.1.13 Rules and Regulations.
To comply with the Rules and Regulations set forth in Exhibit C, as
---------
the same may be amended from time to time by Landlord to provide for the
beneficial operation of the Building and/or Lot, provided that such amendments
do not materially interfere with Tenant's right of use and enjoyment of the
Premises pursuant to this Lease, it being understood that, subject to the
provisions of Section 10.2 hereof, Landlord shall not be liable to Tenant for
the failure of other tenants of the Building or the Lot to conform to such Rules
and Regulations but Landlord shall enforce such rules and regulations in a non-
discriminating manner.
5.1.14 Loading.
Not to place Tenant's Property, as defined in Section 5.1.8, upon the
Premises so as to exceed the floor load limits set forth in Exhibit D attached
---------
hereto and not to move any safe, vault or other heavy equipment in, about or out
of the Premises except in such manner and at such times as Landlord shall in
each instance reasonably approve; Tenant's business machines and mechanical
equipment which cause vibration or noise that may be transmitted to the Building
structure or to any other leased space in the Building shall be placed or
maintained by Tenant in settings of cork, rubber, spring, or other types of
vibration eliminators sufficient to reduce such vibration or noise to a level
reasonably acceptable to Landlord.
5.1.15 Holdover.
To pay to Landlord (i) the greater of twice (a) the then fair market
rent as reasonably determined by Landlord or (b) the total of the Fixed Rent,
Additional Rent, and all other payments then payable hereunder, for each month
or portion thereof Tenant shall retain possession of the Premises or any part
thereof after the termination of this Lease, whether by lapse of time or
otherwise, and (ii) all damages sustained by Landlord on account thereof;
provided, however, that any payments made by Tenant under the foregoing clause
(i) in excess of the then fair market rent for the Premises as so reasonably
determined by Landlord shall be applied against any damages under the foregoing
clause (ii). The provisions of this subsection shall not operate as a waiver by
Landlord of the right of re-entry provided in this Lease.
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5.2 NEGATIVE COVENANTS.
Tenant covenants at all times during the Term and for such further time as
Tenant occupies the Premises or any part thereof:
5.2.1 Assignment and Subletting; Mortgaging.
Not without the prior written consent of Landlord to assign this
Lease, to make any sublease, or to permit occupancy of the Premises or any part
thereof by anyone other than Tenant, voluntarily or by operation of law, except
as hereinafter provided; as Additional Rent, to reimburse Landlord promptly for
reasonable legal and other expenses incurred by Landlord in connection with any
request by Tenant for consent to assignment or subletting (subject to the
provisions of Section 5.1.12 hereof); no assignment or subletting shall affect
the continuing primary liability of Tenant (which, following assignment, shall
be joint and several with the assignee); no consent to any of the foregoing in a
specific instance shall operate as a waiver in any subsequent instance. No
sublessee, assignee or mortgagee succeeding to Tenant's interest under the Lease
shall be permitted to use the Premises other than for the Permitted Uses.
Landlord's consent shall be required as to the reasonable creditworthiness of
any proposed assignee in view of market conditions then prevailing for leases
having terms and conditions comparable to this Lease. Landlord's consent to any
assignment or subletting by Tenant shall not be unreasonably withheld, provided
that Tenant is not then in default beyond applicable notice and grace periods
under this Lease and that such assignee or subtenant pays therefor the greater
of the Fixed Rent, Additional Rent, and all other payments then payable
hereunder, or the then fair market rent for the Premises. If Tenant requests
Landlord's consent to assign this Lease, or to sublet any portion of the
Premises such that Tenant shall not occupy at least fifty percent (50%) of the
rentable square footage of the Premises after the date of commencement of such
sublease, Landlord shall have the option, exercisable by written notice to
Tenant given within 10 days after receipt of such request, to terminate this
Lease as of the date of commencement the proposed sublease or assignment;
provided, however, that Tenant shall have the right to rescind any such request
in the event Landlord elects to so terminate this Lease by notice given to
Landlord within five (5) days after the date of such termination notice from
Landlord, in which event such termination notice shall be of no further force or
effect;
Notwithstanding the foregoing provisions of this Section 5.2.1, Tenant
may assign this Lease or sublet any portion of the Premises without Landlord's
consent to (i) any successor of Tenant resulting from a merger or consolidation
of Tenant and (ii) any Affiliate of Tenant (as hereinafter defined) whose net
worth is equal to or greater than the net worth of Tenant as of the date hereof,
provided that Tenant provides Landlord at least forty-five (45) days prior
notice of such assignment or subletting pursuant to the foregoing clause (ii).
As used herein, the term "Affiliate of Tenant" shall mean and refer to any
entity controlled by, controlling or under common control with Tenant.
In the event that any assignee or subtenant of Tenant pays to Tenant
any amount in excess of the Fixed Rent, Additional Rent, and all other payments
then payable hereunder (excluding any payments on account of goods or services
being provided, furnished or conveyed by Tenant not otherwise provided by
Landlord), or pro rata portion thereof on a square footage basis for any portion
of the Premises (such excess being hereinafter referred to as "Sublease
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Profits"), Tenant shall promptly pay fifty percent (50%) of said Sublease
Profits to Landlord as and when received by Tenant after deduction of Tenant's
Sublease Costs (as hereinafter defined) The term "Sublease Costs" shall mean and
refer to Tenant's reasonable legal, brokerage and construction costs and
expenses, and any other reasonable and customary costs associated with the
assignment or sublease transaction, incurred in good faith in view of the size
and expected term of any applicable sublease or assignment. Sublease Costs shall
be amortized over the term of the applicable sublease or assignment.
Notwithstanding anything to the contrary provided in this Section
5.2.1, Tenant may mortgage, pledge, hypothecate, collaterally assign or
otherwise offer its interest under this Lease as security for a loan for the
construction of its Leasehold Improvements ("mortgage the leasehold interest of
Tenant"), which loan secured by a mortgage of leasehold interest of Tenant shall
only include the financing of Leasehold Improvements which become real estate
- ----
fixtures to the Building and the Premises and shall not include Tenant's trade
fixtures, equipment or other movable items, in which event:
(a) Landlord shall furnish Tenant and the secured party under
its mortgage of the leasehold interest of Tenant a formal consent,
estoppel and agreement with respect to this Lease, in form and
substance reasonably satisfactory to Landlord, wherein Landlord shall
agree as more particularly set forth in such agreement, among other
things, that (i) notices of default must be given simultaneously to
the secured party with their being given to Tenant in order for such a
notice to be properly given, and (ii) the secured party shall have the
right to cure any default by Tenant which, except for monetary
defaults, shall include an additional cure period of ten (10) days for
the secured party extending beyond Tenant's cure period.
(b) Any assignment or subletting by the secured party or anyone
deriving their interest in this Lease under such secured party
("Successor Tenant") shall be subject to Landlord's reasonable
approval under the same circumstances as if Tenant continued to hold
the Tenant's interest under this Lease.
(c) The secured party shall be required to give simultaneous
notice to Landlord of Tenant's default under the mortgage of Tenant's
leasehold interest.
(d) The secured party shall be required to pay all then unpaid
and due and payable Fixed Rent and Additional Rent due Landlord under
the Lease upon entering the Premises in order to exercise its remedies
for default by Tenant.
(e) Prior to the foreclosure by secured party of the mortgage of
leasehold interest of Tenant, the secured party shall offer Landlord,
and Landlord shall have the option, but shall not be obligated, to pay
to the secured party the then outstanding balance due the secured
party under the loan secured by the mortgage of leasehold interest of
Tenant referred to above. If Landlord accepts the secured party's
offer within ten (10) days, and pays the secured party the outstanding
balance as aforesaid within such ten (10) day period, secured party
shall have no right to possession of the Premises and the mortgage of
the
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leasehold interest of Tenant shall be discharged, and such payment by
Landlord to the secured party shall be deemed an Event of Default
under the Lease whereby Tenant shall be required to relinquish the
Premises to Landlord.
(f) Upon foreclosure of Tenant's leasehold interest Successor
Tenant may exercise whatever rights Tenant has under this Lease to
sublet or assign Tenant's interest under this Lease as Tenant, subject
to the provisions of this Section 5.2.1, provided that one hundred
percent (100%) of any amounts paid to Successor Tenant by a subtenant
in excess of the Fixed Rent, Additional Rent, and all other payments
then payable hereunder (excluding any payments on account of goods or
services being provided, furnished or conveyed by Successor Tenant not
otherwise provided by Landlord), or pro rata portion thereof on a
square footage basis for any portion of the Premises (such excess
being hereinafter referred to as "Successor Tenant Sublease Profits"),
shall be promptly paid to Landlord as and when received by Successor
Tenant after deduction of Successor Tenant's Sublease Costs (as
hereinafter defined). The term "Successor Tenant's Sublease Costs"
shall mean and refer to the reasonable legal, brokerage and
construction costs and expenses associated with the sublease
transaction, the outstanding balance due the secured party under the
loan secured by the mortgage of the leasehold interest of Tenant and
any other reasonable and customary costs associated with the
foreclosure of the aforesaid mortgage, incurred in good faith in view
of the size and expected term of any applicable sublease. Sublease
Costs shall be amortized over the term of the applicable sublease or
assignment. Any amounts paid by Successor Tenant to the secured party
for assignment of the Lease shall first be applied against the
outstanding balance due the secured party under the loan secured by
the mortgage of the leasehold interest of Tenant and otherwise such
amount shall be exclusively payable to Landlord. Nothing set forth
herein shall affect or impair the liability of Tenant, any secured
party foreclosing the mortgage of leasehold interest of Tenant, or any
Successor Tenant to pay to Landlord all Fixed Rent, Additional Rent
and other sums due Landlord pursuant to this Lease.
Notwithstanding the foregoing, subsequent to the
foreclosure, and upon subletting the Premises as provided herein,
Landlord shall be entitled to require that at least one (1) sublease
shall demise at least fifty percent (50%) of the floor area of the
Premises.
5.2.2 Nuisance.
Not to injure, deface or otherwise harm the Premises; nor commit any
nuisance; nor permit the emission of any noise, vibration or odor which is
contrary to any law or ordinance; nor make, allow or suffer any waste; nor make
any use of the Premises which is improper, offensive or contrary to any law or
ordinance or which will invalidate any of Landlord's insurance.
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ARTICLE VI
CASUALTY OR TAKING
6.1 TERMINATION.
In case during the period which is twelve (12) or fewer months prior to the
expiration of the Term all or any substantial part of the Premises or of the
Building or of the Lot or any one or more of them shall be taken by any public
authority or for any public use, or shall be destroyed or damaged by fire or
casualty, or by the action of any public authority, or Landlord receives
compensable damage by reason of anything lawfully done in pursuance of public or
other authority, (hereinafter referred to as the "Casualty or Taking"), then
this Lease may be terminated at the election of Landlord. Such election, which
may be made notwithstanding the fact that Landlord's entire interest may have
been divested, shall be made by the giving of notice by Landlord to Tenant
within thirty (30) days after the Casualty or Taking.
6.2 RESTORATION.
Unless this Lease is terminated under Section 6.1, this Lease shall
continue in force notwithstanding any Casualty or Taking and a just proportion
of the rent reserved, according to the nature and extent of the damages
sustained by the Premises, but not in excess of an equitable proportion of the
net proceeds of insurance recovered by Landlord under the rental insurance
coverage carried pursuant to Section 4.2.2.2, shall be abated from the date of
the Casualty or Taking until the Premises, or what may remain thereof, shall be
put by Landlord in proper condition for use subject to zoning and building laws
or ordinances then in existence, which Landlord covenants to do with reasonable
diligence at Landlord's expense, provided that Landlord's obligations with
respect to restoration shall not require Landlord to expend more than the net
proceeds of insurance recovered or damages awarded for such Casualty or Taking.
"Net proceeds of insurance recovered or damages awarded" refers to the gross
amount of such insurance or damages less the reasonable expenses of Landlord in
connection with the collection of the same, including without limitation, fees
and expenses for legal and appraisal services.
In the case of any Casualty or Taking occurring prior to the last twelve
(12) months prior to expiration of the Term, in the event that all or a
substantial part of the Premises or the Building shall be taken or destroyed as
aforesaid either party's architect reasonably determines that the Premises will
not be reasonably repaired or restored (to the extent permitted by the net
proceeds of insurance recovered or damages awarded from such Casualty or Taking)
within one year after the occurrence of such Casualty or Taking then either
party shall have the right to terminate this Lease by notice given within thirty
(30) days after the date of such determination.
In the case of a taking, there shall be an equitable permanent adjustment
of Fixed Rent and Additional Rent.
6.3 AWARD.
Irrespective of the form in which recovery may be had by law, all rights to
damages or compensation shall belong to Landlord in all cases except as set
forth below in this Section 6.3. Tenant hereby grants to Landlord all of
Tenant's rights to such damages and compensation and
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covenants to deliver such further assignments thereof as Landlord may from time
to time request. It is agreed and understood, however, that Landlord does not
reserve to itself, and Tenant does not assign to Landlord, any damages payable
for (i) Leasehold Improvements (paid for by Tenant), movable trade fixtures
installed by Tenant or anybody claiming under Tenant, at its own cost and
expense or (ii) relocation expenses or damages for loss of business (in excess
of any such damages attributable to the value of this lease) recoverable by
Tenant from such authority.
ARTICLE VII
DEFAULTS
7.1 EVENTS OF DEFAULT.
(a) If Tenant shall default in the performance of any of its obligations
to pay the Fixed Rent or Additional Rent hereunder and if such default shall
continue for five (5) days after notice from Landlord to Tenant specifying the
default (provided, however, that Landlord shall not be required to provide such
notice more than two (2) times in any period of twelve (12) consecutive calendar
months) or if within twenty (20) days after default notice from Landlord to
Tenant specifying any other default or defaults Tenant has not commenced
diligently to correct the default or defaults so specified or has not thereafter
diligently pursued such correction to completion, or (b) if any assignment for
the benefit of creditors shall be made by Tenant, or by any guarantor of Tenant,
or (c) if Tenant's leasehold interest shall be taken on execution or other
process of law in any action against Tenant, or (d) if a mechanic's lien or
other involuntary encumbrance is filed against Tenant's leasehold interest, and
is not discharged or bonded over within thirty (30) days after notice to Tenant
of the existence thereof, or (e) if a petition is filed by Tenant or any
guarantor of Tenant for liquidation, or for reorganization or an arrangement or
any other relief under any provision of the Bankruptcy Code as then in force and
effect, or (f) if an involuntary petition under any of the provisions of said
Bankruptcy Code is filed against Tenant or any guarantor of Tenant and such
involuntary petition is not dismissed within thirty (30) days thereafter, or (g)
if Tenant fails to maintain the insurance required under Section 4.2.2.1 hereof,
then, and in any of such cases, Landlord and the agents and servants of Landlord
lawfully may, in addition to and not in derogation of any remedies for any
preceding breach of covenant, immediately or at any time thereafter and without
demand or notice, at Landlord's election, do any one or more of the following:
(1) give Tenant written notice stating that the Lease is terminated, effective
upon the giving of such notice or upon a date stated in such notice, as Landlord
may elect, in which event the Lease shall be irrevocably extinguished and
terminated as stated in such notice without any further action, or (2) with or
without process of law, in a lawful manner and without illegal force, enter and
repossess the Premises as of Landlord's former estate, and expel Tenant and
those claiming through or under Tenant, and remove its and their effects,
without being guilty of trespass, in which event the Lease shall be irrevocably
extinguished and terminated at the time of such entry, or (3) pursue any other
rights or remedies permitted by law. Any such termination of the Lease shall be
without prejudice to any remedies which might otherwise be used for arrears of
rent or prior breach of covenant, and in the event of such termination Tenant
shall remain liable under this Lease as hereinafter provided. Tenant hereby
waives all statutory rights of redemption and Landlord, without notice to
Tenant, may store Tenant's effects, and those of any person claiming through or
under Tenant, at the expense and risk of Tenant, and, if Landlord so elects, may
sell such effects at public
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auction or private sale and apply the net proceeds to the payment of all sums
due to Landlord from Tenant, if any, and pay over the balance, if any, to
Tenant.
7.2 REMEDIES.
In the event that this Lease is terminated under any of the provisions
contained in Section 7.1 or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, the excess, if any, of the total rent reserved for the residue of
the Term over the fair market rental value of the Premises for said residue of
the Term. In calculating the rent reserved there shall be included, in addition
to the Fixed Rent and Additional Rent, the value of all other considerations
agreed to be paid or performed by Tenant during said residue. Tenant further
covenants (as additional and cumulative obligations) after any such termination
to pay punctually to Landlord all the sums and to perform all the obligations
which Tenant covenants in this Lease to pay and to perform in the same manner
and to the same extent and at the same time as if this Lease had not been
terminated. In calculating the amounts to be paid by Tenant pursuant to the next
preceding sentence Tenant shall be credited with any amount paid to Landlord as
compensation as in this Section 7.2 provided and also with the net proceeds of
any rent obtained by Landlord by reletting the Premises, which Landlord shall
exercise reasonable efforts so to do, after deducting all of the Landlord's
reasonable expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, fees for legal
services and expenses of preparing the Premises for such reletting, it being
agreed by Tenant that Landlord may (i) relet the Premises or any part or parts
thereof, for a term or terms which may at Landlord's option be equal to or less
than or exceed the period which would otherwise have constituted the balance of
the Term and may grant such concessions and free rent as Landlord in its
reasonable judgment considers advisable or necessary to relet the same and (ii)
make such alterations, repairs and decorations in the Premises as Landlord in
its reasonable judgment considers advisable or necessary to relet the same, and
no action of Landlord in accordance with the foregoing or failure
notwithstanding reasonable efforts having been exercised to relet or to collect
rent under reletting shall operate or be construed to release or reduce Tenant's
liability as aforesaid.
In lieu of any other damages or indemnity and in lieu of full recovery by
Landlord of all sums payable under all the foregoing provisions of this Section
7.2, Landlord may by notice to Tenant, at any time after this Lease is
terminated under any of the provisions contained in Section 7.1 or is otherwise
terminated for breach of any obligation of Tenant and before such full recovery,
elect to recover, and Tenant shall thereupon pay, as liquidated damages, an
amount equal to the aggregate of the Fixed Rent and Additional Rent accrued in
the twenty-four (24) months ended next prior to such termination, plus the
amount of rent of any kind accrued and unpaid at the time of termination and
less the amount of any recovery by Landlord under the foregoing provisions of
this Section 7.2 up to the time of payment of such liquidated damages.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater than, equal to, or less than the amount of the loss or
damages referred to above.
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7.3 REMEDIES CUMULATIVE.
Any and all rights and remedies which either Landlord or Tenant may have
under this Lease, and at law and equity, shall be cumulative and shall not be
deemed inconsistent with each other, and any two or more of all such rights and
remedies may be exercised at the same time insofar as permitted by law.
7.4 LANDLORD'S RIGHT TO CURE DEFAULTS.
Landlord may, but shall not be obligated to, cure, at any time, following
the expiration of notice and cure period specified in Section 7.1, ten (10)
days' prior notice to Tenant, except in cases of emergency when no notice shall
be required, any default by Tenant under this Lease; and whenever Landlord so
elects, all costs and expenses incurred by Landlord, including reasonable
attorneys' fees, in curing a default shall be paid by Tenant to Landlord as
Additional Rent on demand, together with interest thereon at the rate provided
in Section 4.3 from the date of payment by Landlord to the date of payment by
Tenant.
7.5 EFFECT OF WAIVERS OF DEFAULT.
Any consent or permission by Landlord or Tenant to any act or omission by
the other party which otherwise would be a breach of any covenant or condition
herein, or any waiver by Landlord or Tenant of the breach of any covenant or
condition herein by the other party, shall not in any way be held or construed
(unless expressly so declared) to operate so as to impair the continuing
obligation of any covenant or condition herein, or otherwise, except as to the
specific instance, operate to permit similar acts or omissions.
The failure of Landlord or Tenant to seek redress for violation of, or to
insist upon the strict performance of, any covenant or condition of this Lease
by the other party shall not be deemed a waiver of such violation nor prevent a
subsequent act, which would have originally constituted a violation, from having
all the force and effect of an original violation. The receipt by Landlord, or
the payment by Tenant, as the case may be, of rent with knowledge of the breach
of any covenant of this Lease shall not be deemed to have been a waiver of such
breach by Landlord or Tenant, as the case may be. No consent or waiver, express
or implied, by Landlord or Tenant, as the case may be, to or of any breach of
any agreement or duty shall be construed as a waiver or consent to or of any
other breach of the same or any other agreement or duty.
7.6 NO ACCORD AND SATISFACTION.
No acceptance by Landlord of a lesser sum than the Fixed Rent, Additional
Rent or any other charge then due shall be deemed to be other than on account of
the earliest installment of such rent or charge due, unless Landlord elects by
notice to Tenant to credit such sum against the most recent installment due, nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment as rent or other charge be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such installment or pursue any other remedy in
this Lease provided.
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ARTICLE VIII
MORTGAGES
8.1 RIGHTS OF MORTGAGE HOLDERS.
The word "mortgage" as used herein includes mortgages, deeds of trust or
other similar instruments evidencing other voluntary liens or encumbrances, and
modifications, consolidations, extensions, renewals, replacements and
substitutes thereof. The word "holder" shall mean a mortgagee, and any
subsequent holder or holders of a mortgage. Until the holder of a mortgage shall
enter and take possession of the Building for the purpose of foreclosure, such
holder shall have only such rights of Landlord as are necessary to preserve the
integrity of this Lease as security. Upon entry and taking possession of the
Building for the purpose of foreclosure, such holder shall have all the rights
and obligation of Landlord. Notwithstanding any other provision of this Lease to
the contrary, including without limitation Section 10.5, no such holder of a
mortgage shall be liable either as mortgagee or as assignee to perform, or be
liable in damages for failure to perform, any of the obligations of Landlord
unless and until such holder shall enter and take possession of the Building for
the purpose of foreclosure, Upon entry for the purpose of foreclosure, such
holder shall be liable to perform all of the obligations of Landlord subject to
and with the benefit of the provisions of Section 10.5, provided that a
discontinuance of any foreclosure proceeding shall be deemed a conveyance under
said provisions to the owner of the equity of the Premises. Except as provided
in Section 4.1(d), no Fixed Rent, Additional Rent or any other charge shall be
paid more than one (1) month in advance of the due dates thereof and payments
made in violation of this provision shall (except to the extent that such
payments are actually received by a mortgagee in possession or in the process of
foreclosing its mortgage) be a nullity as against such mortgagee and Tenant
shall be liable for the amount of such payments to such mortgagee.
The covenants and agreements contained in this Lease with respect to the
rights, powers and benefits of a holder of a mortgage (including, without
limitation, the covenants and agreements contained in this Section 8.1)
constitute a continuing offer to any person, corporation or other entity, which
by accepting a mortgage subject to this Lease, assumes the obligations herein
set forth with respect to such holder; such holder is hereby constituted a party
of this Lease as an obligee hereunder to the same extent as though its name were
written hereon as such; and such holder shall be entitled to enforce such
provisions in its own name. Tenant agrees on request of Landlord to execute and
deliver from time to time any agreement which may be necessary to implement the
provisions of this Section 8.1.
8.2 PRIORITY OF LEASE; SUBORDINATION.
This Lease shall be subject to and subordinate to any future mortgage or
other voluntary lien or other encumbrance on the Building or Lot of which the
Premises are a part; provided, however, that Landlord obtains from the holder of
record of any existing or future mortgage an agreement with Tenant by the terms
of which such holder will agree (a) to recognize the rights of Tenant under this
Lease, (b) to perform Landlord's obligations hereunder arising after the date of
such holder's acquisition of title as hereinafter described, expressly
excluding, however, Landlord's obligations under Article III (if any) of this
Lease, and (c) to accept Tenant as tenant
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of the Premises under the terms and conditions of this Lease in the event of
acquisition of title by such holder through foreclosure proceedings or
otherwise, provided that Tenant will agree to recognize the holder of such
mortgage as Landlord in such event, which agreement shall be made expressly to
bind and inure to the benefit of the successors and assigns of Tenant and of the
holder and upon anyone purchasing said Premises at any foreclosure sale. Tenant
and Landlord agree to execute and deliver any appropriate instruments necessary
to carry out the agreements contained in this Section 8.2. Any such mortgage to
which this Lease shall subordinate may contain such terms, provisions and
conditions as the holder deems usual or customary, provided that such terms and
conditions do not adversely impact Tenant's rights and privileges under this
Lease.
8.3 LEASE AMENDMENTS.
Provided that Landlord pays all of Tenant's reasonable legal and other
costs associated herewith, Tenant agrees to make such changes in this Lease as
may be reasonably required by the holder of any mortgage of which the Premises
are a part, or any institution which may purchase all or a substantial part of
Landlord's interest in the Premises, provided that such changes may not increase
the Fixed Rent or other payments due hereunder or otherwise materially affect
the obligations of Tenant hereunder, and provided further that such changes do
not, without limitation of the foregoing (i) materially interfere with Tenant's
right of use and enjoyment of the Premises pursuant to this Lease, (ii) limit,
impair or delay Tenant's rights to sublease or assign all or any portion of this
Lease pursuant to Section 5.2.1 hereof, (iii) limit, impair or delay Tenant's
right to obtain any reduction or abatement of rent as permitted hereunder (iv)
limit, impair or delay Tenant Is right to terminate this Lease as permitted
hereunder or (v) otherwise unreasonably limit, impair or delay Tenant's rights
hereunder. Provided that Tenant pays all of Landlord's reasonable legal and
other related costs, Landlord will likewise agree to make reasonable non
material changes in this Lease to accommodate a mortgage of Tenant's leasehold
interest as contemplated under Section 5.2.1.
8.4 NO EXISTING MORTGAGE.
Landlord warrants and represents that there is no existing mortgage
encumbering the Lot or Building.
ARTICLE IX
LANDLORD'S ADDITIONAL COVENANTS
9.1 AFFIRMATIVE COVENANTS.
Landlord covenants at all times during the Term:
9.1.1 Perform Obligations.
To perform promptly all of the obligations of Landlord set forth in
this Lease, including, without limitation, furnishing, through Landlord's
employees or independent contractors, the services (the cost of which is to be
included in the Annual Maintenance Charge) listed in Exhibit E;
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9.1.2 Repairs.
Except as otherwise provided in Article VI, to make such repairs (the
cost of which is to be included in the Annual Maintenance Charge to the extent
contemplated in Section 4) to the roof, exterior walls, exterior windows and
waterproofing, other structural components and common areas and facilities of
the Building as may be necessary to keep them in good, serviceable condition.
Without limitation of the foregoing, Landlord shall be responsible for the
maintenance and repair of the heating and air-conditioning systems and the
components thereof serving the Building, except for such systems and the
components thereof as are located within the Premises or exclusively serve the
Premises (as provided in Section 5.1.3 hereof).
9.1.3 Compliance with Law.
To make all repairs, alterations, additions or replacements to the
Building or the Lot (the costs of which are to be included in the Annual
Maintenance Charge to the extent contemplated in Section 4) required by any law,
ordinance or order or regulation of any public authority including repairs,
alterations, additions or replacements to the foundations and structural
elements of the Building (which are not to be included in the Annual Maintenance
Charge), except as required because of Tenant's failure to comply with the
provisions of Section 5.1.3 hereof; to keep the Building equipped with all
safety appliances so required (the costs of which are to be included in the
Annual Maintenance Charge to the extent contemplated under Section 4); subject
to Section 4.2.1, to pay all municipal, county, or state taxes assessed against
the Building or the Lot, or against Landlord's personal property of any kind on
or about the Building or the Lot; and to comply with the orders and regulations
of all governmental authorities with respect to zoning, building, fire, health
and other codes, regulations, ordinances or laws applicable to the Building or
the Lot, including the ADA Requirements (as defined in Section 5.1.4 hereof) and
any codes, regulations, ordinances or laws relating to hazardous materials (as
defined in Section 5.1.4), subject to, and without limitation of, Tenant's
obligations with respect to such codes, regulations, ordinances or laws. The
costs incurred by Landlord in connection with the foregoing compliance
obligations shall be included in the Annual Maintenance Charge to the extent
contemplated under Section 4. All of the foregoing covenants and obligations are
subject to, and without limitation of, all of Tenant's obligations under this
Lease, including, without limitation, those set forth in Sections 4.2 and 5.1.4.
9.1.4 Indemnity.
To defend, with counsel reasonably approved by Tenant, all actions
against Tenant, any partner, trustee, stockholder, officer, director, employee
or beneficiary of Tenant ("Tenant's Indemnified Parties") with respect to, and
to pay, protect, indemnify and save harmless, to the extent permitted by law,
all Tenant's Indemnified Parties from and against any and all liabilities,
losses, damages, costs, expenses (including reasonable attorneys' fees and
expenses), causes of action, suits, claims, demands or judgments of any nature
to which any of Tenant's Indemnified Parties is subject arising from and to the
extent of any negligent or willful act, fault, omission, or other misconduct of
Landlord or its agents, contractors or employees.
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9.1.5 Estoppel Certificate.
Upon not less than 10 days' prior notice by Tenant, to execute,
acknowledge and deliver to Tenant a statement in writing certifying that this
Lease is unmodified and in full force and effect and that except as stated
therein Landlord has no knowledge of any defenses, offsets or counterclaims
against its obligations under this Lease (or, if there have been any
modifications that the Lease is in full force and effect as modified and stating
the modifications and, if there are any defenses, offsets or counterclaims,
setting them forth in reasonable detail), the dates to which the Fixed Rent and
Additional Rent and other charges have been paid and a statement that, to the
best of Landlord's knowledge, Tenant is not in default hereunder (or if in
default, the nature of such default, in reasonable detail) and such other
matters reasonably required by Tenant or any prospective sublessee, assignee or
mortgagee of Tenant. Any such statement delivered pursuant to this Section 9.1.5
may be relied upon by any prospective sublessee, assignee or mortgagee.
9.1.6 Utilities.
The utilities serving the Premises shall be in "as is" condition.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 NOTICES FROM ONE PARTY TO THE OTHER.
All notices required or permitted hereunder shall be in writing and
addressed, if to the Tenant, at the Original Address of Tenant or such other
address as Tenant shall have last designated by notice in writing to Landlord
and, if to Landlord, at Landlord's Address or such other address as Landlord
shall have last designated by notice in writing to Tenant. Any notice shall be
deemed duly given if mailed to such address postage prepaid, registered or
certified mail, return receipt requested, two (2) days after deposited with the
U.S. Postal Service, or if delivered by a recognized courier service (e.g.
Federal Express) when delivered by such courier service or if delivered by hand,
evidenced by a signed receipt.
10.2 QUIET ENJOYMENT.
Landlord agrees that upon Tenant's paying the rent and performing and
observing the terms, covenants, conditions and provisions on its part to be
performed and observed, within applicable notice and grace periods Tenant shall
and may peaceably and quietly have, hold and enjoy the Premises during the Term
without any manner of hindrance or molestation from Landlord or anyone claiming
under Landlord, subject, however, to the terms of this Lease.
10.3 EASEMENTS; CHANGES TO LOT LINES.
Landlord reserves the right, from time to time, to grant easements
affecting the Premises, or the Building or the Lot so long as such easements do
not materially interfere with Tenant's use of the Premises, and to enter upon
the Premises for purposes of constructing and maintaining any pipes, wires and
other facilities serving any portion of the Lot or of the Building, subject to
the terms of Section 5.1.7 hereof.
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10.4 LEASE NOT TO BE RECORDED.
Neither party shall record this Lease. Both parties shall execute and
deliver a notice of this Lease in such form, if any, as may be permitted by
applicable statute. If this Lease is terminated before the Term Expiration Date
the parties shall execute, deliver and record an instrument acknowledging such
fact and the actual date of termination of this Lease.
10.5 BIND AND INURE; LIMITATION OF LANDLORD'S LIABILITY.
The obligations of this Lease shall run with the land, and this Lease shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. No owner of the Premises shall be liable
under this Lease except for breaches of Landlord's obligations occurring while
owner of the Premises. The obligations of Landlord shall be binding upon the
assets of Landlord which comprise the Premises but not upon other assets of
Landlord. No partner, trustee, stockholder, officer, director, employee or
beneficiary (or the partners, trustees, stockholders, officers, directors or
employees of any such beneficiary) of Landlord shall be personally liable under
this Lease and Tenant shall look solely to Landlord's interest in the Premises
and the rents, issues and profits therefrom, in pursuit of its remedies upon an
event of default hereunder, and the general assets of the partners, trustees,
stockholders, officers, employees or beneficiaries (and the partners, trustees,
stockholders, officers, directors or employees of any such beneficiary) of
Landlord shall not be subject to levy, execution or other enforcement procedure
for the satisfaction of the remedies of Tenant; provided that the foregoing
provisions of this sentence shall not constitute a waiver of any obligation
evidenced by this Lease and provided further that the foregoing provisions of
this sentence shall not limit the right of Tenant to name Landlord or any
individual partner or trustee thereof as part defendant in any action or suit in
connection with this Lease so long as no personal money judgment shall be asked
for or taken against any individual partner, trustee, stockholder, officer,
employee or beneficiary of Landlord.
10.6 ACTS OF GOD.
In any case where either party hereto is required to do any act, delays
caused by or resulting from the occurrence of one or more Force Majeure Events
shall not be counted in determining the time during which work shall be
completed, whether such time be designated by a fixed date, a fixed time or a
"reasonable time", and such time shall be deemed to be extended by the period of
such delay.
10.7 LANDLORD'S DEFAULT.
Landlord shall not be deemed to be in default in the performance of any of
its obligations hereunder unless it shall fail to perform such obligations and
such failure shall continue for a period of 30 days following receipt of notice
from Tenant or such additional time as is reasonably required to correct any
such default after notice has been given by Tenant to Landlord specifying the
nature of Landlord's alleged default. Landlord shall not be liable in any event
for incidental or consequential damages to Tenant by reason of any default by
Landlord hereunder, whether or not Landlord is notified that such damages may
occur. Except as expressly set forth in Section 3.2 and Section 6.2 hereof,
Tenant shall have no right to terminate this Lease for any
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default by Landlord hereunder and no right, for any such default, to offset or
counterclaim against any rent due hereunder.
10.8 BROKERAGE.
Each party warrants and represents to the other party that it has had no
dealings with any broker or agent in connection with this Lease and covenants to
defend with counsel reasonably approved by such other party, hold harmless and
indemnify such other party from and against any and all cost, expense or
liability arising from any breach of the foregoing warranty and representation.
10.9 APPLICABLE LAW AND CONSTRUCTION.
This Lease shall be governed by and construed in accordance with the laws
of the state in which the Premises are located. If any term, covenant, condition
or provision of this Lease or the application thereof to any person or
circumstances shall be declared invalid, or unenforceable by the final ruling of
a court of competent jurisdiction having final review, the remaining terms,
covenants, conditions and provisions of this Lease and their application to
persons or circumstances shall not be affected thereby and shall continue to be
enforced and recognized as valid agreements of the parties, and in the place of
such invalid or unenforceable provision, there shall be substituted a like, but
valid and enforceable provision which comports to the findings of the aforesaid
court and most nearly accomplishes the original intention of the parties.
There are no prior oral or written agreements between Landlord and Tenant
affecting this Lease. This Lease may be amended, and the provisions hereof may
be waived or modified, only by instruments in writing executed by Landlord and
Tenant.
The titles of the several Articles and Sections contained herein are for
convenience only and shall not be considered in construing this Lease.
Unless repugnant to the context, the words "Landlord" and "Tenant"
appearing in this Lease shall be construed to mean those named above and their
respective heirs, executors, administrators, successors and assigns, and those
claiming through or under them respectively. If there be more than one tenant
the obligations imposed by this Lease upon Tenant shall be joint and several.
10.10 SUBMISSION NOT AN OFFER.
The submission of a draft of this Lease or a summary of some or all of its
provisions does not constitute an offer to lease or demise the Premises, it
being understood and agreed that neither Landlord nor Tenant shall be legally
bound with respect to the leasing of the Premises unless and until this Lease
has been executed by both Landlord and Tenant and a fully executed copy
delivered to each of them.
10.11 SECURITY DEPOSIT.
Upon execution of this Lease, Tenant shall deposit the Security Deposit
Amount with the Landlord or a letter of credit in the same amount in a form
acceptable to Landlord in Landlord's
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reasonable discretion. The issuer of the Letter of Credit shall be a banking
institution with at least a rating of A and otherwise reasonably acceptable to
Landlord. Although Landlord shall only have the right to draw under the Letter
of Credit in the event of a default as set forth herein, under the terms of the
Letter of Credit, the sole condition to Landlord's draw upon the Letter of
Credit shall be presentment to the issuer thereof, prior to or on the expiration
date, of a demand for payment. The Letter of Credit shall be self-renewing from
year to year during the term of this Lease so as to expire no earlier than
thirty (30) days following the Lease expiration date and shall contain such
other customary terms as Landlord requires in its reasonable discretion,
including, but not limited to, a provision that the Letter of Credit is
transferable to Landlord's successors and assigns. For and during the Term,
Landlord shall have the irrevocable right, without further notice or approval of
Tenant but not the obligation from time to time without prejudice to any other
remedy Landlord may have on account thereof, to apply the Security Deposit or
any portion thereof or interest thereon, to Landlord's damage resulting from any
default after applicable grace and cure periods by Tenant. On termination of the
Term, the Security Deposit, or the portion thereof then held by Landlord shall
be returned to Tenant, beyond the amount necessary to cure the breach of an
provision of this Lease by Tenant. If all or any part of the Security Deposit is
applied to an obligation of Tenant hereunder, Tenant shall immediately upon
request by Landlord restore the Security Deposit to its original amount. Tenant
shall not have the right to call upon Landlord to apply all or any part of the
Security Deposit to cure any default or fulfill any obligation of Tenant, but
such use shall be solely in the discretion of Landlord. Upon any conveyance by
Landlord of its interest under this Lease, the Security Deposit shall be
delivered by Landlord to Landlord's grantee or transferee. Upon any such
delivery, Tenant hereby releases Landlord herein named of any and all liability
with respect to the Security Deposit, its application and return, and Tenant
agrees to look solely to such grantee or transferee. It is further understood
that this provision shall also apply to subsequent grantees and transferees.
10.12 OPTIONS TO EXTEND.
(a) Tenant shall have one (1) option to extend the Term of this Lease
(the "Option to Extend") for a period of five (5) years (the "Extension
Period"), subject to and on the terms set forth herein. Tenant may only exercise
the Option to Extend with respect to the entire Premises. If Tenant shall desire
to exercise the Option to Extend, it shall give Landlord a notice (the "Inquiry
Notice") of such desire not later than fifteen (15) months prior to the
expiration of the Initial Term of this Lease. Thereafter, the Fair Market Rent
(as defined in Subsection (c) below) for the Extension Period shall be
determined in accordance with Subsection (d) below. After the Fair Market Rent
has been so determined, Tenant shall exercise the Option to Extend by giving
Landlord notice (the "Exercise Notice") of its election to do so not later than
twelve (12) months prior to the expiration of the Initial Term of this Lease. If
Tenant fails to timely give either the Inquiry Notice or the Exercise Notice to
Landlord with respect to the Option to Extend, Tenant shall be conclusively
deemed to have waived such Option to Extend hereunder.
(b) Notwithstanding any contrary provision of this Lease, the Option to
Extend and any exercise by Tenant thereof shall be void and of no force or
effect unless on the dates Tenant gives Landlord its Inquiry Notice and Exercise
Notice for the Option to Extend and on the date of commencement of the Extension
Period (i) this Lease is in full force and effect, (ii) there is no Event of
Default of Tenant under this Lease, and (iii) Tenant has not assigned or
subleased (or
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agreed to assign or sublease) more than fifty percent (50%) of the rentable
floor area then comprising the Premises.
(c) All of the terms, provisions, covenants, and conditions of this Lease
shall continue to apply during the Extension Period, except that the Annual
Fixed Rent Rate during the Extension Period (the "Extension Rent") shall be
equal to the fair market rent for the Premises determined as of the date twelve
(12) months prior to expiration of the Initial Term in accordance with the
procedure set forth in Subsection (d) below (the "Fair Market Rent").
(d) The Fair Market Rent for the Extension Period shall be determined as
follows: Within five (5) days after Tenant gives Landlord its Inquiry Notice
with respect to the Option to Extend, Landlord shall give Tenant notice of
Landlord's determination of the Fair Market Rent for the Extension Period.
Within ten (10) days after Tenant receives such notice, Tenant shall notify
Landlord of its agreement with or objection to Landlord's determination of the
Fair Market Rent, whereupon the Fair Market Rent shall be determined by
arbitration conducted in the manner set forth below. If Tenant does not notify
Landlord within such ten (10) day period of Tenant's agreement with or objection
to Landlord's determination of the Fair Market Rent, then the Fair Market Rent
for the applicable Extension Period shall be deemed to be Landlord's
determination of the Fair Market Rent as set forth in the notice from Landlord
described in this subsection.
(e) If Tenant notifies Landlord of Tenant's objection to Landlord's
determination of Fair Market Rent under the preceding subsection, such notice
shall also set forth a request for arbitration and Tenant's appointment of a
commercial real estate broker having at least ten (10) years experience in the
commercial leasing market in the City of Cambridge, Massachusetts (an
"Arbitrator"). Within five (5) days thereafter, Landlord shall by notice to
Tenant appoint a second Arbitrator. Each Arbitrator shall be advised to
determine the Fair Market Rent for the Extension Period within thirty (30) days
after Landlord's appointment of the second Arbitrator. On or before the
expiration of such thirty (30) day period, the two Arbitrators shall confer to
compare their respective determinations of the Fair Market Rent. If the
difference between the amounts so determined by the two Arbitrators is less than
or equal to ten percent (10%) of the lower of said amounts then the final
determination of the Fair Market Rent shall be equal to the average of said
amounts. If such difference between said amounts is greater than ten percent
(10%0 , then the two arbitrators shall have ten (10) days thereafter to appoint
a third Arbitrator (the "Third Arbitrator") , who shall be instructed to
determine the Fair Market Rent for the Extension Period within ten (10) days
after its appointment by selecting one of the amounts determined by the other
two Arbitrators. Each party shall bear the cost of the Arbitrator selected by
such party. The cost for the Third Arbitrator, if any, shall be shared equally
by Landlord and Tenant. In no event shall the rent for the Extension Period be
less than the rent paid by Tenant under the Lease during the lease year prior to
commencement of the Extension Term.
10.13 RIGHT OF FIRST REFUSAL.
Provided that at the time Tenant exercises its rights under this Section:
(i) there is then outstanding no Event of Default of Tenant under this Lease,
and (ii) Tenant has not assigned or subleased more than fifty percent (50%0 of
the rentable floor area then comprising the Premises, and provided that any and
all rights of first refusal of other tenants in the Building have elapsed,
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<PAGE>
specifically TVisions, Inc.'s right of first refusal for Suite 23, then in the
event that Landlord receives any written offer (an "Offer") from any third party
(a "Third Party Offeror") to lease (i) any space on the second floor in the
Building which may thereafter become available to lease or (ii) additional space
added to the Building as a result of an addition to the Building ("Available
Space"), Landlord shall have such offer memorialized in writing and furnish
Tenant with a notice (the "ROFR Notice") accompanied by a copy of such written
offer offering Tenant the option to lease such Available Space on the terms and
conditions specified in the Offer (a "Right of First Refusal")and otherwise are
the terms and conditions of this lease. In the event Tenant elects to exercise
its Right of First Refusal with respect to any such Available Space, Tenant
shall send to Landlord notice of such election together with a certified or bank
check in the amount of one-twelfth (1/12) of the annual fixed rent rate for said
Available Space (as set forth in the Offer) and said Available Space shall
thereafter be leased to Tenant on the terms and conditions set forth in the
Offer. In the event such notice and check are not sent to Landlord within five
(5) business days after the ROFR Notice with respect to any such Available
Space, or if after giving notice of election of its Right of First Refusal with
respect to any such Available Space, Tenant shall fail to perform its obligation
to lease such Available Space, then Landlord may retain the deposit delivered by
Tenant and may lease said Available Space to the Third Party Offeror, or any
affiliate thereof, upon the terms and conditions contained in the Offer.
10.14 CONFIDENTIAL INFORMATION.
Landlord hereby agrees that any and all knowledge, information, data,
materials, trade secrets, and other work product of a confidential nature
gained, obtained, derived, produced, generated or otherwise acquired by Landlord
with respect to Tenant's business (collectively "Confidential Information")
shall be kept confidential. Landlord shall use diligent efforts to ensure that
no Confidential Information is revealed, divulged, communicated, related, or
described to any person or entity without the written consent of Tenant, except
as may be required by applicable law.
10.15 SIGNAGE.
Tenant shall be permitted, at its sole cost and expense, to install and
maintain a sign on the exterior of the Building, provided that: (i) the size,
location, quality, color and style of such signs shall be subject to Landlord's
approval, such approval not to be unreasonably withheld or delayed, and (ii)
such sign shall be subject to limitations of applicable law, including, without
limitation, the Cambridge Zoning By-Law, as amended from time to time. Tenant
shall secure all permits necessary for the installation of such sign at its sole
cost and expense. Upon the expiration or sooner termination of the Term of this
Lease, Tenant shall remove such signs and repair any damage resulting therefrom
at Tenant's sole cost and expense.
10.16 PARKING.
A parking garage (the "Garage") is planned for construction at the
property known as 47 Erie Street, Cambridge, Massachusetts, which property is
controlled by Landlord. Upon completion of the Garage for occupancy, Tenant
shall be obligated to lease up to fifty (50) parking spaces from Landlord or
such other entity to be designated by Landlord at a fair market rent. Fair
market rent for parking spaces for motor vehicles is estimated at this time to
be
-42-
<PAGE>
$130.00 per space per month. Beginning September 25, 1997, until completion of
--
the Garage, Tenant may lease up to twenty-five (25) surface parking spaces in
the parking lot located at 40 Erie Street, Cambridge, Massachusetts, at a cost
of $75.00 per space per month. In addition, in the event Tenant expands its
Premises as provided in this Lease, Tenant shall be entitled to lease one (1)
additional parking space in the Garage per each 650 square feet of additional
space added to the Premises at the fair market rent set forth above.
In the event Landlord or its affiliate is unable to provide parking spaces
in the Garage due to failure to construct or complete the construction of the
Garage, Landlord shall be obligated to provide parking spaces for use by Tenant
as required under this provision within three hundred (300) feet of the
buildings owned or controlled by Landlord or its affiliates at 21 Erie Street,
270 Albany Street, 200 Sidney Street 40 Erie Street and 47 Erie Street,
Cambridge, Massachusetts, at the prevailing market rate for such spaces.
-43-
<PAGE>
WITNESS the execution hereof under seal on the day and year first above
written.
LANDLORD:
/s/ David E. Clem
----------------------------------------------
David E. Clem, Trustee of 21 Erie Realty Trust
TENANT: REPROGENESIS, INC.
By: /s/
-------------------------------------------
Its:
hereunto duly authorized
-44-
<PAGE>
EXHIBIT A
---------
LEASED PREMISES
---------------
<PAGE>
EXHIBIT A-2
-----------
LEGAL DESCRIPTION OF LOT
------------------------
Parcel 1
- --------
A certain parcel of land with the buildings thereon situated in Cambridge,
Middlesex County, Massachusetts and being shown as Lot "A" on a Plan entitled
"Subdivision of Land in Cambridge dated September 20,1961, drawn by Edward
Smith, Surveyor, 517 School Street, Belmont." recorded with Middlesex South
District Registry of Deeds, Book 9910, Page 526 and bounded and described as
follows:
NORTHEASTERLY by Merriam Street, Eighty-five and sixty-six one hundredths
(85.66) feet
SOUTHEASTERLY by Waverly Street, Two hundred (200.00) feet;
SOUTHWESTERLY by Erie Street, One hundred twenty-five (125.00) feet;
NORTHWESTERLY by land of owners unknown One hundred, two and fourteen one
hundredths (102.14) feet;
NORTHEASTERLY by Lot "B" as shown on said plan by line running through the
center of a twelve (12) inch brick partition wall. Thirty-eight
and thirteen one-hundredths (38.13) feet; and
NORTHWESTERLY by said Lot "B" by a line running through the center of a twelve
(12) inch brick partition wall, Ninety-seven and eighty-six one-
hundredths (97.86) feet.;
Containing Twenty-one thousand, two hundred and eight (21,208) square feet of
land.
Parcel 2
- --------
A certain parcel of land with the buildings thereon situated in Cambridge,
Massachusetts, and bounded and described as follows:
Beginning at a point in the southwesterly line of Merriam Street, said point
being distant eighty-five and sixty-six one hundredths (85.66) feet from the
intersection of the southwesterly line of Merriam Street and the northwesterly
line of Waverly street;
Exhibit A-2...Page 1 of 2
<PAGE>
Thence running in a southwesterly direction partly through the center of a
twelve (12) inch brick partition wall ninety-seven and eighty-six one hundredths
(97.86) feet to a point;
Thence running in a northwesterly direction through the center of a twelve (12)
inch brick partition wall thirty-eight and thirteen one hundredths (38.13) feet
to a point;
Thence running in a southwesterly direction two and fourteen one hundredths
(2.14) feet to a point;
Thence running in a northwesterly direction fifteen and sixty-one hundredths
(15.61) feet;
Thence turning and running in a northeasterly direction one hundred (100.00)
feet to a point in the southwesterly line of Merriam Street:
Thence running in a southeasterly direction along the southwesterly line of
Merriam Street fifty-three and seventy-four one hundredths (53.74) feet to the
point of beginning.
The above described parcel of land containing five thousand two hundred and
ninety-two (5,292) square feet is shown as Lot "B" on a Plan entitled
"Subdivision of Land in Cambridge dated September 20, 1961, drawn by Edward
Smith, Surveyor, 511 School Street, Belmont." Recorded, with Middlesex South
District Registry of Deeds, Book 9910, Page 526.
Exhibit A-2...Page 2 of 2
<PAGE>
EXHIBIT B
PLANS AND SPECIFICATION
-----------------------
The floor plan annexed hereto represents the general design that is
intended to be implemented by Tenant in its Leasehold Improvements to the
Premises, comprising office, laboratory and light manufacturing space. There
will, without limitation, include modifications of and supplements of the
utilities and services that are available in the Premises, and consequently
there will be additions to and further distribution of electrical power through
the Building to serve the Premises. The Leasehold Improvements will include,
without limitation, construction, demolition and relocation of partition walls,
as well as additions to and modifications of plumbing and drains. The floor of
the Premises will, among other things, be modified to allow the installation of
new floor drains and to assure a perfectly level surface. The plans and
specifications for all of the work described herein shall be subject to
Landlord's approval as contemplated in Section 3.1 of the Lease.
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
---------------------
1. The entrances, lobbies, elevators, sidewalks, and stairways of the Building
shall not be encumbered or obstructed by Tenant, Tenant's agents, servants,
employees, licensees or visitors or used by them for any purposes other
than ingress or egress to and from the Building.
2. Landlord reserves the right to have Landlord's structural engineer review
Tenant's floor loads on the Building at Tenant's expense.
3. Tenant, or the employees, agents, servants, visitors or licensees of Tenant
shall not at any time place, leave or discard any rubbish, paper, articles,
or objects of any kind whatsoever outside of the Building except in the
dumpster provided by Landlord. Bicycles shall not be permitted in the
Building, but shall be parked in the bicycle rack provided by Landlord.
4. Tenant shall not place objects against glass partitions or doors or windows
or adjacent to any common space which would be unsightly from the exterior
of the Building and will promptly remove the same upon notice from
Landlord.
5. Tenant shall not make noises, cause disturbances, create vibrations, odors
or noxious fumes or use or operate any electric or electrical devices or
other devices that emit sound waves or that would interfere with the
operation of any device or equipment or radio or television broadcasting or
reception from or within the Building or elsewhere, or with the operation
of roads or highways in the vicinity of the Building and shall not place or
install any projections, antennae, aerials, or similar devices inside or
outside of the Building, without the prior written approval of Landlord.
6. Tenant shall not: (a) use the Building for lodging, or for any immoral or
illegal purposes; (b) use the Building to engage in the manufacture or sale
of spirituous, fermented, intoxicating or alcoholic beverages in the
Building; (c) use the Building to engage in the manufacture or sale of, or
permit the use of, any illegal drugs on the Building.
7. No awning or other projections shall be attached to the outside walls or
windows. No curtains, blinds, shades, screens or signs other than those
furnished by Landlord shall be attached to, hung in, or used in connection
with any exterior window or door of the Building without prior written
consent of Landlord.
8. Except as otherwise set forth in Lease, no sign, advertisement, object,
notice or other lettering shall be exhibited, inscribed, painted or affixed
on any part of the outside or inside of the Building if visible from
outside of the Building.
9. Door keys for doors in the Building will be furnished on the Commencement
Date by Landlord. If Tenant shall affix additional locks on doors then
Tenant shall furnish Landlord with copies of keys for said locks.
<PAGE>
EXHIBIT C Page 2 of 2
10. Tenant shall cooperate and participate in all reasonable security programs
affecting the Building.
11. Tenant assumes full responsibility for protecting its space from theft,
robbery and pilferage, which includes keeping doors locked and other means
of entry to its space in the Building closed and secured.
12. The water and wash closets and other plumbing fixtures shall not be used
for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein.
13. Tenant may request heating and/or air conditioning during other periods in
addition to Normal Business Hours by submitting its request to the Landlord
no later than 2:00 p.m. the preceding work day (Monday through Friday) on
forms available from the Landlord. The request shall clearly state the
start and stop hours of the "off-hour" service. Tenant shall submit to the
Landlord a list of personnel authorized to make such request.
14. Discharge of industrial sewage shall only be permitted if Tenant, at its
sole expense, shall have obtained all necessary permits and licenses
therefor, including without limitation permits from state and local
authorities having jurisdiction thereof.
15. Tenant may not (without Landlord's approval therefor, which approval will
be signified on Tenant's Plans submitted pursuant to the Lease) and Tenant
shall not permit or suffer anyone to (a) cook in the Premises; (b) place
vending or dispensing machines of any kind in or about the Premises; (c) at
any time sell, purchase or give away, or permit the sale, purchase or gift
of food in any form. Notwithstanding the foregoing Tenant shall be
permitted to use coffee machines, microwave ovens, dishwasher,
refrigerator, sandwich and snack vending machines, soda machines and other
similar appliances on the Premises.
16. Subject to Tenant's right to make alterations in accordance with the
provisions of the Lease Tenant shall not mark, paint, drill into, or in any
way deface any part of the Building or Premises. No boring, driving of
nails or screws, cutting or stringing of wires shall be permitted except
with the prior written consent of Landlord not to be unreasonably withheld,
and as Landlord may direct. Tenant shall not install any resilient tile or
similar floor covering in the Premises except with the prior written
approval of Landlord not to be unreasonably withheld. The use of cement or
other similar adhesive material is expressly prohibited.
17. Building employees shall not be required to perform, and shall not be
requested by any tenant or occupant to perform, any work outside of their
regular duties, unless under specific instructions from the office of the
Managing Agent of the Building.
18. In the event of any conflict between the provisions of this Exhihit C and
----------
the provisions of the Lease, the provisions of the Lease shall govern.
-2-
<PAGE>
EXHIBIT D
---------
FLOOR LOAD LIMITS
-----------------
<PAGE>
EXHIBIT E
---------
LANDLORD'S SERVICES
-------------------
I. Exterior Maintenance
--------------------
Landlord shall keep the Lot and Common Areas of the Building clean and free
of debris.
Landlord shall keep the sidewalks, driveways and parking areas reasonably
clear of snow and ice.
Landlord shall maintain the exterior landscaping, lighting, parking areas,
exterior roof, slab, foundation, exterior doors and windows, and sidewalks
of the Building and the Lot in good repair and condition consistent with
facilities of the size and quality of the Building and the Lot in the
Cambridge, Massachusetts area.
II. Mechanical, Electrical and Plumbing
-----------------------------------
Subject to the provisions of Section 5.1.3 of the Lease, Landlord shall
maintain in good repair and condition the mechanical, electrical and
plumbing systems for the Building.
III. Priority
--------
In the event of any conflict between the provisions of this Exhibit E and
---------
the provisions of the Lease, the provisions of the Lease shall govern.
IV. Cleaning
--------
Landlord shall keep clean and neat the public areas of the Building and
Lot, including, without limitation, the restrooms.
<PAGE>
EXHIBIT F
---------
COMMENCEMENT DATE SUITE # AREA
----------------- ------- ----
September 25, 1997 1.5 4,953 r.s.f.
October 1, 1997 2.4 898 r.s.f.
2.5 5,282 r.s.f.
2.6 971 r.s.f.
January 1, 1998 1.1 14,731 r.s.f.
1.2 1,282 r.s.f.
1.3 640 r.s.f.
1.4 2,367 r.s.f
2.9 1,601 r.s.f
--------------
TOTAL 32,725 r.s.f.
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (this "Amendment") is executed by and
between David E. Clem and David M. Roby, Trustees (the "Landlord") of 21 Erie
Realty Trust u/d/t dated May 16, 1996, recorded with the Middlesex South
District Registry of Deeds in Book 26325, Page 504, and Reprogenesis, Inc. (the
"Tenant"), a Texas corporation, in amendment of a Lease dated September, 1997
(the "Lease") by and between Landlord and Tenant with respect to a portion of
the building known as and numbered 21 Erie Street, Cambridge, Massachusetts (the
"Building").
For good and valuable consideration, the receipt and legal sufficiency
of which is hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Each capitalized term which is used but not defined herein shall have
the respective meaning ascribed thereto in the Lease.
2. Commencing November 1, 1998 (the "Effective Date") and continuing
through and including the Term Expiration Date, Landlord hereby leases and
demises to Tenant, and Tenant hereby leases from Landlord, Suite No. 22,
consisting of approximately 2,645 rentable square feet of space on the Second
Floor of the Building (the "Additional Premises"), as more particularly shown on
Exhibit A attached hereto and incorporated herein by reference thereto. From and
after the Effective Date, except as set forth in this Amendment, the term
"Premises" as used in the Lease shall be deemed to include the Additional
Premises and the Additional Premises shall be subject to all of the terms,
covenants and conditions set forth in the Lease, including Section 10.12
thereof.
3. As of the Effective Date, the Annual Base Rent Rate for the Additional
Premises shall be $14.00 per rentable square foot, (the "Additional Premises
Annual Base Rent"). The Additional Premises Annual Base Rent shall be subject to
adjustment as set forth in Section 4.1(b) of the Lease and shall be subject to
all other provisions of the Lease with respect to Annual Base Rent Rate,
including the time and manner of payment thereof, except that with respect to
the Additional Premises the Base Price Index shall mean and refer to the Price
Index most recently established prior to January 1, 1999.
4. As of the Effective Date, the term "Tenant's Proportionate Share" set
forth in Article I of the Lease shall be amended by deleting "66.4%" therefrom
and by inserting in place thereof "71.5%".
5. The Additional Premises shall be delivered to Tenant by Landlord on an
"As Is, Where Is" basis with all faults and without representation, warranty or
guaranty of any kind by Landlord to Tenant.
6. If Tenant elects to extend the Term of the Lease pursuant to
Section 10.12 of the Lease, such extension shall and must relate to the Premises
demised pursuant to the Lease and the Additional Premises demised hereby.
<PAGE>
7. Simultaneously with the execution hereof, Tenant shall pay to Landlord
$12,343.33 representing a security deposit for the Additional Premises (the
"Additional Premises Security Deposit Amount"). Upon receipt thereof, references
in the Lease to "Security Deposit Amount" shall include the Security Deposit
Amount delivered in connection with the execution of the Lease and the
Additional Premises Security Deposit Amount, both of which shall be subject to
all of the provisions of the Lease, including Section 10.11 thereof.
8. Each party warrants and represents to the other party that it has had
no dealings with any broker or agent in connection with this Amendment and
covenants to defend with counsel reasonably approved by such other party, hold
harmless and indemnify such other party from and against any and all cost,
expense or liability arising from any breach of the foregoing warranty and
representation.
9. The Lease, as amended hereby, is hereby ratified, confirmed and
approved in all respects.
WITNESS the execution hereof under seal as of the 1st day of October,
1998.
LANDLORD:
/s/ David E. Clem, Trustee
---------------------------------------------
David E. Clem, Trustee as aforesaid and not
individually
________________________________________
David M. Roby, Trustee as aforesaid and not
individually
TENANT: REPROGENESIS, INC.
/s/ William D. Romeo
--------------------------------------------------
Its: Chief Operating Officer
hereunto duly authorized
<PAGE>
EXHIBIT A
Floor Plan of Additional Premises
(attached)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
FORM CD-450 U.S. Department of Commerce GRANT X COOPERATIVE AGREEMENT
(REV 10/98) -------------------------------------------------
ACCOUNTING CODE
cc: 9/4738343 Obj. Cl. 4110
FINANCIAL ASSISTANCE AWARD Req. No. 9/4733357 $666,666
- -----------------------------------------------------------------------------------------------------------------
RECIPIENT NAME AWARD NUMBER
Reprogenesis, Inc. 70NANB9H3003
- -----------------------------------------------------------------------------------------------------------------
STREET ADDRESS FEDERAL SHARE OF COST
21 Erie Street $2,000,000
- -----------------------------------------------------------------------------------------------------------------
CITY, STATE, ZIP CODE SHARE OF COST
Cambridge, MA 02139 $999,800
- -----------------------------------------------------------------------------------------------------------------
AWARD PERIOD TOTAL ESTIMATED COST
November 1, 1999 - October 31, 2002 $2,999,800
- -----------------------------------------------------------------------------------------------------------------
AUTHORITY
P.L. 100-418, Section 5131 (codified at 15 USC 278n) as modified by P.L. 102-245
- -----------------------------------------------------------------------------------------------------------------
CFDA NO. AND PROJECT TITLE 11.612, Advanced Technology Program (ATP), Proposal
No. 99-01-1021
Project Title: Development of Perivascular Endothelial Cell Implants
- -----------------------------------------------------------------------------------------------------------------
This Award approved by the Grants Officer is issued in triplicate and constitutes an obligation of Federal
funding. By signing the three documents, the Recipient agrees to comply with the Award provisions checked
below and attached. Upon acceptance by the Recipient, two signed Award documents shall be returned to the
Grants Officer and the third document shall be retained by the Recipient. If not signed and returned
without modification by the Recipient within 30 days of receipt, the Grants Officer may unilaterally
terminate this Award.
- ------------------------------------------------------------------------------------------------------------------
X Department of Commerce Financial Assistance Standard Terms and Conditions
- -----------------------------------------------------------------------------------------------------------------
X Special Award Conditions
- -----------------------------------------------------------------------------------------------------------------
X Line Item Budget
- -----------------------------------------------------------------------------------------------------------------
X 15 CFR Part 14, Uniform Administrative Requirements for Grants and Agreements with Institutions
of Higher Education, Hospitals, Other Non-Profit, and Commercial Organizations
- -----------------------------------------------------------------------------------------------------------------
15 CFR Part 24, Uniform Administrative Requirements for Grants and Agreements to State and Local
Governments
- -----------------------------------------------------------------------------------------------------------------
OMB Circular A-21, Cost Principles for Educational Institutions
- -----------------------------------------------------------------------------------------------------------------
OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments
- -----------------------------------------------------------------------------------------------------------------
OMB Circular A-122, Cost Principles for Nonprofit Organizations
- -----------------------------------------------------------------------------------------------------------------
X 48 CFR Part 31, Contract Cost Principles and Procedures
- -----------------------------------------------------------------------------------------------------------------
OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations
- -----------------------------------------------------------------------------------------------------------------
X Others(s) General Terms and Conditions, Advanced Technology Program (ATP)(9/99); Program Specific
---------------------------------------------------------------------------------------
Audit Guidelines for ATP Cooperative Agreements with Single Companies (9/99)
----------------------------------------------------------------------------
B-AE93-N-C-F-N-A-25-11000 EIN: 52-2239958 473/ R. Hunziker
- -----------------------------------------------------------------------------------------------------------------
SIGNATURE OF DEPARTMENT OF COMMERCE GRANTS OFFICER TITLE DATE
Lois McDuffee /s/ Lois McDuffee Grants Officer 9/30/9
- -----------------------------------------------------------------------------------------------------------------
TYPED NAME AND SIGNATURE OF AUTHORIZED RECIPIENT OFFICIAL TITLE DATE
William D. Romeo /s/ William D. Romeo Chief Financial 10-7-99
Officer
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SPECIAL AWARD CONDITIONS
ADVANCED TECHNOLOGY PROGRAMS - SINGLE RECIPIENT
REPROGENESIS, INC.
COOPERATIVE AGREEMENT NO. 70NANB9H3003
1. RECIPIENT ADMINISTRATOR CONTRACT
The Recipient Contract's name, title, address, and telephone number are:
(Technical) Helen M. Nugent, Ph.D.
21 Erie Street
Cambridge, MA 02139
(617) 499-2928, ext. 167
(Administrative) William D. Romeo
Vice President & Chief Financial
Officer
21 Erie Street
Cambridge, MA 02139
(617) 499-2928, ext. 107
2. GRANTS OFFICER
The Grants Officer's name, address, and telephone number are:
Lois McDuffee
National Institute of Standards and Technology
100 Bureau Drive, Bldg. 411, Rm. A143, Mail Stop 3576
Gaithersburg, MD 20899-3576
(301) 975-6359
3. GRANTS SPECIALIST
The Grants Specialist's name, address, and telephone number are:
Timothy M. Lynch
National Institute of Standards and Technology
100 Bureau Drive, Bldg. 411, Rm. A143, Mail Stop 3576
Gaithersburg, MD 20899-3576
(301) 975-6621
4. PROGRAM OFFICERS
a. The Technical Project Manager's name, address, and telephone number
are:
Rosemarie Hunziker
National Institute of Standards and Technology
100 Bureau Drive, Bldg. 101, Rm. A225, Mail Stop 4730
Gaithersburg, MD 20899-4730
(301) 975-5324
b. The Business Project Manager's name, address, and telephone number are:
Andrew Klein
National Institute of Standards and Technology
100 Bureau Drive, Bldg. 101, Rm. A225, Mail Stop 4730
Gaithersburg, MD 20899-4730
(301) 975-4292
5. PROJECT DESCRIPTION
All research shall be conducted in accordance with the Recipient's proposal
dated April 12, 1999, any additional documentation/revisions dated July 13,
1999, August 6, 1999, August 9, 1999, September 10, 1999, and revised budget
dated August 6, 1999.
6. FUNDING LIMITATIONS
The scope of work and budget incorporated into this award covers a THREE-year
----------
period (referred to as the "project period") for a total amount of $2,000,000.00
-------------
in Federal funds. However, Federal funding available at this time is limited to
$666,666.00 for the first year period from 11/01/99 through 10/31/00 (referred
---------- -------- --------
to as the "budget period"). Receipt of any additional funding up to the level
projected under this award is contingent upon the availability of funds from
Congress, satisfactory performance, and will be at the sole discretion of the
National Institute of Standards and Technology (NIST). The Recipient may not
obligate, incur any expenditure, nor engage in any commitments which involve any
amount in excess of the Federal amount
<PAGE>
presently available. No legal liability exists or will result on the part of the
Federal Government for payment of any portion of the remaining funds, which have
not been made available under the award. If additional funds are not made
available, any expenses incurred related to closeout activities must be funded
from the amount already made available under this award. The notice of
availability or non-availability of additional funding for the SECOND and THIRD
------ -----
years will be made in writing by the Grants Officer. Only the Grants Officer is
------ --------------
authorized to obligate funds. The Recipient should rely upon no other verbal or
written notice.
Anticipated Future Funding:
Year 2: $666,667 (From 11/01/00 to 10/31/01)
Year 3: $666,667 (From 11/01/01 to 10/31/02)
7. COST SHARE
For the first year period, the cost sharing ratio (direct costs only) applicable
-----------------
to this award is the Recipient's contribution of 39.56% ($436,334) and NIST's
contribution of 60.44% (666,666).
8. RESTRICTION ON VERTEBRATE ANIMALS
Based upon materials submitted to and reviewed by NIST Grants Officer, NIST has
determined that the Recipient complies, as applicable, with the Animal Welfare
Act as amended, implementing regulations (7 USC 2131 et seq., 9 CFR parts 1, 2
and 3), and other federal statutes and regulations relating to vertebrate
animals. Therefore, the research involving vertebrate animals is approved for
Facility 1: Brockton/West Roxbury VA
Medical Center, MA - (Pigs)
Facility 2: Pine Acres Research Facility - (Pigs)
(Housing Facility)
which are the only Facilities authorized to conduct research involving
vertebrate animals under this award.
In order to continue research involving vertebrate animals, the Recipient must
maintain the following valid, current approvals, and certifications.
Facility 1: Brockton/West Roxbury VA Medical Center, MA - (Pigs)
AWA #A3992-01
Expiration Date 6/30/03
-------
Protocol # AP443 "Vascular Biology of Stent Implantation and Injury to Vein
-----
Grafts in Swine" Expiration date 03/01/00
--------
Facility 2: Pine Acres Research Facility - (Pigs)
(Housing Facility)
USDA #14-R-0004
---------
Expiration date 02/20/02
--------
The Recipient shall provide documentation in evidence of the renewal of all
approvals and certifications no later than thirty (30) calendar days prior to
expiration date shown above. Failure to maintain current approval and
certification will be considered material non-compliance with the terms and
conditions of this award and may result in immediate suspension and/or
termination.
The Recipient shall immediately inform the ATP Project Manager and NIST Grants
Officer in writing of any proposed deviations from the procedures involving
vertebrate animals approved by NIST during the project period, and submit
documentation evidencing approval of the revised animal study proposal by the
IACUC for NIST review.
9. HUMAN SUBJECT EXEMPTIONS
Based upon review of the proposal and documentation dated April 12, 1999, July
------ ----
13, 1999, August 6, 1999, August 9, 1999, and September 10, 1999, NIST has
------ ------ ---------
concluded that the involvement of human subjects in research identified meets
the criteria to qualify for an exemption under 15 CFR Part 27.101(b)(4),
Protection of Human Subjects, which states:
"Research, involving the collection or study of existing data, documents,
- -------------------------------------------------------------------------
records, pathological specimens, or diagnostic specimens, if these sources are
- ------------------------------------------------------------------------------
publicly available or if the information is recorded by the investigator in such
- --------------------------------------------------------------------------------
a manner that subjects cannot be identified, directly or through identifiers
- ----------------------------------------------------------------------------
linked to the subjects."
- ------------------------
This exemption applies exclusively to the use of endothelial cells obtained from
-----------------
Clonetics as referenced in the correspondence dated July 20, 1999 and August 9,
---- ------
1999.
<PAGE>
No other involvement of human subjects in research is authorized by NIST within
this project.
If the conditions upon which this exemption are based change in any way, the
Recipient must notify the Grants Office immediately in writing and obtain prior
written approval from the Grants Officer before proceeding with any further
research involving human subjects. Failure to meet the above requirements prior
to the conduct of activities involving human subject research shall be
considered material non-compliance with the terms of the award. The Grants
Officer may take appropriate action under Article L.01 of the Department of
Commerce Financial Assistance Standard Terms and Conditions dated 10/98,
including termination of the award.
By accepting this award, the Recipient certifies to the accuracy of the
documentation cited above.
10. DEFERRAL OF HUMAN SUBJECT CERTIFICATION
Based upon review of the proposal and documentation dated April 12, 1999, July
----- ----
13, 1999, August 6, 1999, August 9, 1999, and September 10, 1999, NIST has
------ ------ ---------
concluded that the iproposed safety/feasibility study in male and female
patients scheduled for peripheral bypass grafting to be conducted in Years 2-3
meets the criteria to qualify for a deferred review. This award is made in
accordance with 15 CFR Part 27.118, which permits research that does not involve
human subjects to proceed even though human subjects may be involved at a later
stage during the project period. In accordance with 9/99 ATP General Terms and
Condition #19, the Recipient must submit the following documentation prior to
--------
the SECOND YEAR (November 1, 2000) of the project and prior to any research that
- ----------------------------------
may involve human subjects, to the NIST Grants Officer for review and approval:
a) Documentation establishing approval of the project by an Institutional
Review Board qualified under 15 CFR Part 27.103, OR
b) Documentation to support an exemption for the project from 15 CFR Part
27.101.
The documentation requirements are outlined in the ATP Proposal Preparation Kit,
November 1998, on pages 9-11. No involvement of human subjects in research may
be undertaken/conducted, or costs involving human subjects research
incurred/charged to the project, under the NIST Grants Officer's approval of the
above documentation is obtained in writing.
Failure to meet the above requirements prior to the conduct of activities
involving human subject research shall be considered material non-compliance
with the terms of the award. The Grants Officer may take appropriate action
under Article L.01 of the Department of Commerce Financial Assistance Standard
Terms and Conditions dated 10/98, including termination of the award.
11. TECHNICAL STAFFING REQUIREMENT
Within 30 days from the date of execution of this cooperative agreement, the
Recipient must hire a consultant or technical personnel with expertise in
cellular immunology. Failure to satisfy this requirement shall be considered
material non-compliance with the terms of this award and may result in
suspension of the award in accordance with Section L.01 of the Department of
Commerce Financial Assistance Standard Terms and Conditions dated 10/98.
<PAGE>
ESTIMATED MULTI-YEAR BUDGET - SINGLE COMPANY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Object Class Category Year 1 Year 2 Year 3 Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
a. Technical Personnel 289,000 289,000 289,000 867,000
Salaries/Wages
- ------------------------------------------------------------------------------------------------------------
b. Tech-Fringe Benefits (20%) 57,800 57,800 57,800 173,400
- ------------------------------------------------------------------------------------------------------------
c. Administrative Personnel 10,500 10,500 10,500 31,500
Salaries/Wages
- ------------------------------------------------------------------------------------------------------------
d. Admin-Fringe Benefits (20%) 2,100 2,100 2,100 6,300
- ------------------------------------------------------------------------------------------------------------
e. Travel 24,000 34,000 34,000 92,000
- ------------------------------------------------------------------------------------------------------------
f. Equipment 42,000 31,000 0 73,000
- ------------------------------------------------------------------------------------------------------------
g. Materials/Supplies 406,400 282,600 135,000 824,000
- ------------------------------------------------------------------------------------------------------------
h. Audit costs 5,000 0 5,000 10,000
- ------------------------------------------------------------------------------------------------------------
i. Subcontracts 246,200 246,200 246,200 738,600
- ------------------------------------------------------------------------------------------------------------
j. Other 20,000 82,000 82,000 184,000
- ------------------------------------------------------------------------------------------------------------
k. Total Direct Costs (a to j) 1,103,000 1,035,200 861,600 2,999,800
- ------------------------------------------------------------------------------------------------------------
l. Total Direct Costs Requested 666,666 666,667 666,667 2,000,000
From ATP
- ------------------------------------------------------------------------------------------------------------
m. Total Direct Costs Shared by 436,334 368,533 194,933 999,800
Proposer
- ------------------------------------------------------------------------------------------------------------
n. Total Indirect Costs Absorbed by 17,970 17,970 17,970 53,910
Proposer
- ------------------------------------------------------------------------------------------------------------
o. Total Costs (k+n) 1,120,970 1,053,170 879,570 3,053,710
- ------------------------------------------------------------------------------------------------------------
Sources of Funds
- ------------------------------------------------------------------------------------------------------------
a. ATP (line 1) 666,666 666,667 666,667 2,000,000
- ------------------------------------------------------------------------------------------------------------
b. Reprogenesis (lines m+n) 454,304 386,503 212,903 1,053,710
- ------------------------------------------------------------------------------------------------------------
c. 0
- ------------------------------------------------------------------------------------------------------------
d. 0
- ------------------------------------------------------------------------------------------------------------
e. Total Sources of Funds (line o) 1,120,970 1,053,170 879,570 3,053,710
- ------------------------------------------------------------------------------------------------------------
Tasks
- ------------------------------------------------------------------------------------------------------------
a. SVG Animal Testing 486,278 255,996 0 742,274
- ------------------------------------------------------------------------------------------------------------
b. Device Animal Testing 0 395,180 131,142 526,322
- ------------------------------------------------------------------------------------------------------------
c. Cell Line Selection 221,899 0 0 221,899
- ------------------------------------------------------------------------------------------------------------
d. Technology Transfer (R&D to Mfg.) 19,991 60,262 0 80,253
- ------------------------------------------------------------------------------------------------------------
e. Packaging and Transportation System 113,948 50,846 106,951 271,745
- ------------------------------------------------------------------------------------------------------------
f. Evaluation of Alternative Matrices 137,938 97,925 0 235,863
- ------------------------------------------------------------------------------------------------------------
g. Device Development 77,965 75,327 70,696 223,988
- ------------------------------------------------------------------------------------------------------------
h. SVG Clinical Trial 19,991 80,832 242,905 343,728
- ------------------------------------------------------------------------------------------------------------
i. Device Clinical Trial 19,991 18,832 304,905 343,728
- ------------------------------------------------------------------------------------------------------------
j. Indirect costs (absorbed by proposer) 17,970 17,970 17,970 53,910
- ------------------------------------------------------------------------------------------------------------
k. Audit costs 5,000 0 5,000 10,000
- ------------------------------------------------------------------------------------------------------------
l. Total Costs of All Tasks (same as o) 1,120,970 1,053,170 879,570 3,053,710
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.39
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
No. 1
STOCK SUBSCRIPTION WARRANT
To Purchase Common Stock of
REPROGENESIS, INC. (the "Company")
DATE OF INITIAL ISSUANCE: July 2, 1998
THIS CERTIFIES THAT for value received, TBCC FUNDING TRUST II or its
registered assigns (hereinafter called the "Holder") is entitled to purchase
from the Company, at any time, subject to Section 2.1, during the Term of this
Warrant, Twenty One Thousand Six Hundred Sixty-Seven (21,667) shares of common
stock, $.01 par value, of the Company (the "Common Stock"), at the Warrant
Price, payable as provided herein. The exercise of this Warrant shall be subject
to the provisions, limitations and restrictions herein contained, and may be
exercised in whole or in part.
SECTION 1. Definitions.
-----------
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
Common Stock - shall mean and include the Company's authorized Common
------------
Stock, $.01 par value, as constituted at the date hereof.
Exchange Act - shall mean the Securities Exchange Act of 1934, as amended
------------
from time to time.
Securities Act - the Securities Act of 1933, as amended.
--------------
Term of this Warrant - shall mean the period beginning on the date of
--------------------
initial issuance hereof and ending on July 1, 2003.
Warrant Price - $3.00 per share, subject to adjustment in accordance with
-------------
Section 5 hereof.
Warrants - this Warrant and any other Warrant or Warrants issued in
---------
connection with a Commitment Letter dated June 8, 1998 executed by the Company
and Transamerica Business Credit Corporation (the "Commitment Letter") to the
original holder of this Warrant, or any transferees from such original holder or
this Holder.
<PAGE>
Warrant Shares - shares of Common Stock purchased or purchasable by the
--------------
Holder of this Warrant upon the exercise hereof.
SECTION 2. Exercise of Warrant.
-------------------
2.1. Procedure for Exercise of Warrant. To exercise this Warrant in
---------------------------------
whole or in part (but not as to any fractional share of Common Stock), the
Holder shall deliver to the Company at its office referred to in Section 12
hereof at any time and from time to time during the Term of this Warrant, but
not prior to completion of the Company's initial public offering of securities:
(i) the Notice of Exercise in the form attached hereto, (ii) cash, certified or
official bank check payable to the order of the Company, wire transfer of funds
to the Company's account, or evidence of any indebtedness of the Company to the
Holder (or any combination of any of the foregoing) in the amount of the Warrant
Price for each share being purchased, and (iii) this Warrant. Notwithstanding
any provisions herein to the contrary, if the Current Market Price (as defined
in Section 5) is greater than the Warrant Price (at the date of calculation, as
set forth below), in lieu of exercising this Warrant as hereinabove permitted,
the Holder may elect to receive shares of Common Stock equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the office of the Company referred to in Section 12
hereof, together with the Notice of Exercise, in which event the Company shall
issue to the Holder that number of shares of Common Stock computed using the
following formula:
CS = WCS x (CMP-WP)
--------------
CMP
Where
CS equals the number of shares of Common Stock to be issued to the
Holder
WCS equals the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being exercised (at the date of such
calculation)
CMP equals the Current Market Price (at the date of such calculation)
WP equals the Warrant Price (as adjusted to the date of such
calculation)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered to the Holder hereof within a
reasonable time, not exceeding fifteen (15) business days, after the rights
represented by this Warrant shall have been so exercised; and, unless this
Warrant has expired, a new Warrant representing the number of shares (except a
remaining fractional share), if any, with respect to which this Warrant shall
not then have been exercised shall also be issued to the Holder hereof within
such time. Subject to the limitations described in Section 6.2, the person in
whose name any certificate for shares of Common Stock is issued upon exercise of
this Warrant shall for all purposes be deemed to have become the holder of
record of such shares on the date on which the Warrant was surrendered and
payment of the Warrant Price and any applicable taxes was made, irrespective of
the date of delivery of such certificate, except that, if the date of such
surrender and payment is a date when the stock
-2-
<PAGE>
transfer books of the Company are closed, such person shall be deemed to have
become the holder of such shares at the close of business on the next succeeding
date on which the stock transfer books are open.
2.2. Transfer Restriction Legend. Each certificate for Warrant Shares
---------------------------
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold or transferred in the absence of such
registration or an exemption therefrom under said Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. Covenants as to Common Stock. The Company covenants and agrees
----------------------------
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable, and free from all taxes, liens and charges with respect
to the issue thereof. The Company further covenants and agrees that it will pay
when due and payable any and all federal and state taxes which may be payable in
respect of the issue of this Warrant or any Common Stock or certificates
therefor issuable upon the exercise of this Warrant. The Company further
covenants and agrees that the Company will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
SECTION 4. Adjustment of Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price as provided in Section 5, the Holder shall thereafter be entitled
to purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
SECTION 5. Adjustment of Warrant Price. The Warrant Price shall be subject to
---------------------------
adjustment from time to time as follows: (i) If, at any time during the Term of
this Warrant, the number of shares of Common Stock outstanding is increased by a
stock dividend payable in shares of Common Stock or by a subdivision or split-up
of shares of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up, the Warrant Price shall be appropriately
decreased so that
-3-
<PAGE>
the number of shares of Common Stock issuable upon the exercise hereof shall be
increased in proportion to such increase in outstanding shares .
(ii) If, at any time during the Term of this Warrant, the number of shares
of Common Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for such combination,
the Warrant Price shall appropriately increase so that the number of shares of
Common Stock issuable upon the exercise hereof shall be decreased in proportion
to such decrease in outstanding shares.
(iii) In case, at any time during the Term of this Warrant, the Company
shall declare a cash dividend upon its Common Stock payable otherwise than out
of earnings or earned surplus or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other persons, evidences of indebtedness issued by the Company or other
persons, assets (excluding cash dividends and distributions) or options or
rights (excluding options to purchase and rights to subscribe for Common Stock
or other securities of the Company convertible into or exchangeable for Common
Stock), then, in each such case, immediately following the record date fixed for
the determination of the holders of Common Stock entitled to receive such
dividend or distribution, the Warrant Price in effect thereafter shall be
determined by multiplying the Warrant Price in effect immediately prior to such
record date by a fraction of which the numerator shall be an amount equal to the
difference of (x) the Current Market Price of one share of Common Stock minus
(y) the fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the stock, securities,
evidences of indebtedness, assets, options or rights so distributed in respect
of one share of Common Stock, and of which the denominator shall be such Current
Market Price.
(iv) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(v) For the purpose of any computation pursuant to this Section 5, the
Current Market Price at any date of one share of Common Stock shall be deemed to
be the average of the daily closing prices for the 15 consecutive business days
ending on the last business day before the day in question (as adjusted for any
stock dividend, split, combination or reclassification that took effect during
such 15 business day period). The closing price for each day shall be the last
reported sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices regular way,
in either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or as reported by Nasdaq (or if the
Common Stock is not at the time listed or admitted for trading on any such
exchange or if prices of the Common Stock are not reported by Nasdaq then such
price shall be equal to the average of the last reported bid and asked prices on
such day as reported by The National Quotation Bureau Incorporated or any
similar reputable quotation and reporting service, if such quotation is not
reported by The National Quotation Bureau Incorporated); provided, however, that
if the Common Stock is not traded in such manner that the quotations referred to
in this clause (v) are available for the period required hereunder, the Current
Market Price shall be determined in good faith by the Board of Directors of the
Company or, if such determination cannot be made, by a nationally recognized
independent investment banking firm selected by the Board of Directors of the
Company (or if such selection cannot be made, by a nationally recognized
independent investment banking firm selected by the American Arbitration
Association in accordance with its rules).
-4-
<PAGE>
(vi) Whenever the Warrant Price shall be adjusted as provided in Section
5, the Company shall prepare a statement showing the facts requiring such
adjustment and the Warrant Price that shall be in effect after such adjustment.
The Company shall cause a copy of such statement to be sent by mail, first class
postage prepaid, to each Holder of this Warrant at its, his or her address
appearing on the Company's records. Where appropriate, such copy may be given in
advance and may be included as part of the notice required to be mailed under
the provisions of subsection (viii) of this Section 5.
(vii) Adjustments made pursuant to clauses (i), (ii) and (iii) above shall
be made on the date such dividend, subdivision, split-up, combination or
distribution, as the case may be, is made, and shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to such dividend, subdivision, split-up,
combination or distribution.
(viii) In the event the Company shall propose to take any action of the
types described in clauses (i), (ii), or (iii) of this Section 5, the Company
shall forward, at the same time and in the same manner, to the Holder of this
Warrant such notice, if any, which the Company shall give to the holders of
capital stock of the Company.
(ix) In any case in which the provisions of this Section 5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
SECTION 6. Ownership.
---------
6.1. Ownership of This Warrant. The Company may deem and treat the
-------------------------
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2. Transfer and Replacement. This Warrant and all rights hereunder are
------------------------
transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees (and in the name of the Holder, if a partial transfer is
effected) shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 12
hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder an irrevocable agreement of indemnity by
such
-5-
<PAGE>
Holder shall be sufficient for all purposes of this Section 6, and no evidence
of loss or theft or destruction shall be necessary. This Warrant shall be
promptly cancelled by the Company upon the surrender hereof in connection with
any transfer or replacement. Except as otherwise provided above, in the case of
the loss, theft or destruction of a Warrant, the Company shall pay all expenses,
taxes and other charges payable in connection with any transfer or replacement
of this Warrant, other than stock transfer taxes (if any) payable in connection
with a transfer of this Warrant, which shall be payable by the Holder.
Notwithstanding the foregoing, prior to completion of the Company's initial
public offering of securities, Holder will not transfer this Warrant and the
rights hereunder to any party other than an affiliate of the Holder, and in any
event except in compliance with federal and state securities laws.
SECTION 7. Mergers, Consolidation, Sales. In the case of any proposed
-----------------------------
consolidation or merger of the Company with another entity, or the proposed sale
of all or substantially all of its assets to another person or entity, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable hereunder, such
shares of stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for the number of shares of such Common Stock
purchasable hereunder immediately before such consolidation, merger, sale,
reorganization or reclassification. In any such case appropriate provision shall
be made with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof shall thereafter be applicable as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of this Warrant.
SECTION 8. Notice of Dissolution or Liquidation. In case of any distribution
------------------------------------
of the assets of the Company in dissolution or liquidation (except under
circumstances when the foregoing Section 7 shall be applicable), the Company
shall give notice thereof to the Holder hereof and shall make no distribution to
shareholders until the expiration of thirty (30) days from the date of mailing
of the aforesaid notice and, in any case, the Holder hereof may exercise this
Warrant within thirty (30) days from the date of the giving of such notice, and
all rights herein granted not so exercised within such thirty-day period shall
thereafter become null and void.
SECTION 9. Notice of Extraordinary Dividends. If the Board of Directors of
---------------------------------
the Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. Fractional Shares. Fractional shares shall not be issued upon
-----------------
the exercise of this Warrant but in any case where the Holder would, except for
the provisions of this Section 10, be entitled under the terms hereof to receive
a fractional share upon the complete exercise
-6-
<PAGE>
of this Warrant, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
excess of the value of such fractional share (determined in such reasonable
manner as may be prescribed in good faith by the Board of Directors of the
Company) over the Warrant Price for such fractional share.
SECTION 11. Special Arrangements of the Company. The Company covenants and
-----------------------------------
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant:
11.1. Will Reserve Shares. The Company will reserve and set apart and
-------------------
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. Will Not Amend Certificate. The Company will not amend its
--------------------------
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. Will Bind Successors. This Warrant shall be binding upon any
--------------------
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. Notices. Any notice or other document required or permitted to
-------
be given or delivered to the Holder shall be delivered at, or sent by certified
or registered mail to, the Holder at Transamerica Technology Finance Division,
76 Batterson Park Road, Farmington, Connecticut 06032, Attention: Assistant Vice
President, Lease Administration, with a copy to the Lender at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal
Department or to such other address as shall have been furnished to the Company
in writing by the Holder. Any notice or other document required or permitted to
be given or delivered to the Company shall be delivered at, or sent by certified
or registered mail to, the Company at 21 Erie Street, Cambridge, Massachusetts
02139, Attention: Chief Financial Officer or to such other address as shall have
been furnished in writing to the Holder by the Company. Any notice so addressed
and mailed by registered or certified mail shall be deemed to be given when so
mailed. Any notice so addressed and otherwise delivered shall be deemed to be
given when actually received by the addressee.
SECTION 13. No Rights as Stockholder; Limitation of Liability. This Warrant
-------------------------------------------------
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No provision
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the Warrant Price
hereunder or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
SECTION 14. Law Governing. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF
-------------
THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
-7-
<PAGE>
SECTION 15. Miscellaneous. This Warrant and any provision hereof may be
-------------
changed, waived, discharged or terminated only by an instrument in writing
signed by both parties (or any respective predecessor in interest thereof). The
headings in this Warrant are for purposes of reference only and shall not affect
the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this 2nd day of July, 1998.
REPROGENESIS, INC.
[CORPORATE SEAL]
By: /s/ William D. Romeo
------------------------------------
Title: V.P. Finance & CFO
-8-
<PAGE>
Exhibit 10.41
Execution Copy
--------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of the 17th day of
June, 1996, is entered into by Ontogeny, Inc., a Delaware corporation, and Doros
Platika (the "Employee").
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Employment. Commencing as of June 17, 1996, the Company agrees to
----------
employ the Employee, and the Employee accepts employment with the Company, upon
the terms set forth in this Agreement. The period during which the Employee is
employed by the Company hereunder is referred to as the "Employment Period."
2. Position.
--------
(a) The Employee shall serve as President and Chief Executive Officer
of the Company. The Employee shall have duties and authority consistent with his
position as President and Chief Executive Officer. The Employee shall report to,
and be subject to the supervision of, the Board of Directors of the Company (the
"Board"). The Employee agrees to devote his entire business time to the business
and interests of the Company during the Employment Period.
(b) During the Employment Period, the Company shall use its best
efforts to cause the election of the Employee to the Board. Upon termination of
the Employment Period, the Employee shall be deemed to have automatically
resigned as a member of the Board; such resignation shall be effective
immediately without the requirement of any further written notice.
<PAGE>
(c) The Employee agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any changes
therein which may be adopted from time to time by the Company.
3. Compensation and Benefits.
-------------------------
3.1 Salary. The Company shall pay the Employee, in monthly
------
installments, a base salary of $250,000 per annum. Such salary shall be subject
to annual review by the Board.
3.2 Bonus. The Employee's annual bonus shall be determined by the
-----
Board and shall be based on the achievement of specific objectives established
by the Board. Such bonus may be paid in the form of cash or additional shares of
Common Stock of the Company (or options therefor).
3.3 Benefits; Vacation. The Employee shall be entitled to
------------------
participate in all medical and other benefit programs that the Company
establishes and makes available to its employees, if any, to the extent that
Employee's position, tenure, salary, age, health and other qualifications make
him eligible to participate. The Employee shall be entitled to four weeks paid
vacation per year.
3.4 Reimbursement of Expenses. The Company shall reimburse the
-------------------------
Employee for all reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, provided, however, that the
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amount available for such travel, entertainment and other expenses may be fixed
in advance by the Board.
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<PAGE>
3.5 Relocation Expenses. The Company shall reimburse the Employee
-------------------
for reasonable moving and travel expenses not to exceed $30,000, incurred by him
in moving himself and his immediate family from Columbus, Ohio to the Boston,
Massachusetts area. Such reimbursement will include the Employee's travel costs
in connection with his acquisition of a residence in Massachusetts and weekly
trips between Ohio and Massachusetts.
3.6 Insurance. During the Employment Period, the Company shall
---------
purchase and maintain, if available, $3 million of insurance on the life of the
Employee, with $2 million of the proceeds payable, to the Company and $1 million
payable to the Employee's designated beneficiaries. Upon the termination of
Employee's employment hereunder, Employee shall have the right to purchase any
such insurance from the Company, to the extent permitted by such policy, for an
amount equal to the actual premiums thereon previously paid by the Company.
4. Equity.
------
(a) The Company shall issue and sell to the Employee 400,000 shares of
its Common Stock ("Common Stock"), at a purchase price of $.15 per share,
vesting in equal monthly installments over the five-year period ending June 30,
2001 or, at the election of the Employee, shall grant to the Employee a stock
option for such shares, at an exercise price of $.15 per share, vesting on the
same basis. Such shares (or options) shall become fully vested immediately upon
the earliest of: (i) the death of the Employee; (ii) the Disability (as defined
below) of the Employee; (iii) the termination of the Employee by the Company
without Cause (as defined below); (iv) the resignation of the Employee for Good
Reason (as defined below); or (v) a Change in Control (as defined below).
(b) The Company shall issue and sell to the Employee an additional
400,000 shares of its Common Stock, at a purchase price of $.15 per share,
vesting in equal monthly
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<PAGE>
installments during the fourth through seventh year of the Employee's employment
with the Company or, at the Employee's election, shall grant to the Employee a
stock option for such shares, at an exercise price of $.15 per share, vesting on
the same basis. The vesting of such shares or option shall accelerate upon the
closing of any of the following events (each, a "Change in Control"): (i) a
merger or consolidation of the Company with any other entity, other than (A) a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto continuing to
hold more than 50% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no Person
(hereinafter defined), other than the holder or holders of more than 50% of the
combined voting power of the Company's outstanding securities immediately prior
to such recapitalization, acquires more than 50% of the combined voting power of
the Company's then outstanding voting securities; or (ii) any transaction which
results in any Person (or related group of Persons) beneficially owning more
than 50% of the outstanding voting securities of the Company, or (iii) the first
sale or disposition by the Company of all or substantially all of the Company's
assets in a single transaction or pursuant to a series of transactions related
by agreement or plan. For purposes of the foregoing, "Person" shall mean a
corporation, individual, partnership, limited liability company, trust or other
entity.
(c) The issuance of shares or options under this Section 4 shall be
evidenced by a Stock Restriction Agreement or Stock Option Agreement, as the
case may be, in the form and upon the terms provided to the Employee by the
Company.
4
<PAGE>
(d) During the Employment Period and, if the Employee's employment is
terminated by the Company without Cause or by the Employee for Good Reason,
during the period of three years after such termination, if the Company engages
in an underwritten public offering of its Common Stock and if any officers of
the Company are permitted by the Company and the underwriters to sell any of
their shares of Common Stock in such offering ("management shares"), then the
Employee shall be permitted to include in such offering a pro rata share of the
total number of management shares entitled to be included. Such pro rata share
shall be based on the ratio of the number of vested shares of Common Stock, or
options therefor, then held by the Employee to the aggregate number of
management shares included in the offering. If the Employee elects to include
shares in such offering, he shall execute an underwriting agreement for such
offering and comply with such other requirements as are customary for selling
stockholders in an underwritten public offering. If so requested by the managing
underwriters of the Company's initial public offering of Common Stock, the
Employee shall not sell publicly (other than in the underwritten offering) any
shares of Common Stock during such period following the effective date of such
offering, not to exceed 180 days, as may be requested by the managing
underwriters, provided that this sentence shall apply only if all then executive
--------
officers and members of the Board of Directors also agree not to sell shares of
Common Stock during the same period.
(e) As used in this Agreement, the following terms shall have the following
respective meanings:
(i) "Cause" shall mean (a) fraud, embezzlement or theft by the Employee
in connection with his duty to the Company or in the course of his employment
with the Company; (b) a breach of this Agreement by the Employee, which is not
cured within thirty (30) days after notice thereof to the Employee; or (c) the
Employee's engaging in misconduct injurious to the Company which is not cured,
to the reasonable satisfaction of the Board of Directors, within thirty
5
<PAGE>
(30) days after notice thereof is given to the Employee.
(ii) "Good Reason" shall mean (a) any significant diminution in
the Employee's position, duties, power or title; (b) any reduction in his annual
base salary; (c) any breach by the Company of this Agreement which is not cured
within thirty (30) days after notice of such breach by the Employee to the
Company; (d) any requirement by the Company or of any person in control of the
Company that the location at which the Employee performs his principal duties
for the Company be changed to a new location that is more than forty (40) miles
from the current principal location of the Company; (e) any material breach of
this Agreement by the Company which is not cured within 30 days after written
notice thereof, or (f) the failure of the Company to obtain a reasonably
satisfactory agreement from any successor to the business of the Company to
assume and agree to perform this Agreement, as contemplated by Section 14 below.
(iii) "Disability" shall be deemed to occur if, as a result of the
Employee's incapacity due to physical or mental illness, the Employee shall have
been absent from the full-time performance of his duties with the Company for
six consecutive months.
5. Loan.
----
(a) The Company has lent to the Employee $500,000, of which $5,000
(together with all accrued interest on such $5,000) shall be forgiven at the end
of each full month of the Employee's employment with the Company during his
first five years of employment with the Company. In addition, the then unpaid
principal amount of, and all accrued but unpaid interest on, such loan shall be
forgiven in the event that (i) the Employee terminates his employment hereunder
by reason of any material breach of this Agreement by the Company
6
<PAGE>
which is not cured within 30 days after written notice thereof; or (ii) the
Company terminates the Employee's employment hereunder without Cause and for any
reason other than a determination by the Board that the Employee is not
effective in the performance of his responsibilities as President and Chief
Executive Officer of the Company. The Company shall pay to the Employee a bonus
in the amount of any federal and state income tax payable by him as a result of
any such forgiveness, as well as any federal and state income taxes payable by
the Employee with respect to bonuses paid under this sentence; such bonus shall
be paid at the time such tax payments are payable by the Employee. Such loan
shall bear interest at the applicable federal interest rate for loans of such
duration. Such loan shall be secured by a mortgage on the Employee's house and
the shares of Common Stock held by the Employee. The principal of, and interest
on, such loan, to the extent not forgiven, shall be due and payable on the
earliest of (i) June 30, 2003, (ii) thirty (30) days after the Employee's
resignation as an employee of the Company without Good Reason, and (iii) one
year after termination of the Employee's employment with the Company for any
reason other than voluntary resignation without Good Reason. Such loan shall be
evidenced by a Note in the form attached hereto as Exhibit A.
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(b) The Company shall lend to the Employee $100,000, which shall be
due and payable on June 30, 1997. Such loan shall bear interest at the minimum
applicable federal interest rate for loans of such duration. Such loan shall be
secured by a mortgage on the Employee's house. Such loan shall be evidenced by a
Note in the form attached hereto as Exhibit A-1.
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6. Termination.
-----------
(a) The Company has the right to terminate the Employee's employment
under this Agreement, by notice to the Employee in writing at any time (i) for
Cause, (ii) without
7
<PAGE>
Cause for any or no reason, or (iii) due to the Disability of the Employee. Any
such termination shall be effective upon the date of such notice to the Employee
or such other date as may be specified in such notice.
(b) Employee's employment under this Agreement shall terminate
immediately upon the Employee's death.
(c) The Employee shall have the right to terminate his employment
under this Agreement (i) for any reason or no reason upon sixty (60) days' prior
written notice to the Company or (ii) for Good Reason upon thirty (30) days'
prior written notice specifying such Good Reason.
7. Compensation upon Termination.
-----------------------------
(a) If the Employment Period is terminated (i) by the Company without
Cause or due to the death or Disability of the Employee, or (ii) by the Employee
for Good Reason, then the Company shall (A) pay to the Employee his base salary
accrued through the date of termination, and (B) pay to the Employee, or his
estate, in equal bi-weekly installments over a twelve-month period following
such termination, a severance amount equal to his annual base salary as in
effect at the time of termination; provided, however, that such severance
payments during the second six months of such twelve-month period shall be
reduced by the amount of any compensation earned by the Employee as an employee
or a consultant for another person or entity during such six-month period.
(b) If the Employment Period is terminated by the Company for Cause or
by the Employee without Good Reason, the Company shall (i) pay to the Employee
his base salary accrued through the date of termination, and (ii) pay to the
Employee, in equal bi-weekly
8
<PAGE>
installments over a two-month period, a severance amount equal to one-sixth of
his annual base salary as in effect at the time of termination.
(c) The Employee shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise.
8. Non-Compete. The Employee shall sign the form of Non-Compete and Non-
-----------
Solicitation Agreement in the form attached hereto as Exhibit B.
9. Invention and Non-Disclosure Agreement. The Employee shall sign the form
--------------------------------------
of Invention and Non-Disclosure Agreement in the form attached hereto as Exhibit
-------
C.
- -
10. Notices. All notices required or permitted under this Agreement shall
-------
be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or at
such other address or addresses as either party shall designate to the other in
accordance with this Section 10.
11. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a written
---------
instrument executed by both the Company and the Employee.
13. Governing Law. This Agreement shall be construed, interpreted and
-------------
enforced in accordance with the laws of the Commonwealth of Massachusetts.
14. Successors and Assigns. The Company will 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 Company expressly to assume
and agree to perform this Agreement to
9
<PAGE>
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, Company shall mean the
Company as defined above and any successor to its business or assets which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
15. Miscellaneous.
-------------
15.1 No delay or omission by the Company in exercising any right under
this Agreement shall operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver of any right on any other
occasion.
15.2 There shall be deducted from any payments provided for hereunder
any applicable withholding taxes required under federal, state or local law.
15.3 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
15.4 In case any provision of this Agreement shall be invalid, illegal
or otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
ONTOGENY, INC.
By:
-----------------------------
Title:
--------------------------
EMPLOYEE
--------------------------------
Doros Platika
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<PAGE>
Exhibit 10.42
LEASE between
-------------
MOULTON REALTY COMPANY
----------------------
and
---
ONTOGENY, INC.
--------------
THIS INDENTURE OF LEASE, made as of this 16th day of November, 1995, between
MICHAEL J. SPINELLI, JR., PETER A. SPINELLI, and CAROL A. HICKEY, Trustees of
MOULTON REALTY TRUST under a declaration of trust dated December 30, 1985
recorded with Middles South Registry of Deeds in Book 16700, page 487, and
MOULTON REALTY CORPORATION, owner of the property located at 51 Molten Street,
Cambridge, Massachusetts, both having a principal place of business at 25
Moulton Street, Cambridge, County of Middlesex, Massachusetts, 02139,
(hereinafter called the "Landlord"), and ONTOGENY, INC. a corporation duly
organized by law and having an usual place of business in Cambridge, in the
County of Middlesex, Massachusetts (hereinafter called the "Tenant").
W I T N E S S E T H:
I. (a) The Landlord hereby leases to the Tenant a portion of the premises
located at 33 and 45 Moulton Street, Cambridge, Middlesex County, Massachusetts,
which Leasehold is an area of 30,000 square feet shown on plan annexed hereto as
Schedule A, said Building contains 41,000 square feet. The Leasehold also
includes the parking shown on said plan. Said 33 and 45 Moulton Street,
Cambridge, and said parking area are a portion of the premises described in
Schedule B attached hereto.
(b) The premises described herein may be used for the purpose of
conducting a research laboratory and uses incidental thereto, including sales,
service, and manufacture of Tenant's products, general office use, as well as
any other use authorized under applicable zoning laws and ordinances in
connection with its business. The Landlord warrants and
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<PAGE>
represents that the intended use as set forth herein is permissible under the
Zoning Ordinance of the City of Cambridge.
(c) Located on or adjacent to the premises are sixty (60) parking
spaces for the exclusive use of the Tenant more particularly described in
Schedule A.
(d) The Tenant shall have the right of unobstructed access to the
premises by motor vehicle and otherwise for use in connection with its business,
including unobstructed access to the use of the truck dock, driveway and parking
areas, and Tenant may install a movable trash disposal unit outside the building
at a location agreed to by both parties.
II. The initial term of this Lease shall be for a period of ten (10)
years, commencing March 1, 1996, as hereafter defined; provided, however, if the
premises are not ready for occupancy, the commencement date may be extended but
in no event beyond April 1, 1996, or such later date as may be necessary to
cause the premises to be ready for occupancy, if such extension is necessary due
to matters beyond the reasonable control of the Tenant, such as acts of God.
During such period prior to the extended commencement date, Tenant shall be
responsible for its share of taxes, insurance and security of the leasehold,
including providing adequate heat.
III. (a) During the term of this Lease, the Tenant shall pay as base rent
to the Landlord at the Landlord's address first written above, or such other
place as the Landlord, by notice in writing to the Tenant: the sum of TWO
HUNDRED FIFTY-FIVE THOUSAND and XX/100 ($255,000.00) payable in monthly
installments of TWENTY-ONE THOUSAND TWO HUNDRED FIFTY and XX/100 ($21,250.00).
(b) OPTION. If this Lease shall be in full force and effect at the
------
expiration of the initial term, then the LESSEE shall have the right to extend
this Lease for an additional period of five (5) years, as hereinafter set forth,
providing that the LESSEE shall give written notice to the
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<PAGE>
Landlord at least twelve (12) months prior to expiration of the original term of
this Lease of its election to exercise the aforesaid option. If the aforesaid
option is exercised, the terms of this Lease shall be the same, except that the
rent hereunder shall be adjusted to eighty-five (85%) percent of the fair market
rental of similarly improved laboratory space in the Fresh Pond area of
Cambridge, but in no event less than the tenth year of the original Lease term.
If the parties are unable to agree on the fair market rental, then each shall
appoint an arbitrator who shall be a licensed real estate broker or appraiser.
If the two arbitrators are unable to agree on a fair market rental, then the two
arbitrators shall appoint a third arbitrator, and a decision of the majority of
the arbitrators shall be binding. However, in the event that the fair market
rental is not determined within sixty (60) days of the election to exercise the
option, then the said option shall thereupon terminate.
If during the term of the within lease any additional space in the premises
located at 33-45 Moulton Street, Cambridge, Massachusetts, shall become
available, then the Tenant shall a Right of First Refusal as to said space for a
period consistent with the term of the within lease and any options thereof.
Landlord shall notify Tenant in writing of the availability of such space, and
Tenant shall have fourteen (14) days during which to exercise said option for
the additional space, and within two (2) weeks from the exercise of its right
for additional space, Tenant shall execute the lease with the Landlord.
(c) The Tenant shall pay as additional rent to Landlord, SEVENTY-THREE 2/10
(73.2%) PERCENT of the real estate taxes levied against the premises located at
33-45 Moulton Street, Cambridge, Massachusetts, and FIFTEEN and 5/100 (15.05%)
percent of the taxes levied against the land occupied by the parking area
located on the adjacent lot. The Tenant shall make payment after receiving a
copy of the tax bill, but in no event later than five (5) business days
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<PAGE>
prior to the payment-due date, prorated on a 365-day year per them basis for any
partial calendar year during the term of the Lease.
(d) The Landlord shall, upon receipt of taxes from Tenant, promptly pay
and discharge all real estate taxes and betterment assessments levied or
assessed upon the premises during the term of the Lease, except that the
Landlord shall amortize any betterment assessments over the maximum allowable
term.
(e) If any abatement refund or rebate shall be received for any tax year,
an appropriate adjustment shall thereafter be made in the amount paid by the
Tenant. If Landlord undertakes such abatement process, the cost of such
proceedings, and of any appeal therefrom, shall be charged first against any
abatement received, and the net proceeds credited to the Tenant.
(f) The Tenant shall also pay as additional rent SEVENTY-THREE 2/100
(73.2%) PERCENT of all costs for insurance, maintenance (other than of
structural nature and of the roof), management, repairs, and snow removal, and
other usual and reasonable operating expenses for the premises located at 33-45
Moulton Street, Cambridge, Massachusetts, and FIFTEEN and 5/100 (15.05%) percent
of all costs and expenses attributable to the adjacent parking area, including,
but not limited to, costs of plowing, maintenance, striping, and cleaning.
IV. (a) On or after the effective Commencement Date of the Lease, the
Tenant shall have the right and may install at its own expense alterations to
the interior of the building as may be reasonably desirable or necessary for the
conduct of its business. Such work shall be done in a good and workmanlike
manner, after submission of plans and specifications to the Landlord for
approval in writing, which approval shall not be unreasonably withheld or
delayed. At termination, Tenant has the option to remove Tenant's Work and trade
fixtures. However, if
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<PAGE>
Tenant opts to remove any such work and fixtures, it must deliver space in
broom-clean condition, with plumbing, gas, vents, and other utility lines capped
off, and with ceiling, walls and floors patched and repaired where necessary. If
Tenant opts to leave Tenant's Work, it may deliver the space in broom-clean
condition. Notwithstanding the foregoing as to any additional improvements or
installations to be made by Tenant after its initial occupancy, Tenant shall
submit plans for any such improvements and installations to Landlord. Landlord
shall, within fifteen (15) days of receipt of such plans, notify Tenant if it is
required to remove such improvements and installations at the termination of the
lease. If Tenant is so informed within the fifteen (15) day period, said removal
shall be required at end of lease.
(b) All work shall be done by contractor(s) selected by Tenant, and shall
be subject to Landlord's reasonable approval. As a Tenant allowance (the
"Allowance"), Landlord will reimburse Tenant for up to ONE HUNDRED AND
FIFTY-THREE THOUSAND and XX/ 100 ($153,000.00) DOLLARS of all reasonable
documented costs incurred by Tenant in connection with the Work, and up to
THIRTY-SEVEN THOUSAND FIVE HUNDRED and xx/100 ($37,500.00) for demolition work
to be performed upon the premises minus the cost of removal and disposal of
floor tiles by landlord, and will pay Tenant the amount of the Allowance
promptly after substantial completion of the Work; provided, however, that of
said sum THIRTY THOUSAND SIX HUNDRED and XX/100 ($30,600.00) DOLLARS shall be
held until FORTY-FIVE (45) days after final completion of Tenant's work.
Tenant shall provide to Landlord prior to commencing its work, a surety
bond or letter of credit of a Boston bank in the form satisfactory to Landlord's
counsel and in the amount of FOUR HUNDRED THOUSAND and XX/100 ($400,000.00)
DOLLARS.
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<PAGE>
(c) Whereas the Landlord is responsible for the roof and its maintenance,
and whereas the Tenant has planned certain roof alterations, the parties agree
that the Tenant, after approval of said plans by the Landlord, will coordinate
with the Landlord and its roofing contractors so as to reasonably limit any work
that may affect the roof. The Tenant further agrees to be responsible for any
work performed upon the roof which may cause damage to the roof, i.e.,
skylights, stacks, and HVAC units, and which, in any way, modifies or affects
any warranty of the roof running to the Landlord.
V. The Landlord agrees that during said term and so long as Tenant's
occupancy continues:
(a) to be responsible for keeping the buildings presently on the premises
structurally sound and, without limiting the generality of the foregoing, the
Landlord will keep the roof and outside walls weather and watertight and free
from leaks and make all structural repairs and replacements reasonably necessary
to the Tenant's occupancy of the building and to its foundation, roof,
structural parts.
(b) to be responsible for delivering the premises to Tenant in good order,
condition and repair at the commencement of the term.
(c) To the Landlord's best knowledge there are no underground storage
tanks at the premises.
(d) To the Landlord's best knowledge there are no transformers,
capacitors, switches, or other equipment at the premises which contain PCBs.
(e) The Landlord represents that there are no hazardous materials on the
leasehold premises other than some floor tile adhesive containing asbestos which
the parties agree is to be removed in the demolition process.
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<PAGE>
(f) Landlord agrees to indemnify, defend and hold Tenant harmless with
respect to any loss or damage arising out of the presence or alleged presence of
hazardous materials at 33-45 Moulton Street or the adjacent parking area, and to
promptly remedy the same.
VI. Tenant agrees during said term and so long as Tenant's occupancy
continues:
(a) to be responsible for all maintenance and repairs of the heating
system, plumbing system, electrical system, central air conditioning system (if
any) , interior mains and conduits for utilities, stairways, stairwells and any
areas used exclusively by Tenant.
(b) to pay when due all charges by public authority or utility for water,
electricity, telephone, gas and other services rendered to the premises;
(c) will be responsible for replacing any glass, which may be damaged or
broken, with glass of the same quality;
(d) to save the Landlord harmless from all loss and damage occasioned by
any nuisance made or suffered on the premises caused by the omission, fault,
negligence, or other misconduct of the Tenant, its agents, servants, employees
and business invitees, and from any other injury, loss or damage to any person
or property on said premises caused by the omission, fault, negligence or other
misconduct of the Tenant; provided, however, that the above obligations do not
apply when the injury or damage was caused or contributed to by the negligent
acts or omissions of the Landlord, its agents, employees or contractors.
(e) Tenant will not generate, store, dispose of, or otherwise handle any
hazardous substances on the premises in violation of any applicable
environmental or hazardous substance law.
(f) Tenant will promptly inform Landlord of any environmental releases of
hazardous substances that are reportable to governmental authorities under
applicable
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<PAGE>
environmental or hazardous substances laws. Tenant covenants and agrees that no
asbestos, asbestos-containing materials, or PCB compounds will be used in the
development of, or any alteration or additions to, any portion of the premises.
Tenant may undertake environmental testing during term of the within lease.
(g) Tenant shall indemnify, defend and save harmless Landlord, its
officers, directors, employees, contractors, servants and agents, from and
against all loss, costs, damages, claims, proceedings, demands, liabilities,
penalties, fines and expenses, including without limitation reasonable
attorney's fees, consultants' fees, litigation costs, and cleanup costs,
asserted against or incurred by Landlord, its officers, directors, employees,
contractors, servants and agents at any time and from time to time resulting
from the presence of any hazardous substances on the premises during the term of
this Lease arising after Tenant's taking possession of the premises and
resulting solely from (i) the action or inaction of the Tenant, its officers,
directors, employees, contractors, servants and agents, or (ii) Tenant's
generation, storage, treatment, handling, transportation, disposal or release of
any hazardous substance at or near the premises, or (iii) the violation of any
applicable law governing hazardous substances by Tenant, its officers,
directors, employees, contractors, servants or agents. the indemnities and
duties to defend set forth in this Paragraph shall survive the termination of
this Lease.
(h) not to overload or deface the premises or the building or commit or
suffer any strip or waste thereon, and not to conduct any trade or occupation or
to make any use of the premises or to do any act or thing thereon or in the
buildings that shall create a nuisance or be contrary to any law of the
Commonwealth of Massachusetts or ordinance or by-law for the time being in force
in the City of Cambridge, or which shall be injurious to any person or property,
or that shall make void or voidable any fire insurance thereon or on the
buildings, but proper
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<PAGE>
conduct of Tenant's business shall not be deemed a violation of this covenant;
nor make any alterations, additions or improvements without the consent of the
Landlord, providing however, the Landlord may set forth in its consent
conditions or criteria to be complied with by the Tenant;
(i) not to assign this lease or to make any sublease for the whole or any
part of the demised premises without the prior written approval of the Landlord
which approval shall not be unreasonably withheld or delayed. In the event of
any assignment or sublease of the demises premises, any and all rents payable
under such assignment or sublease may be payable directly to the Tenant;
provided, however, that if the rents and other sums payable or such sub-lease
shall exceed those rents and other sums due hereunder, then the Landlord shall
be entitled to fifty (50%) percent of such overage during the original term of
the lease and all of said overage as to any option period. For purposes of
calculating the excess rent allocable, to a split with Landlord, Tenant will
include in its calculation of costs brokerage, legal, free rent periods,
leasehold improvements made as an inducement to the Subtenant, and any other
transaction costs associated with the sublease. Additionally, Tenant will
include amortization of the original leas6hold improvements using a ten (10)
year life, straight-line depreciation, and an imputed interest rate of twelve
(12%) percent. "Excess rents" is defined as follows: sublease rent, less
transaction costs incurred to obtain Subtenant, less amortization of Tenant's
portion of leasehold improvements. Notwithstanding anything in this Paragraph to
the contrary, the prior approval of the of the Landlord shall not be required
for the assignment of the Lease to any corporation or business entity into or
with which the Tenant is merged or consolidated or to which substantially all of
the Tenant's assets or corporate stock are transferred provided that in any of
such events (i) following any such transfer Tenant has, (or in the case of a
merger or consolidation the successor
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to Tenant has) a creditworthiness adequate to meet its obligations hereunder;
(ii) proof reasonably satisfactory to Landlord of such creditworthiness shall
have been delivered to Landlord prior to the effective date of any such transfer
or transaction; and (iii) in the case of a merger or consolidation, the
successor agrees directly with Landlord, by written instrument in form
reasonably satisfactory to Landlord, to be bound by all the obligations of
Tenant hereunder, including, without limitation, the covenant against further
assignment and subletting.
(j) to permit the Landlord or its agents to examine said premises at
reasonable times, subject to reasonable notice and Tenant's reasonable security
precaution and subject to applicable governmental regulations, if any, and
during the twelve (12) months prior to the expiration of said term to show said
premises to prospective purchasers and tenants, and keep affixed in suitable
places, not obstructing the Tenant's signs or displays, notices for letting or
selling; and
(k) at the expiration or earlier termination of said term Tenant has the
option to remove Tenant's Work and trade fixtures. However, if Tenant opts to
remove any such work and fixtures, it must deliver space in broom-clean
condition, with plumbing, gas, vents, and other utility lines capped off, and
with ceiling, walls and floors patched and repaired where necessary. If Tenant
opts to leave Tenant's Work, it may deliver the space in broom- clean condition.
Notwithstanding the foregoing as to any additional improvements or installations
to be made by Tenant after its initial occupancy, Tenant shall submit plans for
any such improvements and installations to Landlord. Landlord shall, within
fifteen (15) days of receipt of such plans, notify Tenant if it is required to
remove such improvements and installations at the termination of the lease. If
Tenant is so informed within the fifteen (15) day period, said removal shall be
required at end of lease.
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<PAGE>
VII. (a) In case of taking by eminent domain of TWENTY-FIVE (25%) PERCENT
or more of the total floor area of the building or buildings at the time on the
premises the Tenant may by notice to. the Landlord within thirty (30) days
thereafter terminate this Lease as of the date when the Tenant is required to
vacate the portions taken. In case of taking by eminent domain of said premises
or any portion thereof, if this Lease is not so terminated, the Landlord shall
repair or rebuild any building presently on said premises so as to restore the
same or what may remain thereof in case of partial taking, as nearly as possible
to its condition prior to the taking, the work to be commenced within four (4)
weeks after the date when the Tenant is required to vacate the portions taken
and to be completed with due diligence, except for delays due to governmental
regulations, unusual scarcity of or inability to obtain labor or materials, or
any other cause beyond Landlord's control. The Landlord reserves and excepts all
rights to damages to said premises and buildings and the leasehold hereby
created accruing in case of taking or act of public or other authority, and the
Tenant hereby grants to the Landlord all of the Tenant's rights to such damages
and agrees to deliver such further instruments of assignment thereof as the
Landlord from time to time may reasonably request. Tenant, however, reserves its
rights to damages for trade fixtures and relocation expenses. The Landlord
shall, however, pay to the Tenant from such damages when received the amounts,
if any, by which the same were increased by reason of inclusion therein of any
award for fixtures and equipment which Tenant is entitled to remove.
During such repair or rebuilding, a just proportion of the rent shall be
abated until what remains of the premises shall have been restored to proper
condition for use and occupation and thereafter a just proportion of the rent
according to the nature and extent of the taking shall be permanently abated.
The Landlord and Tenant hereby agree that if they are unable to agree
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<PAGE>
upon the amount of reduction in rent because of such taking, a board of three
appraisers shall be appointed, one by each party and the third by the two so
chosen and the findings of such board of appraisers shall bind each party. The
expense of such appraisal, including counsel fees, shall be shared equally by
each party.
(b) In case said building is damaged by fire or other casualty or action
of public authority in consequence thereof or incidents of war, earthquake,
action of the elements, explosion or otherwise, the Tenant shall promptly notify
the Landlord. If the premises are so badly damaged that they cannot be restored
and made tenantable by the exercise of reasonable diligence within one hundred
and twenty (120) days after the casualty, or if they are damaged to the extent
of twenty-five (25%) percent or more of the insurable value, then the Tenant may
terminate this Lease upon ten (10) days' notice in writing given to the Landlord
within thirty (30) days after such damage occurs or, at Tenant's option, thirty
(30) days after advice from Landlord regarding cost and time of repair,
whereupon the Tenant shall surrender the premises, and the Landlord shall refund
to the Tenant any unearned rent paid in advance by the Tenant, calculated from
the date of the damage. However, if the Tenant shall be in default as to a
specific dollar amount, which is less than the amount that would otherwise be
returned to the Tenant, the said amount shall be set off against the funds to be
returned. If the Lease is not so terminated or if the premises are damaged to a
lesser extent, the Landlord will repair the damaged premises and the buildings
thereon as nearly as reasonably possible to its or their condition prior to such
damage, the work to be commenced within thirty (30) days and completed with due
diligence, except for delays due to governmental regulation or unusual scarcity
of or inability to obtain labor or materials, and thereupon shall be entitled,
to the extent of the cost of repairs, to the proceeds of any insurance against
such damage. In case the premises or the buildings thereon are rendered
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<PAGE>
untenantable by such damage, a just proportion of the rent hereinbefore reserved
according to the nature and extent of the injury shall be abated until the
repair or rebuilding is completed, and the premises shall have been put in
proper condition for use and occupation. The Landlord and Tenant hereby agree
that if they are unable to agree upon the amount of reduction in rent because of
such damage a board of three appraisers shall be appointed, one by each party
and the third by the two so chosen, and the findings of such board of appraisers
shall bind each party. The expense of such appraisal shall be shared equally by
each party.
Notwithstanding the foregoing provisions of this Lease, if the premises
shall be substantially damaged by fire or other casualty or action of public
authority in consequence thereof or incidents of war, earthquake, action of the
elements, explosion or otherwise, within twelve (12) months of the expiration of
the term or any extension hereof, either party may terminate this Lease as of
the date of such damage, by written notice to the other within ten (10) days of
the occurrence of such damage, except that if, prior to or within thirty (30)
days after such damage during the original term of this Lease the Tenant, having
the right do so, shall have elected to extend, pursuant to paragraph IV above,
the provisions of this paragraph shall not apply.
VIII. The Landlord and Tenant hereby further agree that:
(a) if any sum or sums due as rent as herein provided shall be unpaid
when due and shall remain unpaid for a period of ten (10) days after notice in
writing of such default has been given by the Landlord to the Tenant; provided,
however, if the Landlord has on three (3) separate occasions during the term of
the Lease been required to give Tenant such written notice of failure to pay
rent and is thereafter again required to give such notice to Tenant, then Tenant
shall be given no further opportunity to cure such default and this Lease shall
immediately
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<PAGE>
terminate and Landlord may thereafter enter in and upon said Leasehold and
repossess the same; or
(b) if the Tenant or Landlord shall violate or be in default in its
observance or performance of any covenant, condition and agreement herein
contained other than default in the payment of rent, and shall have failed to
remedy such violation or default within thirty (30) days after notice in writing
of such breach or default has been given by one to the other (or, if the nature
of such breach or default is such that it cannot be remedied within such thirty
(30) day period, if the defaulting party has failed to commence remedial action
within said thirty (30) days and thereafter continued such action with due
diligence); or
(c) if the estate hereby created shall be taken on execution or by other
process of law in any action against the Tenant; or
(d) if the Tenant shall be declared a bankrupt or insolvent according to
law (or if the Tenant makes any assignment for the benefit of creditors); or
(e) if a receiver shall be appointed of the Tenant's property and not be
removed within sixty (60) days, then, and in any such case (notwithstanding any
license of any former breach or waiver of the benefit hereof or consent in a
former instance):
Then the non-defaulting party, may, as applicable, at its option,
terminate this Lease or, as the case may be, the Landlord shall have the right
thereafter, while Tenant's default continues, to enter into and upon the
premises or any part thereof in the name of the whole, and repossess the same as
of its former estate (after notice and in accordance with applicable law) , and
expel the Tenant and those claiming through or under it and remove its or their
effects without being deemed guilty of any manner of trespass, without prejudice
to any other remedies, and thereupon this Lease shall terminate.
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<PAGE>
In case of such termination by Landlord or. termination by legal
proceeding by Landlord for default, the Tenant will pay to the Landlord sums
equal to the rent reserved hereunder (as hereinabove defined) at the same time
and in the same installments as herein provided, or if the premises hereby
demised shall have been relet, for which the Landlord will use its reasonable
efforts to accomplish, sums equal to the excess of said rent reserved hereunder
over the sums actually received by the Landlord, except that there shall be
first credited against the obligations of Tenant under this subdivision any sum
actually paid by Tenant to Landlord.
If the Tenant or Landlord shall default under provision VIII(b)
above, the Landlord or Tenant, as applicable, without being under any obligation
to do so and without thereby waiving such default or any of its other remedies
hereunder, at its sole option, may remedy such default for the account and at
the expense of the Tenant or Landlord, as applicable. Any such sums shall be
paid to the Landlord by the Tenant as additional rent, or in the event of Tenant
payments to cure a Landlord default, the Tenant may deduct same from rental due
and owing by way of set-off to the extent of such payments.
IX. Tenant shall be responsible, with respect to the demised premises of
which the within Leasehold is a part for the cost of:
(a) comprehensive general liability insurance covering all Tenant's
general liability obligations under this lease, with limits of
$3,000,000/$5,000,000 on personal injury or death and limits of $500,000.00 on
property damage in a company qualified to do business in Massachusetts, insuring
Landlord as well as Tenant against injury to persons or property.
(b) insurance upon the premises against fire and loss or damage by
other risks embraced by Extended Coverage Endorsement, so called, naming
Landlord as insured, in an amount equal to the full insurable value of the
premises with insurance companies authorized to
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<PAGE>
do business in Massachusetts. Such policies may contain an eighty (80%) percent
co-insurance clause.
(c) Landlord shall be named in all insurance policies.
(d) The cost of said insurance shall be paid by the Tenant within ten
(10) days after presentation of bill from Landlord to Tenant setting forth the
cost of the aforesaid insurance, whether such insurance shall be paid annually
or in monthly installments.
(e) Landlord agrees to maintain the liability and casualty insurance
referred to in the within Section IX.
(f) Each of the parties hereto hereby waives any and all rights of
recovery against the other or against any other tenant or occupant of the
building, or against the officers, employees, agents, representatives, customers
and business visitors of such other party of such other tenant or occupant of
the building, for loss of or damage to such waiving party of its property or the
property of others under its control, arising from any cause insured against
under the standard form of fire insurance policy with all permissible extensions
and endorsements covering additional periods or under any other policy of
insurance carried by such waiving party in lieu thereof. Parties shall obtain
waiver of subrogation endorsements. Such waivers shall be effective only so long
as the same is permitted by each party's insurance carrier without the payment
of additional premium.
X. (a) No consent or waiver, express or implied, by the Landlord or the
Tenant to or of any breach of any agreement or duty of the other shall be
construed as a consent or waiver of any other breach of the same or any other
agreement or duty. This agreement is the entire agreement between the parties
and modification or alteration of this Lease shall be binding unless signed by
both parties. This Lease shall be governed and construed in accordance with
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<PAGE>
the laws of the Commonwealth of Massachusetts, and if any provisions shall to
any extent be invalid, the remainder shall not be affected.
(b) The following addresses for communications and payments, unless
otherwise specified, by one party addressed to the other shall be sufficient:
for the Landlord: 25 Moulton Street
Cambridge, MA 02139
for the Tenant: 33-45 Moulton Street
Cambridge, MA 02139
Any communication, except payment of rent, which is not delivered personally and
receipted, shall be deemed duly served if in writing, mailed by certified mail
so addressed, postage prepaid, return receipt requested and such notices shall
be deemed-given when posted by the U.S. Postal Service. Prior to occupancy,
------------------
notice to the Tenant shall be sent to: 1 Kendall Square, Building 600, 2nd
floor, Cambridge, MA 02139.
(c) The obligations and benefits of this Lease shall run with the
land and this Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; except that the
Landlord shall be liable hereunder only for obligations and liabilities accruing
or arising while, or out of facts or situations occurring while, the Landlord is
the owner of the premises, and for indemnification's, obligations and
liabilities incurred by the Landlord under or pursuant to the Lease provisions.
(d) The Landlord agrees that the Tenant, upon paying rents and all
other charges herein provided and performing the Tenant's agreements "hereunder,
shall lawfully and quietly hold, occupy and enjoy said demised premises during
the term of this Lease or until the same is terminated as herein provided, and
neither the Lease nor Tenant's right to remain in exclusive possession shall be
affected or disturbed by reason of transfer of title to premises through
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<PAGE>
foreclosure or otherwise or by reason of any Landlord default under any mortgage
or deed of trust.
(e) This Lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate to all mortgages which now or hereafter affect the
premises, whether or not such mortgages shall also cover other lands and/or
buildings and/or leases, to each and every advance made hereafter to be made
under such mortgages, and to all renewals, modifications, replacements and
extensions of such leases and such mortgages and all consolidations of such
mortgages, provided that Landlord obtains a subordination-
nondisturbance-attornment agreement agreed to by such mortgagee in the form
attached hereto.
Landlord hereby represents and warrants to Tenant, as of the date of
this Lease and as of the Commencement Date, that (i) Landlord is not in default
under any mortgage which encumbers the premises, (ii) this Lease and the
permitted uses hereunder do not and will not constitute a violation of any such
mortgage, and (iii) all consents or approvals required by the terms of any such
mortgage for this Lease have been duly obtained by the Landlord.
XI. The Tenant shall have the right, at its expense, to install a sign or
signs on the demised premises at such locations as may be reasonably necessary
to make known the location of its business. Tenant shall obtain written consent
of Landlord before erecting any sign, which consent shall not be unreasonably
withheld. Upon termination of this Lease, Tenant shall promptly remove the said
signs at its own expense and repair any damage to premises caused by the signs.
XII. Landlord and Tenant represent and warrant to each other that the only
broker in this transaction is SPAULDING & SLYE, and THE COLUMBIA GROUP, INC. and
that Landlord will pay the brokerage commission due said brokers as per the
agreement between the
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<PAGE>
Landlord and said brokers. Landlord and Tenant agree to defend and indemnify
each other against any claims, losses, damages. Liabilities or expenses
(including reasonable attorney's fees) arising out of the breach of any of their
respective foregoing representations.
XIII. The Tenant shall deliver to the Landlord within the time of the
execution of the within Lease the sum of TWENTY-ONE THOUSAND TWO HUNDRED AND
FIFTY and XX/100 ($21,250.00) DOLLARS as a deposit to secure performance of all
covenants and payment of all sums due under the terms of the within Lease or the
extensions or renewals thereof. Said deposit is to be held in an interest-
bearing account. At the conclusion of the Lease term or any extension thereof,
Landlord shall be accountable to the Tenant regarding said security deposit and
interest earned thereon.
XIV. The parties agree to execute a Notice of Lease in recordable form
which Tenant may record in the Middlesex South District Registry of Deeds.
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<PAGE>
WITNESS the execution hereof, in duplicate, under seal, all as of the day
and year first above written.
MOULTON REALTY TRUST MOULTON REALY CORPORATION
/s/ Michael J. Spinelli /s/ Michael Spinelli
- ------------------------------------- ---------------------------------
Michael Spinelli, President
Michael J. Spinelli, Jr., Trustee
/s/ Peter A. Spinelli /s/ Carol A. Hickey
- ------------------------------------- ---------------------------------
Carol A. Hickey, Treasurer
Peter A. Spinelli, Trustee
/s/ Carol A. Hickey
- -------------------------------------
Carol A. Hickey, Trustee
ONTOGENY, INC.
/s/ William Helman
- -------------------------------------
President
/s/ William Helman
- -------------------------------------
Treasurer
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<PAGE>
SCHEDULE A
----------
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<PAGE>
SCHEDULE B
----------
The land, with the buildings and improvements thereon, situated in
Cambridge, Middlesex County. Massachusetts, now known as and numbered 33 and 45
Moulton Street, and bounded and described as follows:
EASTERLY by Moulton Street, 256.14 feet;
SOUTHERLY by Lots A and B shown on a plan recorded with said
Deeds in Book 8108, Page 502, 310.00 feet;
EASTERLY by said Lot B, 34.00 feet;
SOUTHERLY by the parcel marked "Lot 40,265 S.F., shown on a plan
recorded with said Deeds in Book 8687, Page 456,
133.50 feet, more or less;
WESTERLY by land of owners unknown, 154.07 feet;
NORTHWESTERLY by land of owners unknown, by three lines together
measuring 171.49 feet;
said last two bounds being shown on said plan in Book 8687, Page 456.
EASTERLY by the westerly end of a Right of Way shown on a plan
recorded with said Deeds in Book 8715; Page 391; and
NORTHERLY by the southerly si6eline of said Right of Way, 260.00
feet, more or less.
Together with the right to use said Right of Way for all purposes for
which ways are generally used in the City of Cambridge in common with others
legally entitled.
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<PAGE>
SUBORDINATION NONDISTURBANCE AND ATTORNMENT AGREEMENT
-----------------------------------------------------
THIS AGREEMENT dated as of the ______ the day of ____________, 1995,
between, BELMONT SAVINGS BANK, a banking association located at 2 Leonard
Street, Belmont, Massachusetts 02178 ("Mortgagee"), and ONTOGENY, INC., a
---------
Delaware corporation having an address of. ("Tenant").
------
W I T N E S S E T H:
WHEREAS, under that certain lease dated as of "Lease", a Notice of the
lease being recorded with Middlesex South District Registry of Deeds (the
"Registry") as shall be entitled to occupy, use possess and enjoy the Demised
--------
Premises and exercise all rights granted under the lease in respect of the
Demised Premises during the entire term of the Lease, including any extended or
renewal term (s), provided that (a) the lease shall not have been modified,
without Mortgagee's consent, to the extent that any such modification results in
(i) (a reduction of the term of the lease or a material reduction in the amount
of rent or other charges payable by Tenant thereunder, (ii) a material
imposition of, or material increases in, any obligation of Landlord under the
leases, or (iii) any impairment of Mortgagee's security therein; and (b) Tenant
shall not have paid rent or any additional rent more than one month in advance
except as otherwise provided in the lease or as expressly approved Mortgagee.
4. Mortgagee further agrees that upon succession to the interest of
Landlord under the Lease by foreclosure, deed in lieu of foreclosure or
otherwise, Mortgagee shall perform and observe all obligations of Landlord under
the Lease. Mortgagee agrees that consent or approval by Landlord arising out of
the lease and granted prior to the succession by Mortgagee to the interest of
Landlord shall be binding on Mortgagee.
5. Tenant hereby agrees that if all of the interests of Landlord under the
lease shall be transferred by reason of foreclosure or other proceedings for
enforcement of the Mortgage, Mortgagee or other Purchaser, under all of the
terms, covenants and conditions of the Lease for the balance of the term thereof
remaining and any extension term(s) if exercised, with the same force and effect
as if the Mortgagee or Purchaser were Landlord under the. Lease, and Tenant does
hereby agree to attorn to and promptly execute and deliver an instrument that
Mortgagee or an Purchaser may reasonably request to evidence such attornment,
but such shall be effective upon such transfer without any other or further
document or instrument evidencing or confirming.
6. Mortgagee agrees that in the event of fire or other casualty or a Taking
and provided that the lease has not been terminated as a result of such fire,
casualty or Taking, Mortgagee shall promptly remit to Tenant any award received
as a result of a Taking for the reconstruction and restoration of the demised
Premises in accordance with the Lease.
7. Mortgagee shall, upon request of Tenant from time to time, execute,
acknowledge and deliver recognition and nondisturbance agreements with Tenant
sublessees which have been approved by Landlord in accordance with the terms of
the lease, providing that the foreclosure of the Mortgage shall not affect any
such sublease as long as the sublessee thereunder shall not be in default of its
obligations (beyond applicable grace periods) under such sublease at the time
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<PAGE>
of foreclosure and that, so long as such sublessee shall not be so in default
and shall enter into an attornment agreement with Mortgagee if requested, upon
foreclosure of the Mortgage and termination of the Lease, Mortgagee shall
recognize the sublease and the sublessee's rights thereunder.
8. This Agreement contains the entire agreement between the parties hereto
and cannot be changed, modified, waived or cancelled except by agreement in
writing executed by the party against whom enforcement of such change,
modification, waiver or cancellation is sought.
9. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, specifically
including, but not limited to, any purchaser of the interest of Landlord under
the Lease at or by foreclosure of the mortgage (or sale pursuant to power of
sale) or by transfer of the Demised premises in lieu of foreclosure. This
Agreement shall also inure to the benefit of any Leasehold Mortgagee and
Tenant's sublessees.
EXECUTED UNDER SEAL AND DELIVERED as of the day and year first above
written.
MORTGAGEE:
---------
BELMONT SAVINGS BANK
By:
---------------------------------
TENANT:
------
ONTOGENY, INC.
By:
---------------------------------
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<PAGE>
COMMONWEALTH OF MASSACHUSETTS
_________________________, ss. November ___, 1995
On this ___ the day of November, 1995, personally appeared before me the
above named __________________________ of ONTOGENY INC., and acknowledged the
foregoing to be the free act and deed of Ontogeny, Inc.
-------------------------------------
Notary Public
My Commission Expires:
---------------
COMMONWEALTH OF MASSACHUSETTS
________________________ , ss. November ___, 1995
On this ___ the day of November, 1995, personally appeared before me the
above named __________________________ of BELMONT SAVINGS BANK, and acknowledged
the foregoing to be the free act and deed of said banking association.
-------------------------------------
Notary Public
My Commission Expires:
---------------
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<PAGE>
ADDENDUM TO LEASE AGREEMENT DATED November 16, 1995 ("Lease") by and
between MICHAEL J. SPINELLI, JR., PETER A. SPINELLI, AND CAROL A. HICKEY, AS
TRUSTEES OF MOULTON REALTY TRUST UNDER A DECLARATION OF TRUST DATED DECEMBER
30, 1985 AND RECORDED WITH MIDDLESEX SOUTH REGISTRY OF DEEDS IN BOOK 16700, PAGE
487 AND MOULTON REALTY CORPORATION, a Massachusetts corporation (collectively,
"Landlord"), each having a principal place of business at 25 Moulton Street,
Cambridge, MA and ONTOGENY, INC., a Delaware corporation ("Tenant"). Unless
expressly stated to the contrary any capitalized terms used in this Addendum
shall have the same meaning as such terms have in the Lease. In the event of any
conflict between the terms and provisions of this Addendum and the terms and
provisions of the Lease, this Addendum shall govern and control. This Addendum
consists of paragraphs 1-7 below, which are hereby incorporated and made a part
of the Lease as though fully set forth therein.
RECITALS
A. Landlord and Tenant have entered into the above-captioned Lease.
B. Tenant has arranged for the extension of certain credit and/or
lease facilities (the "Facility") by LIGHTHOUSE CAPITAL PARTNERS, L.P., a
Delaware limited partnership ("Lessor"), which will be used to finance certain
equipment, tenant improvements, fixtures, parts, software, components or
personal property at the Premises, as more particularly described in a certain
Master Equipment Lease Agreement No. 123 dated November 7, 1995, and all
schedules, supplements, riders, addenda and amendments, as may be amended and
supplemented from time to time (singly, severally and collectively, the
"Equipment").
C. Landlord and Tenant acknowledge that the extension of the Facility
is beneficial to each party and to the use and occupancy of the Premises by
Tenant.
D. Lessor is willing to extend the Facility to Tenant provided it
either retains (a) a first lien in the Equipment or (b) full ownership interest
in the Equipment, as the case may be, and obtains certain rights pursuant to the
Lease.
E. To facilitate the extension by Lessor of the Facility to Tenant,
Landlord has executed concurrently herewith a Landlord's Waiver and Consent
respecting the Equipment and Landlord and Tenant now desire to amend the Lease
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant agree as follows:
1.
<PAGE>
AGREEMENT
1. The following language is added at the end of the Article VI (i):
Notwithstanding anything in the Lease to the contrary, Landlord agrees that
Tenant may assign this Lease to Lessor without Landlord's consent, and
Lessor may thereafter assign or sublease the premises without Landlord's
consent, provided that (i) any subsequent assignee shall assume in writing
the obligations of Tenant under the Lease; (ii) the use of the Premises by
the assignee or subtenant is permitted by the use provision in Article I
(b) of the Lease and does not violate any applicable governmental rule,
ordinance or regulation; (iii) the assignee or subtenant has a net worth
equal to or greater than the net worth of Tenant as of the Lease
commencement date; and (iv) the assignee or subtenant is in Landlord's
reasonable opinion of reputable or good character. Until (A) any and all
obligations of Tenant to Lessor pursuant to the Facility have been
satisfied in full, (B) all reasonable costs incurred by lessor to assign or
sublease the premises or any portion thereof, including but not limited to
tenant improvements, rent concessions, brokerage fees and legal fees, (C)
the costs incurred by Lessor to restore the premises to a tenantable
condition, and (D) Lessor's actual costs incurred to cure Tenant's defaults
under the Lease or to enter into a Substitute Lease (as defined in the
Landlord's Waiver and Consent), have been totally recovered (collectively,
the "Obligations"), Landlord shall have no right to any rent, sums or other
economic consideration paid by any assignee or sublessee of Lessor which
exceeds the rent and other sums payable by Tenant to landlord under the
Lease. Once the Obligations to Lessor have been satisfied in full, any
excess rent shall be split equally between Landlord and Lessor, however
Lessor shall first be entitled to deduct therefrom all reasonable costs of
assigning or subleasing the Premises or any portion thereof, including but
not limited to brokerage fees, rent concessions, tenant improvements and
legal fees.
2. The following language is added at the end of Article VIII as
subparagraph (f):
Landlord further agrees to provide Lessor written notice of any breach,
default " or event of default under the Lease (each a "Default Notice")
simultaneously with the giving of notice of the same to Tenant or, if no
such notice is required under the Lease, at least thirty (30) days prior to
the date Landlord would be entitled to terminate the Lease. Each such
notice shall be sent to the address of Lessor set forth above or such other
address as Lessor may from time to time provide to Landlord, and shall be
deemed delivered (i) in the case of notice by letter, five (5) business
days after deposited in the United States mail registered and return
receipt requested, (ii) in the case of notice by overnight courier, two (2)
business days after delivery to such courier and (iii) in the case of
notice given by telex or telecommunication, when given or sent with
electronic confirmation of receipt. During any time period when Tenant is
in default under the Lease, lessor shall have the option, but not the
obligation, to cure any such default.
Landlord shall accept such cure provided it occurs no later than 45 days
after Lessor has received the relevant Default Notice or within fifteen
(15) days after the time given to
2.
<PAGE>
Tenant to cure any default set forth in the Default Notice, whichever is
later ("Lessor's Cure Period"). Landlord agrees not to terminate the Lease
until the expiration of Lessor's Cure Period. Landlord shall accept
Lessor's cure as fully as if Tenant had fully performed its obligation
under the Lease. Upon curing any such default, Lessor shall be subrogated
to the rights of Landlord against Tenant for the default which is cured,
and, as between Landlord and Tenant, such cured defaults shall no longer
exist. Landlord reserves all of its rights to proceed against Tenant as to
any default not covered by Lessor as herein provided.
3. The following language is added as Article XV of the Lease:
Notwithstanding anything to the contrary contained in the Lease, Landlord
agrees that Tenant shall have the right to enter into the Facility and take
all collateral actions required in connection therewith. Landlord further
agrees that Landlord has no right, title or interest in the Equipment and
that Lessor shall have the right, subject to the terms of the Facility, but
not the obligation, to remove the Equipment at any time during the term of
the Lease or at the expiration or termination thereof, provided that Lessor
shall promptly repair any damage to the premises caused by such removal.
Landlord shall execute and deliver to Lessor any documentation reasonably
required in connection with the Facility, including but not limited to (i)
a Landlord's Waiver, and (ii) a Landlord Estoppel Certificate, in the forms
attached hereto as Exhibit A.
4. The following language is added as Article XVI of the Lease:
Notwithstanding anything in the Lease to the contrary, as long as the
Facility is in effect and Tenant's obligations thereunder have not been
fully satisfied, Tenant shall not be entitled to terminate the Lease
without first securing the written consent of Lessor to Tenant's
termination of the Lease.
5. The following language is added as Article XVI of the Lease:
During the term of the Lease, Lessor shall, with reasonable advance notice,
have the right to enter upon the premises to inspect the Equipment. Lessor
shall exercise its rights hereunder in a manner that minimizes any
interference with Tenant's business.
6. The following language is added as Article XII of the Lease:
Lessor is a third party beneficiary of the agreements and covenants
contained in this Lease and shall have the right to enforce the terms
hereof against Landlord and Tenant.
7. This Addendum to Lease shall remain in force and effect for as long
the Facility shall be in effect and until Tenant's obligations to
Lessor under the Facility have been fully satisfied and performed.
3.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum to
Lease under seal as of the date first above written.
LANDLORD:
MOULTON REALTY TRUST
/s/ Michael J. Spinelli, Jr.
-----------------------------------------
Michael J. Spinelli, Jr., Trustee
/s/ Peter A. Spinelli,
-----------------------------------------
Peter A. Spinelli, Trustee
/s/ Carol A. Hickey,
-----------------------------------------
Carol A. Hickey, Trustee
MOULTON REALTY CORPORATION
By:/s/ Michael J. Spinelli, Jr.
--------------------------------------
Michael J. Spinelli, Jr.,
Its President
Hereunto duly authorized
By:/s/ Carol A. Hickey
--------------------------------------
Carol A. Hickey
Its Treasurer
Hereunto duly authorized
TENANT:
ONTOGENY, INC.
By:/s/ William Helman
--------------------------------------
William Helman
Its: President
4.
<PAGE>
By:/s/ William Helman
--------------------------------------
William Helman
Its: Treasurer
Lessor's address for notice purposes:
100 Drake's Landing Road, Suite 260
Greenbrae, CA 94904
5.
<PAGE>
EXHIBIT A
---------
Landlord Estoppel Certificate
Lighthouse Capital Partners, L.P.
100 Drakes Landing Road, Suite 260
Greenbrae, California 94904
Attn: Contract Administration
Re: Lease of certain premises at 33 and 45 Moulton Street, Cambridge,
Massachusetts (the "Premises"), by and between Michael J. Spinelli, Jr.,
Peter A. Spinelli, and Carol A. Hickey, as Trustees of Moulton Realty Trust
under a Declaration of Trust dated December 30, 1985 and recorded with
Middlesex South Registry of Deeds in Book 16700, Page 487 and Moulton
Realty Corporation, a Massachusetts corporation (collectively, "Landlord"),
each having a principal place of business at 25 Moulton Street, Cambridge,
MA and Ontogeny, Inc., a Delaware corporation ("Tenant"), dated as of Nov.
16, 1995, (the "Lease")
Ladies/Gentlemen:
Landlord understands that Lighthouse Capital Partners, L.P. ("Lessor") may be
extending certain equipment, personal property and tenant improvement credit
and/or lease facilities to Tenant pursuant to an Agreement dated November 7,
1995 (collectively, the "Lighthouse Agreement"), as more particularly described
therein (singly, severally and collectively, "Equipment").
Landlord hereby certifies to Lessor the following information and agrees that
Lessor may rely upon the same in extending the aforementioned credit and/or
lease facilities and in entering into the Lighthouse Agreement:
1. The Lease is now in full force and effect, there has been no default
thereunder on the part of the undersigned, nor has any event occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default by Landlord, and the Lease is a valid and binding
agreement of Landlord.
2. A true, correct and complete copy of the Lease and Addendum thereto are is
attached hereto as Exhibit A and there have been no amendments, alterations
or modifications thereto. The Lease is the entire agreement between
Landlord and Tenant pertaining to the Premises.
3. The term of the Lease will commence on March 1, 1996, will expire on
February 28, 2006, subject to the terms of the Lease.
4. Tenant is in full and complete possession of the Premises, such possession
having been delivered by Landlord and having been accepted by Tenant.
Tenant has not sublet, assigned or hypothecated Tenant's leasehold
interest.
1.
<PAGE>
5. (To be completed after Commencement Date)
6. Landlord has not advanced any funds for the account of Tenant to perform
any obligation which Tenant is obligated to perform under the terms of the
Lease.
7. There exists no default of Tenant under the Lease, nor has any event
occurred which, with the passage of time or the giving of notice, or both,
would constitute a default by a Tenant under the Lease, and the undersigned
has not given notice to Tenant concerning any alleged default on the part
of Tenant under the Lease.
8. Tenant is currently obligated to pay annual rental of $255,000.00 in
monthly installments of $21,250.00 per month. Tenant's pro rata share of
real estate taxes and operating expenses for the Building is 73.2% and for
the parking area is 15.05%. All rent and other charges required to be paid
by Tenant under the Lease have been duly and timely paid.
9. Tenant has made no agreement with Landlord or any agent, representative or
employee of Landlord concerning free rent, partial rent, rebate or rental
payments or any other type of rental or other concession except as
expressly set forth in the Lease. Tenant does not now have any defenses or
hold any claims against Landlord that might be asserted, set off, or
credited against future accruing rents.
10. Tenant has no option or preferential right to purchase all or any part of
the Premises (or the real property of which the Premises are a part) nor
any right or interest with respect to the Property other than as Tenant
under the Lease.
11. Tenant has no option, right of first offer or right of first refusal to
lease or occupy any other space within the Property other than as provided
in the Lease, and Tenant has no right to renew or extend the terms of the
Lease other than as provided in the Lease.
12. This Estoppel Certificate shall not be deemed to alter or amend any of the
terms, Lease covenants or obligations of the Lease except to the extent
specifically set forth herein.
13. The undersigned affirms for the benefit of Lessor that each of said
representations is true, correct and complete as of the date hereof.
This Estoppel Certificate may be relied on by Lessor, its successors and
assigns, and any other party who acquires an interest in the Premises in
connection with the Lighthouse Agreement. The statements made herein shall be
binding upon us, our heirs, executors, successors and assigns. The officers or
persons executing this letter have been duly empowered to do so on behalf of
Landlord.
2.
<PAGE>
Executed under seal as of November 16, 1995.
LANDLORD:
MOULTON REALTY TRUST
/s/ Michael J. Spinelli
------------------------------------------
Michael J. Spinelli, Jr., Trustee
/s/ Peter A. Spinelli
------------------------------------------
Peter A. Spinelli, Trustee
/s/ Carol A. Hickey
------------------------------------------
Carol A. Hickey, Trustee
MOULTON REALTY CORPORATION
By:/s/ Michael J. Spinelli
---------------------------------------
Michael J. Spinelli, Jr.,
Its President
Hereunto duly authorized
By:/s/ Carol A. Hickey
---------------------------------------
Carol A. Hickey
Its Treasurer
Hereunto duly authorized
3.
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (this "Amendment") is entered into by and
between Michael J. Spinelli, Jr., Peter A. Spinelli, and Carol A. Hickey,
Trustees of Moulton Realty Trust under a Declaration of Trust dated December 30,
1985 recorded with Middlesex South Registry of Deeds in Book 16700, Page 487,
and Moulton Realty Corporation, owner of the property located at 51 Moulton
Street, Cambridge, Massachusetts, both having a principal place of business at
25 Moulton Street, Cambridge, County of Middlesex, Massachusetts 02139
(hereinafter called the "Landlord"), and Ontogeny, Inc., a corporation duly
organized by law and having an usual place of business in Cambridge, in the
County of Middlesex, Massachusetts (hereinafter called the "Tenant"), effective
as of October 30, 1997 (the "Effective Date").
Reference is hereby made to that certain Lease between Landlord and
Tenant dated November 16, 1995 (as affected by this First Amendment to Lease,
the "Lease").
WHEREAS, Landlord and Tenant wish to amend the Lease on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
that, as of the Effective Date, the Lease is amended as follows:
1. Section III(c) of the Lease is hereby amended such that for the
period during the term of the Lease from and after July 1, 1997, the Tenant
shall pay seventy-nine and 6/10 (79.6%) percent of the real estate taxes levied
against the premises located at 33-45 Moulton Street, Cambridge, Massachusetts;
provided, however, that if either the Tenant or any other party makes
alterations or additions to such premises such that the assessed value of such
premises is subsequently changed, an equitable adjustment (up or down) in such
percentage to be paid by the Tenant shall be made, effective upon such
reassessment.
2. Effective as of May 1, 1997, the premises demised by the Lease and
described in Section I(a) thereof, as shown on Schedule A of the Lease are
hereby modified by adding thereto the area cross hatched on the attached
Schedule A and marked as "Enclosed Area on Loading Dock".
3. Effective as of May 1, 1997, the base rent payable by Tenant pursuant
to Section III(a) of the Lease is hereby changed to be $260,057.50, payable in
monthly installments of $21,671.46.
4. Landlord hereby agrees that any and all work undertaken by the Tenant
in the building through the date hereof has been approved by the Landlord, or to
the extent not previously approved is hereby approved and Tenant is hereby
released from any liability for having not previously received such approval.
5. Landlord hereby acknowledges and agrees that, notwithstanding the
provisions of Section VI(i) of the Lease, Landlord is not entitled to any
payment in connection with the sublease (the "Sublease") dated December 27, 1996
by and between the Tenant and Pentose Pharmaceuticals, Inc. (the "Subtenant");
provided, however, such acknowledgment does not
<PAGE>
apply to any future agreement by the Subtenant to pay any sum in addition to the
amounts set forth in the Sublease.
6. Landlord and Tenant acknowledge that they are in continuing
discussions with respect to the exact amount Tenant shall pay Landlord in
connection with management of the premises and that they will continue to
negotiate the same in good faith.
7. Landlord acknowledges that not all of the parking spaces to be
provided to the Tenant pursuant to Section I(c) of the Lease have been properly
marked and drained in a manner to make such parking spaces accessible to Tenant,
and Landlord agrees to promptly and diligently prosecute all necessary actions
to so mark and provide drainage. In the event that such parking spaces have not
been so marked or appropriate drainage facilities have not been installed on or
before March 1, 1998, then, in addition to any other rights that the Tenant may
have under the Lease, until such default has been remedied, Tenant shall not be
required to make the additional payments under Section III(a) of the Lease
called for by Section 3 of this Amendment, (i.e., $$21.46 per month).
----
Except as otherwise modified hereby, Landlord and Tenant hereby ratify and
affirm the continued effectiveness of the Lease.
EXECUTED as a sealed instrument, as of the date first above written.
<TABLE>
<CAPTION>
<S> <C>
MOULTON REALTY TRUST MOULTON REALTY CORPORATION
/s/ Michael J. Spinelli, Jr. By: /s/ Michael Spinelli, President
- ---------------------------------------------- ----------------------------------------------
Michael J. Spinelli, Jr., Trustee Michael Spinelli, President
/s/ Peter A. Spinelli By: /s/ Carol A. Hickey, Treasurer
- ---------------------------------------------- ----------------------------------------------
Peter A. Spinelli, Trustee Carol A. Hickey, Treasurer
/s/ Carol A. Hickey
- ----------------------------------------------
Carol A. Hickey, Trustee
ONTOGENY, INC.
By: /s/ George A. Eldridge
------------------------------------------
Vice President
</TABLE>
-2-
<PAGE>
The undersigned, Belmont Savings Bank, holder of a mortgage encumbering the
premises demised to Tenant and party to a Subordination Nondisturbance and
Attornment Agreement dated November 16, 1995 with the Tenant and Lighthouse
Capital Partners, L.P., holder of a Mortgage and Security Agreement (Leasehold)
encumbering the leasehold estate of Tenant dated November 16, 1995, each hereby
consent to and approve of the foregoing First Amendment to Lease
BELMONT SAVINGS BANK
By:_____________________________________
Name:________________________________
Its:_________________________________
LIGHTHOUSE CAPITAL PARTNERS, L.P.
By:_____________________________________
Name:________________________________
Its:_________________________________
-3-
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease (this "Amendment") is entered into by and
between Michael J. Spinelli, Jr., Peter A. Spinelli, and Carol A. Hickey,
Trustees of Moulton Realty Trust under a Declaration of Trust dated December 30,
1985 recorded with Middlesex South Registry of Deeds in Book 16700, Page 487,
and Moulton Realty Corporation, owner of the property located at 51 Moulton
Street, Cambridge, Massachusetts, both having a principal place of business at
25 Moulton Street, Cambridge, County of Middlesex, Massachusetts 02139
(hereinafter called the "Landlord"), and Ontogeny, Inc., a corporation duly
organized by law and having a usual place of business in Cambridge, in the
County of Middlesex, Massachusetts (hereinafter called the "Tenant"), effective
as of December 22, 1998 (the "Effective Date").
Reference is hereby made to that certain Lease between Landlord and Tenant
dated November 16, 1995 as amended by a First Amendment to Lease dated as of
October 30, 1997 (as affected by this Second Amendment to Lease, the "Lease").
WHEREAS, Landlord and Tenant wish to amend the Lease on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
that, as of the Effective Date, the Lease is amended as follows:
1. In addition to the premises previously described as being demised
by the Lease (the "Original Premises"), the premises thereby demised shall
include approximately 4,230 rentable square feet within 27 Moulton Street,
Cambridge, Massachusetts, as more particularly set forth on Exhibit A attached
hereto and incorporated herein, together with eight (8) additional parking
spaces (two (2) in the rear parking area and six (6) in the front parking area)
within the parking lot currently serving the Original Premises (collectively,
the "Additional Premises"), provided, however, that for the period between the
Effective Date and March 1, 2002, only five (5) parking spaces (two (2) in the
rear parking area and three (3) in the front parking area) shall be included in
the Additional Premises.
2. In addition to the base rent already payable with respect to the
Original Premises, as of the Effective Date, the base rent payable by Tenant
pursuant to Section III (a) of the Lease shall be increased by (a) $57,105.00,
payable in monthly installments of $4,758.75 through February 28, 2002 and (b)
in lieu of the payment described in clause (a), above, and not in addition
thereto, from and after March 1, 2002 through the end of the initial term of the
Lease, $48,222.00, payable in monthly installments of $4,018.50.
3. In addition to the percentage of the real estate taxes levied
against the premises located at 33-45 Moulton Street that Tenant is to pay for
the Original Premises, Tenant shall pay 44% of the real estate taxes levied
against the premises located at 27 Moulton Street, Cambridge, Massachusetts with
respect to the Additional Premises; provided, however, that if either the Tenant
or any other party makes alterations or additions to such premises such that the
assessed value of such premises is subsequently changed, an equitable adjustment
(up or down) in such percentage to be paid by the Tenant shall be made,
effective upon such reassessment.
<PAGE>
4. In addition to payments to be made by Tenant with respect to
insurance, maintenance and other operating expenses as set forth in Section
III(f) of the Lease with respect to the Original Premises, Tenant shall also pay
as additional rent 44% of all costs for insurance, maintenance (other than of a
structural nature and of the roof), management, repairs and snow removal, and
other usual and reasonable operation expenses for the premises located at 27
Moulton Street, Cambridge, Massachusetts, with respect to the Additional
Premises.
5. Regarding the two rear parking spaces located on the Payne
Elevator parcel, the annual charge for the two spaces will be $140.00 per year
payable quarterly. Regarding the there parking spaces located on the 25 Moulton
Street parcel, the annual charge will be $420.00 per year payable quarterly. The
Exhibit attached hereto is a plan showing the parking areas. Regarding the three
additional spaces to be located on 27 Moulton Street which are to be available
on March 1, 2002, the availability shall be contingent upon Davidson &
Associates, Inc. not exercising their option to extend the lease covering the
premises located at 27 Moulton Street, Cambridge. If the said option is not
exercised, three spaces as designated by the Landlord will be available at 27
Moulton Street, there will be no additional charge for taxes, maintenance and
other costs relating to the said parking spaces.
6. The Security Deposit specified in paragraph XIII of the Lease
shall be increased by $4,018.50.
Except as otherwise modified hereby, Landlord and Tenant hereby ratify
and affirm the continued effectiveness of the Lease.
EXECUTED as a sealed instrument, as of the date first above written.
<TABLE>
<CAPTION>
MOULTON REALTY TRUST MOULTON REALTY CORPORATION
<S> <C>
By: /s/ Carol A. Hickey By: /s/ Michael Spinelli
-------------------------------- ----------------------------------------
Carol A. Hickey, Michael Spinelli, President
Managing Trustee
By: /s/ Carol A. Hickey
----------------------------------------
Carol A. Hickey, Treasurer
ONTOGENTY, INC.
By: /s/ George A. Eldridge
--------------------------------
Vice President and Treasurer
</TABLE>
<PAGE>
THIRD AMENDMENT TO LEASE
This Third Amendment to Lease (this "Amendment") is entered into by and
between Michael J. Spinelli, Jr., Peter A. Spinelli, and Carol A. Hickey,
Trustees of Moulton Realty Trust under a Declaration of Trust dated December 30,
1985 recorded with Middlesex South Registry of Deeds in Book 16700, Page 487,
and Moulton Realty Corporation, owner of the property located at 51 Moulton
Street, Cambridge, Massachusetts, both having a principal place of business at
25 Moulton Street, Cambridge, County of Middlesex, Massachusetts 02139
(hereinafter called the "Landlord"), and Ontogeny, Inc., a corporation duly
organized by law and having an usual place of business in Cambridge, in the
County of Middlesex, Massachusetts (hereinafter called the "Tenant'), effective
as of June 1, 1999 (the "Effective Date").
Reference is hereby made to that certain Lease between Landlord and Tenant
dated November 16, 1995 as amended by a First Amendment to Lease dated as of
October 30, 1997 and a Second Amendment to Lease dated as of December 22, 1998
(as affected by this Third Amendment Lease, the "Lease").
WHEREAS, Landlord and Tenant wish to amend the Lease on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
that, as of the Effective Date, the Lease is amended as follows:
1. In addition to the premises previously described as being demised by the
Lease (the "Original Premises"), the premises thereby demised shall include
approximately 270 rentable square feet as shown as "Additional Enclosed Area
on Loading Dock" on Exhibit A attached hereto and incorporated herein (the
"Additional Premises").
2. In addition to the base rent already payable with respect to the Original
Premises, as of the Effective Date, the base rent payable by Tenant pursuant
to Section III(a) of the Lease shall be increased by (a) $2,295.00, payable
in monthly installments of $191.25.
3. To the extent required under the Lease, Landlord hereby consents to the work
related to the Additional Premises described on Exhibit B attached hereto and
incorporated herein.
Except as otherwise modified hereby, Landlord and Tenant hereby ratify
and affirm the continued effectiveness of the Lease.
<PAGE>
EXECUTED as a sealed instrument, as of the date first above written.
<TABLE>
<CAPTION>
MOULTON REALTY TRUST MOULTON REALTY CORPORATION
<S> <C>
/s/ Michael J. Spinelli By: /s/ Michael Spinelli
- ---------------------------------- ----------------------------------
Michael J. Spinelli, Jr., Trustee Michael Spinelli, President
/s/ Peter A. Spinelli By: /s/ Carol A. Hickey
- ---------------------------------- ----------------------------------
Peter A. Spinelli, Trustee Carol A. Hickey, Treasurer
/s/ Carol A. Hickey
- ----------------------------------
Carol A. Hickey, Trustee
In her capacity as
managing trustee
ONTOGENY, INC.
By: /s/ George A. Eldridge
------------------------------
Vice President and Treasurer
</TABLE>
<PAGE>
The undersigned, Belmont Savings Bank, holder of a mortgage encumbering the
premises demised to Tenant and party to a Subordination Nondisturbance and
Attornment Agreement dated November 16, 1995 with the Tenant and Lighthouse
Capital Partners, L.P., holder of a Mortgage and Security Agreement (Leasehold)
encumbering the leasehold estate of Tenant dated November 16, 1995, each hereby
consent to and approve of the foregoing Third Amendment to Lease.
BELMONT SAVINGS BANK
By: ___________________________
Name: __________________
Its: ___________________
LIGHTHOUSE CAPITAL PARTNERS, L.P.
By: /s/Gwill E. York
---------------------------
Name: Gwill E. York
------------------
Its: Managing Director
-------------------
<PAGE>
EXHIBIT A
Plan Showing Additional Premises
--------------------------------
(Exhibit begins on next page.)
<PAGE>
EXHIBIT B
Work.Related to Additional Premises
-----------------------------------
(Exhibit begins on next page.)
<PAGE>
Exhibit 10.53
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
ONTOGENY, INC.
Dated as of November 2, 1994 (the "Effective Date")
WHEREAS, Ontogeny, Inc., a Delaware corporation (the "Company") has
entered into a Master Lease Agreement dated as of October 25, 1994, Equipment
Schedule No. VL-1, and related Schedules (the "Leases") with Comdisco, Inc., a
Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Leases, the right to purchase shares of its Preferred
Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, 68,965 fully paid and non-
assessable shares of the Company's Series A Convertible Preferred Stock
("Preferred Stock") at a purchase price of $.87 per share (the "Exercise
Price"). The number and purchase price of such shares are subject to adjustment
as provided in Section 8 hereof.
If the Warrantholder fails to make available any or all of the Part II
lease financing as set forth in the Leases, then the number of shares of the
Company's Preferred Stock which the Warrantholder shall be entitled to purchase
hereunder shall be reduced by 17,241 to 51,724.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of ten (10)
years.
(b) Acceleration of Term Upon Initial Public Offering. Not
-------------------------------------------------
withstanding the term of this Warrant Agreement fixed pursuant to Section 2(a)
hereof, Warrantholder's right to purchase Preferred Stock as granted herein
shall expire, if not previously exercised, immediately upon the closing of the
issuance and sale of shares of Common Stock of the
<PAGE>
Company in the Company's first public offering of securities for its own account
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Initial Public offering"), provided that the underwriters
request that the Warrantholder exercise this Warrant.
The Company shall notify the Warrantholder if the Initial Public Offering
is proposed, within a reasonable period of time prior to the filing of a
registration statement and if the Company fails to deliver such written notice
within a reasonable period of time, anything to the contrary in this Warrant
Agreement notwithstanding, the rights to purchase will not expire until ten (10)
business days after the Company delivers such notice to the Warrantholder. Such
notice shall also contain such details of the proposed Initial Public Offering
as are reasonable in the circumstances and notice that this Warrant Agreement is
expected to expire upon closing thereof. If such closing does not take place,
the Company shall promptly notify the Warrantholder that such proposed
transaction has been terminated. Anything to the contrary in this Warrant
Agreement notwithstanding, the Warrantholder may rescind any exercise of its
purchase rights promptly after such notice of termination of the proposed
transaction if the exercise of Warrants occurred after the Company notified the
Warrantholder that the Initial Public Offering was proposed or if the exercise
were otherwise precipitated by such proposed Initial Public Offering. In the
event of such rescission, the Warrants will continue to be exercisable on the
same terms and conditions.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
Notice of Exercise indicating the number of shares which remain subject to
future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the, number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
2
<PAGE>
As used herein, current fair market value of Common Stock shall mean
with respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public
offering, and if the Company's Registration Statement relating to such
public offering has been declared effective by the SEC, then the initial
"Price to Public" specified in the final prospectus with respect to the
offering;
(ii) if this Warrant is exercised after, and not in connection with
the company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the average of the closing prices over a
twenty-one (21) day period ending three days before the day
the current fair market value of the securities in being
determined; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the average of the closing bid and asked
prices quoted on the NASDAQ system (or similar system) over
the twenty-one (21) day period ending three days before the
day the current fair market value of the securities is being
determined;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-
counter market, the current fair market value of Common Stock shall be
the highest price per share which the Company could obtain from a
willing buyer (not a current employee or director) for shares of
Common stock sold by the Company, from authorized but unissued shares,
as determined in good faith by its Board of Directors, unless the
Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the company is not the surviving
party, in which came the fair market value of Common Stock shall be
deemed to be the value per share of Common Stock received by the
holders of the Company's Preferred Stock on a common equivalent basis
pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company
shall promptly issue an amended Warrant Agreement representing the
remaining number of shares purchasable hereunder. All other terms and
conditions of such amended Warrant Agreement shall be identical to those
contained herein, including, but not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required by reason of
3
<PAGE>
any transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon conversion, the Company will, at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered, listed or approved for listing on such domestic
securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number and
kind of shares of stock or other securities of the successor corporation or cash
or other property that the Warrantholder would have been entitled to receive if
such Warrantholder had exercised this Warrant immediately prior to the Merger
Event. In any such case, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interest of
the Warrantholder after the Merger Event to the end that the provisions of this
Warrant Agreement (including adjustments of the Exercise Price and number of
shares of Preferred Stock purchasable) shall be applicable to the greatest
extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the Series A Preferred Stock exist into the same or a
different number of securities of any other class or classes, this Warrant
Agreement shall thereafter represent the right to acquire such number and kind
of securities as would have been issuable an the result of such change with
respect to the securities which were subject to the purchase rights under this
Warrant Agreement immediately prior to such combination, reclassification,
exchange, subdivision or other change.
4
<PAGE>
(c) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Right to Purchase Additional Stock. If the Warrantholder's total
----------------------------------
cost of equipment leased pursuant to Part I of the Leases exceeds $500,000.00,
Warrantholder shall have the right to purchase from the Company, at the Exercise
Price (adjusted as set forth herein), an additional number of shares of
Preferred Stock, which number shall be determined by (i) multiplying the amount
by which the Warrantholder's total equipment cost exceeds $500,000.00 by 9%, and
(ii) dividing the product thereof by the Exercise Price per share referenced
above.
If the Warrantholder's total cost of equipment leased pursuant to Part II
of the Leases exceeds $250,000.00, Warrantholder shall have the right to
purchase from the Company, at the Exercise Price (adjusted as set forth herein),
an additional number of shares of Preferred Stock, which number shall be
determined by (i) multiplying the amount by which the Warrantholder's total
equipment cost exceeds $250,000.00 by 6%, and (ii) dividing the product thereof
by the Exercise Price per share referenced above.
(e) Antidilution Rights. Additional antidilution rights applicable to
-------------------
the Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit __ (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter affecting such anti-dilution
rights. The Company will give Warrantholder notice of all dilutive issuances of
its stock.
(f) Notice of Adjustments. If: (i) the company shall declare any
---------------------
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred Stock or other convertible stock any
additional shares of stock of any class or other rights; (iii) there shall be
any Merger Event; or (iv) there shall be any voluntary or involuntary
dissolution, liquidation or winding up of the Company; (i) then, in connection
with each such event, the Company shall send to the Warrantholder: (A) at least
twenty (20) days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution,
subscription rights (specifying the date on which the holders of Preferred Stock
shall be entitled thereto) or for determining rights to vote in respect of such
Merger Event, dissolution, liquidation or winding up; and (B) in the case of any
such Merger Event, dissolution, liquidation or winding up, at least twenty (20)
days, prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Preferred Stock shall be entitled to
exchange their Preferred Stock for securities or other property deliverable upon
such Merger Event, dissolution, liquidation or winding up).
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period
5
<PAGE>
notwithstanding anything to the contrary contained in any insufficient notice
received by Warrantholder. The notice period shall begin on the date
Warrantholder actually receives a written notice containing all the information
specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended, and minutes of all Board of
Directors (including all committees of the Board of Directors, if any) and
Shareholder meetings from inception through ________, 19__. The issuance of
certificates for shares of Preferred Stock upon exercise of the Warrant shall be
made without charge to the Warrantholder for any issuance tax in respect
thereof, or other cost incurred by the Company in connection with such exercise
and the related issuance of shares of Preferred Stock. The Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
and the issuance and delivery of any certificate in a name other than that of
the Warrantholder.
(b) Due Authority. The execution and delivery by the company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and Section 4 (G) of the Illinois corporate Securities Law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
-----------------
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A) 8,000,000
shares of Common Stock, of which 1,270,000 shares are issued and outstanding,
and (B) 4,737,778 shares of Series A Preferred Stock, of which 4,737,778 shares
are issued and outstanding and are convertible into 4,737,778 shares of Common
Stock.
6
<PAGE>
(ii) There are no other options, warrants, conversion privileges or other
rights presently outstanding to purchase or otherwise acquire any authorized but
unissued shares of the Company's capital stock or other securities of the
Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated.
(f) Other Commitments to Register Securities. Except as set forth in
----------------------------------------
this Warrant Agreement, Registration Rights and Right of First Refusal Agreement
dated August 26, 1994 between the Company and certain shareholders and the Stock
Purchase Agreement dated September 2, 1994 between the Company and a certain
Institution, the Company is not, pursuant to the terms of any other agreement
currently in existence, under any obligation to register under the 1933 Act any
of its presently outstanding securities or any of its securities which may
hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the Illinois Corporate
Securities Law, in reliance upon Section 4 (G) thereof.
(h) Compliance with Rule 144. At the written request of the
------------------------
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and
7
<PAGE>
(ii) that the Company's reliance on such exemption is predicated on the
representations set forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock Issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate an to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever
the restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
Notwithstanding anything to the contrary contained herein:
(i) The Warrantholder shall not sell or transfer or agree to sell or
transfer any rights to acquire shares of stock of the Company or any shares of
stock of the Company (collectively, the "Offered Shares"), unless in each case
the Warrantholder shall have first complied with this Section 10 (c). The
Warrantholder shall deliver to the Company a written notice of any proposed or
intended sale of Offered Shares (the "Offer"), which Offer shall (a) identify
the Offered Shares, (b) describe the price and other terms upon which they are
to be sold or transferred, and the number or amount of the Offered Shares to be
sold or transferred, and (c) offer to sell to the Company all (but not less than
all) such Offered Shares. The Company shall have the right, for a period of
five (5) days following delivery of the Offer, to purchase or acquire, at a
price and upon the other terms specified in the Offer, any and all Offered
Shares described above. The Offer by its term shall remain open and irrevocable
for such 5-day period.
(ii) To accept an offer, the Company must deliver a written notice to the
Warrantholder prior to the and of the 5-day period of the Offer (the "Notice of
Acceptance"). If the Company does not accept the Offer, the Warrantholder may
sell the Offered Shares on the terms and conditions set forth in the Offer for a
period of forty-five (45) days following the end of the 5-day period of the
Offer.
8
<PAGE>
(iii) Any Offered Shares not acquired by the Company or other persons in
accordance with this Section 10 (c) may not be issued, sold or exchanged until
they are again offered to the Company under the procedures specified in this
Agreement.
(iv) The provisions of this Section 10 (c) shall terminate upon the
closing of the Company's initial public offering of shares of Common Stock
pursuant to an effective registration statement under the Securities Act.
(d) Financial Risk. The Warrantholder has such knowledge and experience
--------------
in financial and business matters and in investing in companies similar to the
Company as to be capable of evaluating the merits and risks of its investment,
and has the ability to bear the economic risks of its investment.
(e) Authority. The Warrantholder has full power and authority to enter
---------
into and to perform this Agreement in accordance with its terms. The
Warrantholder has not been organized, reorganized or recapitalized specifically
for the purpose of investing in the company.
(f) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS.
---------
(a) Subject to the terms and conditions contained in section 10 hereof,
this Warrant Agreement and all rights hereunder are transferable in whole or in
part by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit II (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
(b) Legends. Each certificate or agreement representing rights to
-------
acquire shares of Preferred Stock, Preferred Stock issuable upon the exercise of
such rights or shares of Common Stock issuable upon the conversion of the
Preferred Stock shall bear a legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be offered, sold or otherwise transferred, pledged or hypothecated
unless and until such shares are registered under such Act, or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
9
<PAGE>
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144 under the Securities Act.
(c) If any of the provisions set forth in this Agreement are violated, the
Company shall not be required (i) to transfer on its books any of the rights to
acquire shares of Preferred Stock, Preferred Stock issuable upon the exercise of
such rights or shares of Common Stock issuable upon the conversion of the
Preferred Stock, or (ii) to treat an owner of such rights to acquire shares of
Preferred Stock, Preferred Stock issuable upon the exercise of such rights or
shares of Common Stock issuable upon the conversion of the Preferred Stock or to
pay dividends to any transferee to whom any such rights to acquire shares of
Preferred Stock, Preferred Stock issuable upon the exercise of such rights or
shares of Common Stock issuable upon the conversion of the Preferred Stock shall
have been so sold or transferred.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Leasing Director, cc: Legal Department, (and/or, if by facsimile, (708) 518-
5465 and (ii) to the Company c/o Greylock Management Corporation, One Federal
Street, Boston, MA 02110, (and/or if by facsimile, (617) 482-0059 or at such
other address as any such party may subsequently designate by written notice to
the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable.
10
<PAGE>
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions an may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment. Any and all costs incurred by the company in
assisting the Warrantholder in the protection of the Warrantholder's rights
shall be paid for, or reimbursed, by the Warrantholder.
(h) Survival. The representations, warranties, covenants and conditions
--------
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be hold invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company
shall also supply such other documents as the Warrantholder may from time to
time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: ONTOGENY, INC.
By:_________________________________
Title:______________________________
Warrantholder: COMDISCO, INC.
By:_________________________________
Title:______________________________
11
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: ___________________________
(1) The undersigned Warrantholder hereby elects to purchase ________ shares of
the Preferred Stock of ________________ pursuant to the terms of the
Warrant Agreement dated the _________ day of ___________, 19__ (the
"Warrant Agreement") between ____________________ and the Warrantholder,
and tenders herewith payment of the purchase price for such shares in full,
together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of
________________, the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
________________________________
(Name)
________________________________
(Address)
Warrantholder: COMDISCO, INC.
By:______________________________
Title:____________________________
Date:____________________________
12
<PAGE>
ACKNOWLEDGEMENT OF EXERCISE
The undersigned _______________________________________ hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase shares of
the Preferred Stock _______ of ____________________________, pursuant to the
terms of the Warrant Agreement, and further acknowledges that ________ shares
remain subject to purchase under the terms of the Warrant Agreement.
Company:
By:________________________________
Title:_____________________________
Date:______________________________
13
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED,, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
_______________________________________________________________________________
(Please Print)
whose address is_______________________________________________________________
_______________________________________________________________________________
Dated________________________________________________________________
Holder's Signature___________________________________________________
Holder's Address_____________________________________________________
_____________________________________________________________________
Signature Guaranteed:__________________________________________________________
NOTE: The signature to this Transfer Notice must correspond with the
name as it appears on the face of the Warrant Agreement, without
alteration or enlargement or any change whatever. Officers of
corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority
to assign the foregoing Warrant Agreement.
14
<PAGE>
Exhibit 10.54
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY
COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE 1933 ACT.
WARRANT AGREEMENT
To Purchase 142,222 Shares of the Series B Preferred Stock of
ONTOGENY, INC.
Dated as of January 29, 1996 (the "Effective Date")
WHEREAS, Ontogeny, Inc., a Delaware corporation (the "Company") has entered
into a Master Equipment Lease Agreement dated as of November 7, 1995, Lease Line
Schedule Nos. 01 and 02, and certain other related schedules and other documents
(collectively, as amended or supplemented from time to time the "Leases") with
Lighthouse Capital Partners, L.P., a Delaware limited partnership (the
"Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of the mutual covenants and
agreements contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, at a price per share equal to
$1.125 (the "Exercise Price"), 142,222 fully paid and nonassessable shares of
the Company's Series B Preferred Stock, $.01 par value per share (the "Preferred
Stock"). The number and purchase price of such shares are subject to adjustment
as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of ten (10)
years.
(b) Acceleration of Term Upon Initial Public Offering. Notwithstanding the
term of this Warrant Agreement fixed pursuant to Section 2(a) hereof,
Warrantholder's right to purchase Preferred Stock as granted herein shall
expire, if not previously exercised, immediately upon the closing of the
issuance and sale of shares of Common Stock of the Company in the
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Company's first public offering of securities for its own account pursuant to an
effective registration statement under the 1933 Act (the "Initial Public
Offering"), provided that the underwriters request that the Warrantholder
exercise this Warrant.
The Company shall notify the Warrantholder if the Initial Public Offering
is proposed, within a reasonable period of time prior to the filing of a
registration statement and if the Company fails to deliver such written notice
within a reasonable period of time, anything to the contrary in this Warrant
Agreement notwithstanding, the rights to purchase will not expire until ten (10)
business days after the Company delivers such notice to the Warrantholder. Such
notice shall also contain such details of the proposed Initial Public Offering
as are reasonable in the circumstances and notice that this Warrant Agreement is
expected to expire upon the later of (i) the closing of the Initial Public
Offering or (ii) the date which is ten (10) days after the date the
Warrantholder receives the notice. If such closing does not take place within
six (6) months, the Company shall promptly notify the Warrantholder that such
proposed transaction has been terminated. Anything to the contrary in this
Warrant Agreement notwithstanding, the Warrantholder may rescind any exercise of
its purchase rights promptly after such notice of termination of the proposed
transaction if the exercise of Warrants occurred after the Company notified the
Warrantholder that the Initial Public Offering was proposed or if the exercise
were otherwise precipitated by such proposed Initial Public Offering. In the
event of such rescission, the Warrants will continue to be exercisable on the
same terms and conditions.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchase and shall execute the
Notice of Exercise indicating the number of shares which remain subject to
future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, (ii) by the surrender by the Warrantholder to the Company of
any promissory notes or other obligations issued by the Company, with all such
notes and obligations so surrendered being credited against the Exercise Price
in an amount equal to the principal amount thereof plus accrued interest to the
date of surrender, (iii) by surrender of Warrants ("Net Issuance") as determined
below, or (iv) by any combination of the foregoing. If the Warrantholder elects
the Net Issuance method, the Company will issue Preferred Stock (or Common Stock
if the Preferred Stock has been automatically converted into Common Stock) in
accordance with the following formula:
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X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock (or Common Stock) to be
issued to the Warrantholder.
Y = the number of shares of Preferred Stock (or Common Stock)
requested to be exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock (or
Common Stock).
B = the Exercise Price in effect under the Warrant Agreement at the
time the net issue election is made pursuant to this Section 3.
As used herein, current fair market value of a share of Preferred Stock (or
Common Stock if the Preferred Stock has been automatically converted into Common
Stock) shall mean with respect to each share of Preferred Stock (or Common
Stock):
(i) if the exercise is in connection with an initial public
offering, and if the Company's Registration Statement relating to such public
offering has been declared effective by the SEC, then the initial "Price to
Public" specified in the final prospectus with respect to the offering
multiplied by the number of shares of Common Stock into which each share of
Preferred Stock is then convertible;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(1) if traded on a securities exchange, the fair market value
of the Common Stock shall be deemed to be the average of the closing prices over
a twenty-one (2 1) day period ending three days before the day the current fair
market value of the securities is being determined and the fair market value of
the Preferred Stock shall be deemed to be such fair market value of the Common
Stock multiplied by the number of shares of Common Stock into which each share
of Preferred Stock is then convertible; or
(2) if actively traded over-the-counter, the fair market
value of the Common Stock shall be deemed to be the average of the closing bid
and asked prices quoted on the NASDAQ system (or similar system) over the
twenty-one (21) day period ending three days before the day the current fair
market value of the securities is being determined and the fair market value of
the Preferred Stock shall be deemed to be such fair market value of the Common
Stock multiplied by the number of shares of Common Stock into which each share
of Preferred Stock is then convertible; and
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the current fair market value of the Common Stock shall be the highest
price per share which the Company could obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by its Board of
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Directors, and the fair market value of the Preferred Stock shall be deemed to
be such fair market value of the Common Stock multiplied by the number of shares
of Common Stock into which each share of Preferred Stock is then convertible;
provided, that if the Company shall become subject to a merger, acquisition or
other consolidation pursuant to which the Company is not the surviving party,
the fair market value of the Common Stock shall be deemed to be the value per
share of the consideration received by the holders of the Company's Common Stock
pursuant to such merger or acquisition and the fair market value of the
Preferred Stock shall be deemed to be such fair market value of the Common Stock
multiplied by the number of shares of Common Stock into which each share of
Preferred Stock is then convertible.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of (i) its Preferred Stock to provide for the
exercise of the rights to purchase Preferred Stock as provided for herein and
(ii) its Common Stock to provide for the conversion into shares of Common Stock
of all shares of Preferred Stock receivable upon such exercise.
(b) Registration or Listing. If any shares of Preferred Stock or Common
Stock required to be reserved hereunder require registration with or approval of
any governmental authority under any Federal or State law (other than any
registration under the 1933 Act, as then in effect, or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon conversion, the Company will at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered. listed or approved for listing on such domestic
securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
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8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number and
kind of shares of stock or other securities of the successor corporation or cash
or other property that the Warrantholder would have been entitled to receive if
such Warrantholder had exercised this Warrant immediately prior to the Merger
Event. In any such case, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interest of
the Warrantholder after the Merger Event to the end that the provisions of this
Warrant Agreement (including adjustments of the Exercise Price and number of
shares of Preferred Stock purchasable) shall be applicable to the greatest
extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the Series B Preferred Stock into the same or a
different number of securities of any other class or classes, this Warrant
Agreement shall thereafter represent the right to acquire such number and kind
of securities as would have been issuable as the result of such change with
respect to the securities which were subject to the purchase rights under this
Warrant Agreement immediately prior to such combination, reclassification,
exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide (by split-up or otherwise) its Preferred Stock or issue
additional shares of Preferred Stock in payment of a stock dividend on the
Preferred Stock, the number of shares of Preferred Stock issuable on the
exercise of this Warrant Agreement shall forthwith be proportionately increased
in the case of a subdivision or stock dividend, or proportionately decreased in
the case of a combination, and the Exercise Price shall be proportionately
decreased in the case of a subdivision or stock dividend, or proportionately
increased in the case of a combination.
(d) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit III (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement, amendment
modification or waiver of the Charter affecting such antidilution rights. The
Company will give Warrantholder notices of all dilutive issuances of its stock.
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(e) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription pro rata to the
holders of any class of its Preferred Stock or other convertible stock any
additional shares of stock of any class or other rights; (iii) there shall be
any Merger Event; or (iv) there shall be any voluntary or involuntary
dissolution, liquidation or winding up of the Company; then, in connection with
each such event, the Company shall send to the Warrantholder: (A) at least
twenty (20) days prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution,
subscription rights (specifying the date on which the holders of Preferred Stock
shall be entitled thereto) or for determining rights to vote in respect of such
Merger Event, dissolution, liquidation or winding up; and (B) in the case of any
such Merger Event, dissolution, liquidation or winding up, at least twenty (20)
days prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Preferred Stock shall be entitled to
exchange their Preferred Stock for securities or other property deliverable upon
such Merger Event, dissolution, liquidation or winding up).
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(f) Timely Notice. Failure to timely provide such notice required by
subsection (e) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights and the Common Stock issuable upon
conversion thereof has been duly and validly reserved and, when issued in
accordance with the provisions of this Warrant Agreement, will be validly
issued, fully paid and non-assessable, and will be free of any taxes, liens,
charges or encumbrances of any nature whatsoever; provided, however, that the
Preferred Stock issuable pursuant to this Warrant Agreement may be subject to
restrictions on transfer under state and/or Federal securities laws. The Company
has made available to the Warrantholder true, correct and complete copies of its
Charter and Bylaws, as amended, and minutes of all Board of Directors (including
all committees of the Board of Directors, if any) and Shareholder meetings from
inception through November 7, 1995. The issuance of certificates for shares of
Preferred Stock upon exercise of the Warrant shall be made without charge to the
Warrantholder for any issuance tax in respect thereof, or other cost incurred by
the Company in connection with such exercise and the related issuance of shares
of Preferred Stock. The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved and the issuance and delivery of
any certificate in a name other than that of the Warrantholder.
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<PAGE>
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and Section 25102(f) of the California Corporate Securities
Law, which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 20,000,000
shares of Common Stock, of which 2,154,200 shares are issued and outstanding,
(B) 4,922,299 shares of Series A Preferred Stock, of which 4,853,334 shares are
issued and outstanding and are convertible as of the date hereof into 4,853,334
shares of Common Stock, and (C) 8,000,000 shares of Series B Preferred Stock, of
which 7,402,779 shares are issued and outstanding and are convertible as of the
date hereof into 7,402,779 shares of Common Stock.
(ii) There are no other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire any
authorized but unissued shares of the Company's capital stock or other
securities of the Company, except for those described in Exhibit C to the
Company's Series B Stock Purchase Agreement dated December 13, 1995, and except
for an additional 44,444 shares of Series B Preferred Stock which the Company is
obligated to issue to certain investors.
(iii) Except as stated in the Company's Charter and the Company's
Amended and Restated Registration Rights and Right of First Refusal Agreement,
no shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated.
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<PAGE>
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement, the Amended and Restated Registration Rights and Right of
First Refusal Agreement dated as of December 13, 1995 between the Company and
certain shareholders and the Stock Purchase Agreement dated September 2, 1994
between the Company and a certain Institution, the Company is not, pursuant to
the terms of any other agreement currently in existence, under any obligation to
register under the 1933 Act any of its presently outstanding securities or any
of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the California
Corporate Securities Law, in reliance upon Section 25102(f) thereof.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration
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<PAGE>
requirements of the 1933 Act is available. Notwithstanding the foregoing, the
restrictions imposed upon the transferability of any of its rights to acquire
Preferred Stock or Preferred Stock issuable on the exercise of such rights do
not apply to transfers from the beneficial owner of any of the aforementioned
securities to its nominee or from such nominee to its beneficial owner, and
shall terminate as to any particular share of Preferred Stock when (1) such
security shall have been effectively registered under the 1993 Act and sold by
the holder thereof in accordance with such registration or (2) such security
shall have been sold without registration in compliance with Rule 144 under the
1933 Act, or (3) a letter shall have been issued to the Warrantholder at its
request by the staff of the Securities and Exchange Commission stating that no
action shall be recommended by such staff or taken by such Commission, as the
case may be, if such security is transferred without registration under the 1933
Act in accordance with the conditions set forth in such letter or ruling and
such letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a share of Preferred Stock
then outstanding as to which such restrictions have terminated shall be entitled
to receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Preferred Stock not bearing
any restrictive legend.
Notwithstanding anything to the contrary contained herein:
(i) The Warrantholder shall not sell or transfer or agree to sell or
transfer any rights to acquire shares of stock of the Company or any shares of
stock of the Company (collectively, the "Offered Shares"), unless in each case
the Warrantholder shall have first complied with this Section 10(c). The
Warrantholder shall deliver to the Company a written notice of any proposed or
intended sale of Offered Shares (the "Offer"), which Offer shall (a) identify
the Offered Shares, (b) describe the price and other terms upon which they are
to be sold or transferred, and the number or amount of the Offered Shares to be
sold or transferred, and (c) offer to sell to the Company all (but not less than
all) such Offered Shares. The Company shall have the right, for a period of five
(5) days following delivery of the Offer, to purchase or acquire, at a price and
upon the other terms specified in the Offer, any and all Offered Shares
described above. The Offer by its term shall remain open and irrevocable for
such 5-day period.
(ii) To accept an Offer, the Company must deliver a written notice to
the Warrantholder prior to the end of the 5-day period of the Offer (the "Notice
of Acceptance"). If the Company does not accept the Offer, the Warrantholder may
sell the Offered Shares on the terms and conditions set forth in the Offer for a
period of forty-five (45) days following the end of the 5-day period of the
Offer.
(iii) Any Offered Shares not acquired by the Company or other persons
in accordance with this Section 10(c) may not be issued, sold or exchanged until
they are again offered to the Company under the procedures specified in this
Agreement.
(iv) The provisions of this Section 10(c) shall terminate upon the
closing of the Company's initial public offering of shares of Common Stock
pursuant to an effective registration statement under the Securities Act.
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(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters and in investing in companies similar to the
Company as to be capable of evaluating the merits and risks of its investment,
and has the ability to bear the economic risks of its investment.
(e) Authority. The Warrantholder has full power and authority to enter
into and to perform this Agreement in accordance with its terms. The
Warrantholder has not been organized, reorganized or recapitalized specifically
for the purpose of investing in the Company.
(f) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS.
(a) Subject to the terms and conditions contained in Section 10 hereof,
this Warrant Agreement and all rights hereunder are transferable in whole or in
part by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfers shall be recorded on the
books of the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit II (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
(b) Legends. Each certificate or agreement representing rights to acquire
shares of Preferred Stock, Preferred Stock issuable upon the exercise of such
rights or shares of Common Stock issuable upon the conversion of the Preferred
Stock shall bear a legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may
not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such shares are registered under
such Act, or an opinion of counsel satisfactory to the Company is
obtained to the effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144 under the Securities Act.
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(c) If any of the provisions set forth in this Agreement are violated, the
Company shall not be required (i) to transfer on its books any of the rights to
acquire shares of Preferred Stock, Preferred Stock issuable upon the exercise of
such rights or shares of Common Stock issuable upon the conversion of the
Preferred Stock, or (ii) to treat as owner of such rights to acquire shares of
Preferred Stock, Preferred Stock issuable upon the exercise of such rights or
shares of Common Stock issuable upon the conversion of the Preferred Stock or to
pay dividends to any transferee to whom any such rights to acquire shares of
Preferred Stock, Preferred Stock issuable upon the exercise of such rights or
shares of Common Stock issuable upon the exercise of such rights or shares of
Common Stock issuable upon the conversion of the Preferred Stock shall have been
so sold or transferred.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
California.
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mad as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at 100
Drakes Landing Road, Suite 260, Greenbrae, CA 94904 with a copy to William S.
Veatch, Esq., c/o Cooley, Godward, Castro, Huddleson & Taturn, Five Palo Alto
Square, 3000 El Camino Real, Palo Alto, CA 94306-2155 and (ii) to the Company
c/o Greylock Management Corporation, One Federal Street, Boston, MA 02110,
(and/or if by facsimile, (617) 482-0059) or at such other address as any such
party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable.
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(g) No Impairment of Rights. The Company will not by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment. Any and all costs incurred by the Company in
assisting the Warrantholder in the protection of the Warrantholder's rights
shall be paid for, or reimbursed, by the Warrantholder.
(h) Survival. The representations. warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be replace
by a mutually acceptable valid, legal and enforceable provision, which comes
closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have cause this Warrant Agreement to
be executed by its officers thereunto duly authorized as of the Effective Date.
Company:
ONTOGENY, INC.
By:___________________________
Title:President
------------------------
-12-
<PAGE>
Warrantholder.
Lighthouse Capital Partners, L.P.
By: Lighthouse Management Partners,
L.P., its general partner
By: Lighthouse Capital Partners, Inc.,
its general partner
By: ________________________
Title: _____________________
-13-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: ______________________
(1) The undersigned Warrantholder hereby elects to purchase ___________shares
of the Preferred Stock of pursuant to the terms of the Warrant Agreement
dated the ______ day of 19_ (the "Warrant Agreement") between
_____________________________ and the Warrantholder, and tenders herewith
payment of the purchase price for such shares in full.
(2) In exercising its rights to purchase the Preferred Stock of
___________________ the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred stock in the name of the undersigned or in such other name as is
specified below.
____________________________
(Name)
_____________________________
(Address)
Warrantholder:
By:__________________________
Title:_______________________
Date:________________________
-14-
<PAGE>
ACKNOWLEDGMENT OF EXERCISE
The undersigned _______________, hereby acknowledge receipt of the "Notice
of Exercise" from _________________ to purchase ________shares of the Preferred
stock of _______________________________pursuant to the terms of the Warrant
Agreement, and further acknowledges that _____ shares remain subject to purchase
under the terms of the Warrant Agreement.
Company:
By: ____________________________
Title: _________________________
Date: __________________________
-15-
<PAGE>
NET ISSUE ELECTION NOTICE
To: _______________________________ Date:______________________
The undersigned hereby elects under Section 3 to surrender the right to
purchase _________ shares of Preferred Stock pursuant to this Warrant Agreement.
The certificate(s) for such shares issuable upon such net issue election shall
be issued in the name of the undersigned or as otherwise indicated below:
_________________________________
Signature
_________________________________
Name for Registration
_________________________________
Mailing Address
-16-
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
__________________________
(Please Print)
whose address is _________________________________________________________
Dated:___________________________________________
Holder's Signature:______________________________
Holder's Address:________________________________
_________________________________________________
-17-
<PAGE>
EXHIBIT III
Copy of the Certificate of Incorporation
-18-
<PAGE>
Exhibit 10.55
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THEY MAY NOT BE SOLD. OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY
COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Common Stock of
ONTOGENY, INC.
Dated as of December 8, 1997 (the "Effective Date")
WHEREAS, Ontogeny, Inc., a Delaware corporation (the "Company") has entered
into a Master Lease Agreement dated as of October 25, 1994, Equipment Schedules
Nos. VL-2 and VL-3 dated December 8, 1997, and related Schedules (the "Leases")
with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Common Stock;
NOW, THEREFORE, In consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.
-------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 6,000 fully paid and non-assessable
shares of the Company's Convertible Common Stock ("Common Stock") at a purchase
price of $2.50 per share (the "Exercise Price"). The number and purchase price
of such shares are subject to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Common Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period often (10)
years after the date of this Agreement.
(b) Acceleration of Term Upon Initial Public Offering. Notwithstanding the
-------------------------------------------------
term of this Warrant Agreement fixed pursuant to Section 2(a) hereof,
Warrantholder's right to purchase Common Stock as granted herein shall expire,
if not previously exercised, immediately upon the closing of the issuance and
sale of shares of Common Stock of the Company in the Company's first public
offering of securities for its own account pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Initial Public
Offering"), provided that the underwriters request that the Warrantholder
exercise this Warrant.
<PAGE>
The Company shall notify the Warrantholder if the Initial Public Offering
Is proposed, within a reasonable period of time prior to the filing of a
registration statement and if the Company fails to deliver such written notice
within a reasonable period of time, anything to the contrary in this Warrant
Agreement notwithstanding, the rights to purchase will not expire until ten (10)
business days after the Company delivers such notice to the Warrantholder. Such
notice shall also contain such details of the proposed Initial Public Offering
as are reasonable in the circumstances and notice that this Warrant Agreement is
expected to expire upon closing thereof. If such closing does not take place,
the Company shall promptly notify the Warrantholder that such proposed
transaction has been terminated. Anything to the contrary in this Warrant
Agreement notwithstanding, the Warrantholder may rescind any exercise of its
purchase rights promptly after such notice of termination of the proposed
transaction if the exercise of Warrants occurred after the Company notified the
Warrantholder that the Initial Public Offering was proposed or if the exercise
were otherwise precipitated by such proposed Initial Public Offering. In the
event of such rescission, the Warrants will continue to be exercisable on the
same terms and conditions.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Common Stock purchased and shall execute the Notice
of Exercise indicating the number of shares which remain subject to future
purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check or (ii) by surrender of Warrants ("Net Issuance") as determined
below. If the Warrantholder elects the Net Issuance method, the Company will
issue Common Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to the
Warrantholder.
Y = the number of shares of Common Stock requested to be exercised
under this Warrant Agreement
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering,
and if the Company's Registration Statement relating to such public
offering has been declared effective by the SEC, then the fair market value
shall be the initial "Price to Public" specified in the final prospectus
with respect to the offering;
-2-
<PAGE>
(ii) if this Warrant is exercised after, and not in connection with the
Company's Initial Public Offering, and:
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the closing prices over a twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices
quoted on the NASDAQ system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market the
current fair market value of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving
party, in which case the fair market value of Common Stock shall be deemed
to be the value per share of Common Stock received by the holders of the
Company's Common Stock on a common equivalent basis pursuant to such merger
or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights to purchase Common Stock as provided for herein.
(b) Registration or Listing. If any shares of Common Stock required to be
-----------------------
reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act as then in effect or any similar Federal statute then enforced, or any
state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
-3-
<PAGE>
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Common Stock
purchasable hereunder are subject to adjustment as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant the number and
kind of shares of stock or other securities of the successor corporation or cash
or other property that the Warrantholder would have been entitled to receive if
such Warrantholder had exercised this Warrant immediately prior to the Merger
Event in any such case, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interest of
the Warrantholder after the Merger Event to the end that the provisions of this
Warrant Agreement (including adjustments of the Exercise Price and number of
shares of Common Stock purchasable) shall be applicable to the greatest extent
possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the Common Stock exist into the same or a different
number of securities of any other class or classes, this Warrant Agreement shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
Agreement immediately prior to such combination, reclassification, exchange,
subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Common Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
-4-
<PAGE>
(d) Notice of Adjustments. If (i) the Company shall declare any dividend
---------------------
or distribution upon its stock whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Common Stock or other convertible stock any additional
shares of stock of any class or other rights: (iii) there shall be any Merger
Event or (iv) there shall be any voluntary or involuntary dissolution,
liquidation or winding up of the Company, then, In connection with each such
event the Company shall send to the Warrantholder: (A) at least twenty (20)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution, subscription
rights (specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect of such Merger
Event dissolution, liquidation or winding up; and (B) in the case of any such
Merger Event dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such Merger
Event dissolution, liquidation or winding up).
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment (ii) the amount of the adjustment (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(e) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (e) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Common Stock. The Common Stock issuable upon exercise
---------------------------
of the Warrantholder's rights has been duly and validly reserved and, when
issued in accordance with the provisions of this Warrant Agreement will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever, provided, however, that
the Common Stock issuable pursuant to this Warrant Agreement may be subject to
restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter. The issuance of certificates for shares of Common Stock
upon exercise of the Warrant shall be made without charge to the Warrantholder
for any issuance tax in respect thereof, or other cost incurred by the Company
in connection with such exercise and the related issuance of shares of Common
Stock. The Company shall not be required to pay any tax which may be payable in
respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
share's of Common Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage,
-5-
<PAGE>
contract or other instrument to which it is a party or by which it is bound, and
the Leases and this Warrant Agreement constitute legal, valid and binding
agreements of the Company, enforceable in accordance with their respective
terms.
(c) Consents and Approvals. No consent or approval of giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for any filing required by applicable state
securities law, which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly Issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 40,000,000
shares of Common Stock $.01 par value per share (the "Common Stock"), 2,502,835
shares which are Issued and outstanding (including 1,377,835 shares issued
pursuant to the 1994 Restricted Stock Plan of the Company), (B) 5,000,000 shares
of undesignated preferred stock none of which are Issued and outstanding, (C)
4,922,299 shares of Series A Convertible Preferred Stock of which 4,853,334
shares of which are issued and outstanding, (D) 8,000,000 shares of Series B
Convertible Preferred Stock, 7,447,223 shares of which are issued and
outstanding, (E) 1,000.000 shares, collectively, of Series C Convertible
Preferred Stock and Series D Convertible Preferred Stock all of which are issued
and outstanding, and (G) 10,000,000 shares of Series E Convertible Preferred
Stock all of which are issued and outstanding.
(ii) The Company has issued warrants to purchase 68,965 shares of its
Series A Convertible Preferred Stock at an average exercise price of $0.87 per
share and 142,222 shares of its Series B Convertible Preferred Stock at an
average exercise price of $1.125 per share. The Company has reserved 4,000,000
shares of Common Stock for issuance pursuant to its 1995 Stock Option Plan. The
Company has reserved 3,040,00 shares of Common Stock for issuance pursuant to
its 1994 Restricted Stock Plan of which 1,377,835 shares are issued and
outstanding. The Company has reserved 19,000 shares of Common Stock at $2.50
per share for issuance under warrant agreements. There are no other options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of the
Company's capital stock or other securities of the Company.
(iii) Except as set forth in the Registration Rights and Right of First
Refusal Agreement dated March 12, 1997 between the Company and certain
shareholders and the Stock Purchase Agreement dated September 2, 1994 between
the Company and a certain Institution, no shareholder of the Company has
preemptive rights to purchase new issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated.
-6-
<PAGE>
(f) Other Commitments to Register Securities. Except as set forth in the
----------------------------------------
Registration Rights and Right of First Refusal Agreement dated March 12, 1997
between the Company and certain shareholders and the Stock Purchase Agreement
dated September 2, 1994 between the Company and a certain Institution, the
Company is not, pursuant to the terms of any other agreement currently in
existence, under any obligation to register under the 1933 Act any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Common Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act In reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the Illinois Corporate
Securities Law, in reliance upon Section 4 (G) thereof.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
------------------------
who proposes to sell Common Stock issuable upon the exercise of the Warrant in
compliance with Rule 144 promulgated by the Securities and Exchange Commission,
the Company shall furnish to the Warrantholder, within ten days after receipt of
such request a written statement confirming the Company's compliance with the
filing requirements of the Securities and Exchange Commission as set forth in
such Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder.
(a) Investment Purpose. The right to acquire Common Stock or the Common
------------------
Stock issuable upon exercise of the Warrantholder's rights contained herein will
be acquired for investment and not with a view to the sale or distribution of
any part thereof, and the Warrantholder has no present Intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Common Stock
-------------
issuable upon exercise of this Warrant is not registered under the 1933 Act or
qualified under applicable state securities laws on the ground that the issuance
contemplated by this Warrant Agreement will be exempt from the registration and
qualifications requirements thereof, and (ii) that the Company's reliance an
such exemption Is predicated on the representations set forth in this Section
10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Common Stock or
Common Stock issuable upon exercise of such rights unless and until (i) it shall
have notified the Company of the proposed disposition, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
(which counsel may either be inside or outside counsel to the Warrantholder)
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the 1933 Act has been taken, or (B) an
exemption from the registration requirements of the 1933 Act is available.
Notwithstanding the foregoing, the restrictions imposed upon the transferability
of any of its rights to acquire Common Stock or Common Stock issuable on the
exercise of such rights do not apply to transfers from the beneficial owner of
any of the aforementioned securities to its nominee or
-7-
<PAGE>
from such nominee to its beneficial owner, and shall terminate as to any
particular share of Common Stock when (1) such security shall have been
effectively registered under the 1933 Act and sold by the holder thereof in
accordance with such registration or (2) such security shall have been sold
without registration in compliance with Rule 144 under the 1933 Act, or (3) a
letter shall have been issued to the Warrantholder at its request by the staff
of the Securities and Exchange Commission or a ruling shall have been issued to
the Warrantholder at its request by such Commission stating that no action shall
be recommended by such staff or taken by such Commission, as the case may be, if
such security is transferred without registration under the 1933 Act in
accordance with the conditions set forth in such letter or ruling and such
letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a share of Common Stock
then outstanding as to which such restrictions have terminated shall be entitled
to receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Common Stock not bearing any
restrictive legend.
Notwithstanding anything to the contrary contained herein:
(i) The Warrantholder shall not sell or transfer or agree to sell or
transfer any rights to acquire shares of stock of the Company or any shares of
stock of the Company (collectively, the "Offered Shares"), unless in each case
the Warrantholder shall have first complied with this Section 10 (c). The
Warrantholder shall deliver to the Company a written notice of any proposed or
intended sale of Offered Shares (the "Offer), which Offer shall (a) identify the
Offered Shares, (b) describe the price and other terms upon which they are to be
sold or transferred, and the number or amount of the Offered Shares to be sold
or transferred, and (c) offer to sell to the Company all (but not less than all)
such Offered Shares. The Company shall have the right, for a period of five (5)
days following delivery of the Offer, to purchase or acquire, at a price and
upon the other terms specified in the Offer, any and all Offered Shares
described above. The Offer by its term shall remain open and irrevocable for
such 5-day period.
(ii) To accept an Offer, the Company must deliver a written notice to the
Warrantholder prior to the end of the 5-day period of the Offer (the "Notice of
Acceptance). If the Company does not accept the Offer, the Warrantholder may
sell the Offered Shares on the terms and conditions set forth in the Offer for a
period of forty-five (45) days following the end of the 5-day period of the
Offer.
(iii) Any, Offered Shares not acquired by the Company or other persons in
accordance with this Section 10 (c) may not be issued, sold or exchanged until
they are again offered to the Company under the procedures specified in this
Agreement.
(iv) The provisions of this Section 10(c) shall terminate upon the
closing of the Company's initial public offering of shares of Common Stock
pursuant to an effective registration statement under the Securities Act.
(d) Financial Risk. The Warrantholder has such knowledge and experience
--------------
in financial and business matters and in investing in companies similar to the
Company as to be capable of evaluating the merits and risks of its investment
and has the ability to bear the economic risks of its investment
-8-
<PAGE>
(e) Authority. The Warrantholder has full power and authority to enter
---------
into and to perform this Agreement in accordance with its terms. The
Warrantholder has not been organized, reorganized or recapitalized specifically
for the purpose of investing in the Company.
(f) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or If a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Common Stock pursuant to this Warrant Agreement
or (ii) the Common Stock issuable upon exercise of the right to purchase, it may
be required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Common Stock or Common Stock which might be made by it in reliance upon Rule 144
under the 1933 Act may be made only in accordance with the terms and conditions
of that Rule.
11. TRANSFERS.
---------
(a) Subject to the terms and conditions contained in Section 10 hereof,
this Warrant Agreement and all rights hereunder are transferable in whole or in
part by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit II (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
(b) Legends. Each certificate or agreement representing rights to acquire
-------
shares of Common Stock, Common Stock issuable upon the exercise of such rights
or shares of Common Stock issuable upon the conversion of the Common Stock shall
bear a legend substantially in the following form:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and until such
shares are registered under such Act, or an opinion of
counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144 under the Securities Act.
(c) If any of the provisions set forth in this Agreement are violated, the
Company shall not be required (i) to transfer on its books any of the rights to
acquire shares of Common Stock, Common Stock issuable upon the exercise of such
rights or shares of Common Stock issuable upon the conversion of the Common
Stock, or (ii) to treat as owner of such rights to acquire shares of Common
Stock. Common Stock issuable upon the exercise of such rights or shares of
Common Stock issuable upon the conversion of the Common Stock or to pay
dividends to any transferee to whom any such rights to acquire shares of Common
Stock,
-9-
<PAGE>
Common Stock issuable upon the exercise of such rights or shares of Common stock
issuable upon the conversion of the Common Stock shall have been so sold or
transferred.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
Incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be given In
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont Illinois 60018, attention: James Labe, cc:
General Counsel, (and/or, if by facsimile, (847) 518-5465 AND (847) 518-5088)
and (ii) to the Company at 45 Moulton, Cambridge, Massachusetts 02138,
attention: Vice-President, Finance(and/or If by facsimile, (617) 87"866), cc:
Hale & Dorr, 60 State Street Boston, Massachusetts, 02109, att: Mark G. Borden
or at such other address as any such party may subsequently designate by written
notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its fights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable.
(g) No Impairment of Rights. The Company will not by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment. Any and all costs incurred by the Company in
assisting the Warrantholder in the protection of the Warrantholder's rights
shall be paid for, or reimbursed, by the Warrantholder.
(h) Survival. The representations, warranties, covenants and conditions
--------
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
-10-
<PAGE>
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company
shall also supply such other documents as the Warrantholder may from time to
time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
ONTOGENY, INC. COMDISCO, INC.
By: /s/ George Eldridge By: /s/ James P. Labe
---------------------- --------------------------
Title: President Title: /s/ President
-------------------- -----------------------
-11-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:___________________________
(1) The undersigned Warrantholder hereby elects to purchase _____ shares of the
Common Stock of Ontogeny, Inc., pursuant to the terms of the Warrant
Agreement dated the 8th day of December, 1997 (the "Warrant Agreement")
between Ontogeny, Inc. and the Warrantholder, and tenders herewith payment
of the purchase price for such shares in full, together with all applicable
transfer taxes, if any.
(2) In exercising its rights to purchase the Common Stock of Ontogeny, Inc.,
the undersigned hereby confirms and acknowledges the investment
representations and warranties made in Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below.
___________________________
(Name)
___________________________
(Address)
Warrantholder COMDISCO, INC.
By:________________________
Title:_____________________
Date:______________________
-12-
<PAGE>
ACKNOWLEDGMENT OF EXERCISE
The undersigned _____________________________, hereby acknowledge receipt
of the "Notice of Exercise" from Comdisco, Inc., to purchase _________ shares of
the Common Stock of Ontogeny, Inc., pursuant to the terms of the Warrant
Agreement, and further acknowledges that __________ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company: ONTOGENY, INC.
By:____________________________
Title:_________________________
Date:__________________________
-13-
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this
form and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to:
_______________________________________________________________ (Please Print)
whose address is:_____________________________________________________________
Dated __________________________________________________
Holder's Signature______________________________________
Holder's Address:____________________________________________________________
Signature Guaranteed:___________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or enlargement
or any change whatever. Officers of corporations and those acting in a
fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
-14-
<PAGE>
Exhibit 10.56
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPE41ON OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
1933 ACT.
WARRANT AGREEMENT
To Purchase 10,000 Shares of Common Stock of
ONTOGENY, INC.
Dated as of October 1, 1997 (the "Effective Date")
WHEREAS, Ontogeny, Inc., a Delaware corporation (the "Company") has entered
into a Master Equipment Lease Agreement dated as of November 7, 1995, Lease Line
Schedule No. 03, and certain other related schedules and other documents
(collectively, as amended or supplemented from time to time the "Leases") with
Lighthouse Capital Partners. L.P., a Delaware limited partnership (the
"Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Common Stock:
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of the mutual covenants and
agreements contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, at a price per share equal to $2.50
(the "Exercise Price"), 10,000 fully paid and nonassessable shares of the
Company's Common Stock, $.01 par value per share (the "Common Stock"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof;
2. TERM OF THE WARRANT AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Common Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of ten (10)
years.
(b) Acceleration of Term Upon Initial Public Offering. Notwithstanding the
term of this Warrant Agreement fixed pursuant to Section 2(a) hereof,
Warrantholders right to purchase Common Stock as granted herein shall expire, if
not previously exercised, immediately upon the closing of the issuance and sale
of shares of Common Stock of the Company in the Company's first public offering
of securities for its own account pursuant to an effective registration
statement under the 1933 Act (the "Initial Public Offering"), provided that the
underwriters request that the Warrantholder exercise
<PAGE>
this Warrant within a reasonable period of time, anything to the contrary in
this Warrant Agreement notwithstanding, the rights to purchase will not expire
until ten (10) business days after the Company delivers such notice to the
Warrantholder. Such notice shall also contain such details of the proposed
Initial Public Offering as are reasonable in the circumstances and notice that
this Warrant Agreement is expected to expire upon the later of (i) the closing
of the Initial Public Offering or (ii) the date which is ten (10) days after the
date the Warrantholder receives the notice. If such closing does not take place
within six (6) months, the Company shall promptly notify the Warrantholder that
such proposed transaction has been terminated. Anything to the contrary in this
Warrant Agreement notwithstanding the Warrantholder may rescind any exercise of
its purchase rights promptly after such notice of termination of the proposed
transaction if the exercise of Warrants occurred after the Company notified the
Warrantholder that the Initial Public Offering was proposed or if the exercise
were otherwise precipitated by such proposed Initial Public Offering. In the
event of such rescission, the Warrants will continue to be exercisable on the
same terms and conditions.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Common Stock purchased and shall execute the Notice
of Exercise indicating the number of shares which remain subject to future
purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, (ii) by the surrender by the Warrantholder to the Company of
any promissory notes or other obligations issued by the Company, with all such
notes and obligations so surrendered being credited against the Exercise Price
in an amount equal to the principal amount thereof plus accrued interest to the
date of surrender, (iii) by surrender of Warrants ("Net Issuance") as determined
below, or (iv) by any combination of the foregoing. If the Warrantholder elects
the Net Issuance method, the Company will issue Common Stock in accordance with
the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to
the Warrantholder.
Y = the number of shares of Common Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price in effect under the Warrant
Agreement at the
-2-
<PAGE>
time the net issue election is made pursuant to this
Section 3.
As used herein, current fair market value of a share of Common Stock shall
mean with respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public
offering, and if the Company's Registration Statement relating to such public
offering has been declared effective by the SEC, then the initial "Price to
Public" specified in the final prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(1) if traded on a securities exchange, the fair market value
of the Common Stock dull be deemed to be the average of the closing prices over
a twenty-one (2 1) day period ending three days before the day the current fair
market value of the securities is being determined and the fair market value of
the Common Stock shall be deemed to be such fair market value of the Common
Stock:
(2) if actively traded over-the-counter, the fair market value
of the Common Stock shall be deemed to be the average of the closing bid and
asked prices quoted on the NASDAQ system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair market value
of the securities is being determined and the fair market value of the Common
Stock shall be deemed to be such fair market value of the Common Stock; and
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market the
current fair market value of the Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, and the fair market value of the Common Stock shall be deemed to be
such fair market value of the Common Stock; provided, that if the Company shall
become subject to a merger, acquisition or other consolidation pursuant to which
the Company is not me surviving party, the fair market value of the Common Stock
shall be deemed to be the value per share of the consideration received by the
holders of the Company's Common Stock pursuant to such merger or acquisition and
the fair market value of the Common Stock shall be deemed to be such fair market
value of the Common Stock.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other term and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
-3-
<PAGE>
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights to purchase Common Stock as provided for herein.
(b) Registration or Listing. If any shares of Common Stock required to be
reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing Fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Common Stock
purchasable hereunder are subject to adjustment as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number and
kind of shares of stock or other securities of the successor corporation or cash
or other property that the Warrantholder would have been entitled to receive if
such Warrantholder had exercised this Warrant immediately prior to the Merger
Event. In any such case, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of
-4-
<PAGE>
this Warrant Agreement with respect to the rights and interest of the
Warrantholder after the Merger Event to the end that the provisions of this
Warrant Agreement (including adjustments of the Excuse Price and number of
shares of Common Stock purchasable) shall be applicable to the greatest extent
possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the Common Stock into the same or a different number of
securities of any other class or classes, this Warrant Agreement shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
Agreement immediately prior to such combination, reclassification, exchange,
subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide (by split-up or otherwise) its Common Stock or issue
additional shares of Common Stock in payment of a stock dividend on the Common
Stock, the number of shares of Common Stock issuable on the exercise of this
Warrant Agreement shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination, and the Exercise Price shall be proportionately decreased in the
case of a subdivision or stock dividend, or proportionately increased in the
case of a combination.
(d) Antidilution Rights. Additional antidilution rights applicable to the
Common Stock purchasable hereunder are as set forth in the Company's Certificate
of Incorporation, as amended through the Effective Date, a true and complete
copy of which is attached hereto as Exhibit III (the "Charter"). The Company
shall promptly provide the Warrantholder with any restatement, amendment,
modification or waiver of the Charter affecting such anti-dilution rights. The
Company will give Warrantholder notices of all dilutive issuances of its stock.
(e) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription pro rata to the
holders of any class of its Preferred Stock or other convertible stock any
additional shares of stock of any class or other rights; (iii) there shall be
any Merger Event; or (iv) there shall be any voluntary or involuntary
dissolution, liquidation or winding up of the Company; then, in connection with
each such event the Company shall send to the Warrantholder (A) at least twenty
(20) days prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution,
subscription rights (specifying the date on which the holders of Common Stock
shall be entitled thereto) or for determining rights to vote in respect of such
Merger Event dissolution, liquidation or winding up; and (B) in the case of any
such Merger Event, dissolution, liquidation or winding up, at least twenty (20)
days prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such Merger Event dissolution, liquidation or winding up).
Each such written notice shall set forth, in reasonable detail (i) the
event requiring the adjustment, (iii) the amount of the adjustment (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares
-5-
<PAGE>
subject to purchase hereunder after giving effect to such adjustment, and shall
be given by first class mail, postage prepaid, addressed to the Warrantholder,
at the address as shown on the books of the Company.
(f) Timely Notice. Failure to timely provide such notice required by
subsection (e) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Common Stock. The Common Stock issuable upon exercise
of the Warrantholders rights and the Common Stock issuable upon conversion
thereof has been duty and validly reserved and, when issued in accordance with
the provisions of this Warrant Agreement, will be validly issued, fully paid and
non-assessable, and will be free of any taxes, liens, charges or encumbrances of
any nature whatsoever; provided, however, that the Common Stock issuable
pursuant to this Warrant Agreement may be subject to restrictions on transfer
under state and/or Federal securities laws. The Company has made available to
the Warrantholder true, correct and complete copies of its Charter and Bylaws,
as amended, and minutes of all Board of Directors (including all committees of
the Board of Directors, if any) and Shareholder meetings from inception through
September 8, 1997. The issuance of certificates for shares of Common Stock upon
exercise of the Warrant shall be made without charge to the Warrantholder for
any issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Common
Stock. the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Common Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and Section 25102(f) of the California Corporate Securities
Law, which filings will be affective by the time required thereby.
-6-
<PAGE>
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital stock of the Company consists of (A)
40,000,000 shares of common stock, $.01 par value per share (the "Common
Stock"), 2,502,835 shares of which are issued and outstanding (including
1,377,835 shares issued pursuant to the 1994 Restricted Stock Plan of the
Company), (B) 5,000,000 shares of undesignated preferred stock, none of which
are issued or outstanding, (C) 4,922,299 shares of Series A Convertible
Preferred Stock, 4,853,334 shares of which are issued and outstanding, (D)
8,000,000 shares of Series B Convertible Preferred Stock, 7,447,223 shares of
which are issued or outstanding, (E) 1,000,000 shares, collectively, of Series C
Convertible Preferred Stock and Series D Convertible Preferred Stock, all of
which are issued and outstanding, and (G) 10,000,000 shares of Series E
Convertible Preferred Stock, all of which are issued or outstanding.
(ii) The Company has issued warrants to purchase 68,965 shares of
its Series A Convertible Preferred Stock at an average exercise price of $0.87
per share and 142,222 shares of its Series B Convertible Preferred Stock at an
average exercise price of $1.125 per share. The Company has reserved 4,000,000
shares of Common Stock for issuance pursuant to its 1995 Stock Option Plan. The
Company has reserved 3,040,000 shares of Common Stock for issuance pursuant to
its 1994 Restricted Stock Plan of which 1,377,835 shares are issued and
outstanding.
(iii) Except as stated in the Company's Charter and the Company's
Amended and Restated Registration Rights and Right of First Refusal Agreement,
no shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a small business and similarly situated.
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement, the Amended and Restated Registration Rights and Right of
First Refusal Agreement dated as of March 12, 1997 between the Company and
certain shareholders and the Stock Purchase Agreement dated September 2, 1994
between the Company and a certain Institution the Company is not, pursuant to
the term of any other agreement currently in existence, under any obligation to
register under the 1933 Act any of its presently outstanding securities or any
of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Common Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the California
Corporate Securities Law, in reliance upon Section 25102(f) thereof.
-7-
<PAGE>
(h) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Common Stock issuable upon the exercise of the Warrant in
compliance with Rule 144 promulgated by the Securities and Exchange Commission,
the Company shall furnish to the Warrantholder, within ten days after receipt of
such request, a written statement confirming the Company's compliance with the
filing requirements of the Securities and Exchange Commission as set forth in
such Rule, as such Rule may be amended from, time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company m reliance upon
the following representations and covenants of the Warrantholder.
(a) Investment Purpose. The right to acquire Common Stock or the Common
Stock issuable upon exercise of the Warrantholder's rights contained herein will
be acquired for investment and not with a view to the sale or distribution of
any part thereof, and the Warrantholder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Common Stock
issuable upon exercise of this Warrant is not registered under the 1933 Act or
qualified under applicable state securities laws on the ground that the issuance
contemplated by this Warrant Agreement will be exempt from the registration and
qualifications requirements thereof, and (ii) that the Company's reliance on
such exemption is predicated on die representations set forth in this Section
10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Common Stock or
Common stock issuable upon exercise of such rights unless and until (i) it shall
have notified the Company of the proposed disposition, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
(which counsel may either be inside or outside counsel to the Warrantholder)
satisfactory to lie Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the 1933 Act has been taken, or (B) an
exemption from the registration requirements of the 1933 Act is available.
Notwithstanding the foregoing, the restrictions imposed upon the transferability
of any of its rights to acquire Common Stock or Common Stock issuable on the
exercise of such rights do not apply to transfers from the beneficial owner of
any of the aforementioned securities to its nominee or from such nominee to its
beneficial owner, and shall terminate as to any particular share of Common Stock
when (1) such security shall have been effectively registered under the 1993 Act
and sold by the holder thereof in accordance with such registration or (2) such
security shall have been sold without registration in compliance with Rule 144
under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder
at its request by the staff of the Securities and Exchange Commission stating
that no action shall be recommended by such staff or taken by such Commission,
as the case may be, if such security is transferred without registration under
the 1933 Act in accordance with the conditions set forth in such letter or
ruling and such letter or ruling specifies that no subsequent restrictions on
transfer are required. Whenever the restrictions imposed hereunder shall
terminate, as hereinabove provided, the Warrantholder or holder of a share of
Common Stock then outstanding as to which such restrictions have terminated
shall be entitled to receive from the Company,
-8-
<PAGE>
without expense: to such holder, one or more new certificates for the Warrant or
for such shares of Common Stock not bearing any restrictive legend.
Notwithstanding anything to the contrary contained herein:
(i) The Warrantholder shall not sell or transfer or agree to sell
or transfer any rights to acquire shares of stock of the Company or any shares
of stock of the Company (collectively, the "Offered Shares"), unless in each
case the Warrantholder shall have first complied with this Section 10(c). The
Warrantholder shall deliver to the Company a written notice of any proposed or
intended sale of Offered Shares (the "Offer"), which Offer shall (a) identify
the Offered Shares, (b) describe the price and other terms upon which they are
to be sold or transferred, and the number or amount of the Offered Shares to be
sold or transferred, and (c) offer to sell to the Company all (but not less than
all) such Offered Shares. The Company shall have the right, for a period of five
(5) days following delivery of the Offer, to purchase or acquire, at a price and
upon the other terms specified in the Offer, any and all Offered Shares
described above. The Offer by its term shall remain open and irrevocable for
such 5-day period.
(ii) To accept an Offer, the Company must deliver a written notice
to the Warrantholder prior to the end of the 5-day period of the Offer (the
"Notice of Acceptance"). If the Company does not accept the Offer, the
Warrantholder may sell the Offered Shares on the terms and conditions set forth
in the Offer for a period of forty-five (45) days following the end of the 5-day
period of the Offer.
(iii) Any Offered Shares not acquired by the Company or other persons
in accordance with this Section 10(c) may not be issued sold or exchanged until
they are again offered to the Company under the procedures specified in this
Agreement
(iv) The provisions of this Section 10(c) shall terminate upon the
closing of the Company's initial public offering of shares of Common Stock
pursuant to am effective registration statement under the Securities Act.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters and in investing in companies similar to the
Company as to be capable of evaluating the merits and risks of its investment,
and has the ability to bear the economic risks of its investment.
(e) Authority. The Warrantholder has full power and authority to enter
into and to perform this Agreement in accordance with its terms. The
Warrantholder has not been organized, reorganized or recapitalized specifically
for the purpose of investing in the Company.
(f) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Common Stock pursuant to this Warrant Agreement,
or (ii) the Common Stock issuable upon exercise of the right to purchase, it may
be required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Common Stock or Common Stock which might be made
-9-
<PAGE>
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS.
(a) Subject to the tam and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit II (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
(b) Legends. Each certificate or agreement representing rights to acquire
shares of Common Stock shall bear a legend substantially in the following form:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and until such
shares are registered under such Act, or an opinion of
counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144 under the Securities Act.
(c) If any of the provisions set forth in this Agreement are violated, the
Company shall not be required (i) to transfer on its books any of the rights to
acquire shares of Common Stock, or (ii) to treat as owner of such rights to
acquire shares of Common Stock or to pay dividends to any transferee to whom any
such rights to acquire shares of Common Stock shall have been so sold or
transferred.
12. MISCELLANEOUS
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and dull be given effect in all respects as if it had bow executed and
delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
California.
-10-
<PAGE>
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be governed
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 100 Drakes Landing Road, Suite 260, Greenbrae, CA 94904 with a copy to
William S. Veatch, Esq., c/o Cooley, Godward, Castro, Huddleson & Tatum, Five
Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306-2155 and (ii) to the
Company at 45 Moulton Street,, Cambridge, MA 02138, (and/or if by facsimile,
(617) 876-0866), c/o Chief Financial Officer or at such other address as any
such party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the term of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment. Any and all costs incurred by the Company in
assisting the Warrantholder in the protection of the Warrantholder's rights
shall be paid for, or reimbursed, by the Warrantholder.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired and the invalid, illegal or unenforceable provision shall be replace
by a mutually acceptable valid, legal and enforceable provision, which comes
closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Warrant Agreement to
be executed by its officers thereunto duly authorized as of the Effective Date.
COMPANY:
ONTOGENY, INC.
By: /s/ George Eldridge
---------------------------------
Name: George Eldridge
---------------------------------
Title: Vice President of Finance
---------------------------------
WARRANTHOLDER:
LIGHTHOUSE CAPITAL PARTNERS, L.P.
By: LIGHTHOUSE MANAGEMENT
PARTNERS, L.P., its general partner
By: LIGHTHOUSE CAPITAL PARTNERS,
INC., its general partner
By: /s/ Gwill E. York
---------------------------------
Name: Gwill E. York
---------------------------------
Title: Managing Director
---------------------------------
-12-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: __________________________________
(1) The undersigned Warrantholder hereby elects to purchase _____________shares
of the Common Stock of __________, pursuant to the terms of the Warrant
Agreement dated the ____ day of __________, 19__ (the "Warrant Agreement")
between ________________________ and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full.
(2) In exercising its rights to purchase the Common Stock of ____________, the
undersigned hereby confirms and acknowledges the investment representations
and warranties made in Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below.
___________________________________________
(Name)
___________________________________________
(Address)
Warrantholder:
By: ____________________________________
Title: ____________________________________
Date: ____________________________________
ACKNOWLEDGMENT OF EXERCISE
The undersigned __________________, hereby acknowledge receipt of the
"Notice of Exercise" from _____________ to purchase ________ shares of the
Common Stock of _________________, pursuant to the terms of the Warrant
Agreement, and further acknowledges that _______ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company:
By: ________________________
Title: ________________________
-13-
<PAGE>
Date:__________________________
-14-
<PAGE>
NET ISSUE ELECTION NOTICE
To: _____________________________________________________ Date:
_____________________
The undersigned hereby elects under Section 3 to surrender the right to
purchase _____________ shares of Common Stock pursuant to this Warrant Agreement
The certificate(s) for such shares issuable upon such net issue election shall
be issued in the name of the undersigned or as otherwise indicated below:
----------------------------------------
Signature
----------------------------------------
Name for Registration
----------------------------------------
Mailing Address
-15-
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to _____________________
(Please Print)
___________________________ whose address is ___________________________________
________________________________________________________________________________
Dated: ________________________________________
Holder's Signature: ___________________________
Holder's Address: _____________________________
-16-
<PAGE>
EXHIBIT III
Copy of the Certificate of Incorporation
-17-
<PAGE>
Exhibit 10.57
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE
COUNSEL FOR THE COMPANY) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT.
No.
STOCK SUBSCRIPTION WARRANT
To Purchase Common Stock of
ONTOGENY, INC. (the "Company")
DATE OF INITIAL ISSUANCE: November 21, 1997
THIS CERTIFIES THAT for value received, MM VENTURES or its registered
assigns (hereinafter called the "Holder") is entitled to purchase from the
Company, at any time during the Term of this Warrant, One Thousand Three Hundred
Fifty (1,350) shares of common stock, $.01 par value, of the Company (the
"Common Stock"), at the Warrant Price, payable as provided herein. The exercise
of this Warrant shall be subject to the provisions, limitations and restrictions
herein contained, and may be exercised in whole or in part.
SECTION 1. Definitions.
-----------
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
Common Stock - shall mean and include the Company's authorized Common
------------
Stock, $.01 par value, as constituted at the date hereof.
Exchange Act - shall mean the Securities Exchange Act of 1934, as
------------
amended from time to time.
Securities Act - the Securities Act of 1933, as amended.
--------------
Term of this Warrant - shall mean the period beginning on the date of
--------------------
initial issuance hereof and ending on November 21, 2002, subject to the
provisions of Section 2.3 below.
Warrant Price - $2.50 per share, subject to adjustment in accordance
-------------
with Section 5 hereof.
Warrants - this Warrant and any other Warrant or Warrants issued in
--------
connection with a Commitment Letter dated September 16, 1997 executed by the
Company and Transamerica Business Credit Corporation (the "Commitment Letter")
to the original holder of this Warrant, or any transferees from such original
holder or this Holder.
<PAGE>
Warrant Shares - shares of Common Stock purchased or purchasable by
--------------
the Holder of this Warrant upon the exercise hereof.
SECTION 2. Exercise of Warrant.
-------------------
2.1. Procedure for Exercise of Warrant. This Warrant may be
---------------------------------
exercised in whole or in part by the Holder at any time, or from time to time,
prior to the expiration of the Term. To exercise this Warrant in whole or in
part (but not as to any fractional share of Common Stock), the Holder shall
deliver to the Company at its office referred to in Section 13 hereof at any
time and from time to time during the Term of this Warrant: (i) the Notice of
Exercise in the form attached hereto, (ii) cash, certified or official bank
chock payable to the order of the Company or wire transfer of funds to the
Company's account (or any combination of any of the foregoing) in the amount of
the Warrant Price for each share being purchased, and (iii) this Warrant.
Notwithstanding any provisions herein to the contrary, if the Current Market
Price (as defined in Section 5) is greater than the Warrant Price (at the date
of exercise, as set forth below), in lieu of exercising this Warrant as
hereinabove permitted, the Holder may elect to receive shares of Common Stock
equal to the value (as determined below) of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the office of the Company
referred to in Section 13 hereof, together with the Notice of Exercise, in which
event the Company shall issue to the Holder that number of shares of Common
Stock computed using the following formula:
CS = WCS x (CMP-WP)
--------------
CMP
Where
CS equals the number of shares of Common Stock to be issued to the
Holder
WCS equals the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being exercised (at the date of
exercise)
CMP equals the Current Market Price (at the date of exercise)
WP equals the Warrant Price (as adjusted to the date of exercise)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered to the Holder hereof within a
reasonable time, not exceeding fifteen (15) days, after the rights represented
by this Warrant shall have been so exercised; and, unless this Warrant has
expired, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Notice of Exercise
and Warrant is delivered to the Company and payment of the Warrant Price and any
applicable taxes is made, irrespective of the date of delivery of such
certificate, except that, if the date of such surrender and payment is a
2
<PAGE>
date when the stock transfer books of the Company are closed, such person shall
be deemed to have become the holder of such shares at the close of business on
the next succeeding date on which the stock transfer books are open.
2.2. Transfer Restriction Legend. Each certificate for Warrant Shares
---------------------------
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended,
and may not be offered, sold or otherwise transferred,
pledged or hypothecated unless and until such shares are
registered under such Act, or an opinion of counsel
satisfactory to the Company is obtained to the effect that
such registration is not required."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
2.3. Acceleration of Term Upon Initial Public Offering. Notwithstanding
-------------------------------------------------
any provision to the contrary contained in this Warrant, the Holder's right to
exercise this Warrant shall expire, if not previously exercised, immediately
upon the closing of the issuance and sale of shares of Common Stock in the
Company's first public offering of securities for its own account pursuant to an
effective registration statement under the Securities Act (the "Initial Public
Offering"), provided that the underwriters request that the Holder exercise this
Warrant and provide at least fifteen (15) business days' opportunity to
exercise.
The Company shall notify the Holder if the Initial Public Offering is proposed,
within a reasonable period of time prior to the filing of a registration
statement. Such notice shall contain such details of the proposed Initial
Public Offering as are reasonable in the circumstances and notice that this
Warrant is expected to expire upon closing thereof (provided such notice is
delivered at least fifteen (15) business days prior thereto). If such closing
does not take place, the Company shall promptly notify the Holder that such
proposed transaction has been terminated. Anything to the contrary in this
Warrant notwithstanding, the Holder may rescind any exercise promptly after such
notice of termination of the proposed transaction if the exercise occurred after
the Company notified the Holder that the Initial Public Offering was proposed or
if the exercise were otherwise precipitated by such proposed Initial Public
Offering. In the event of such rescission, this Warrant will continue to be
exercisable on the same terms and conditions.
SECTION 3. Covenants as to Common Stock. The Company covenants and agrees
----------------------------
that all shares of Common Stock that may be issued upon exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, and free from all
3
<PAGE>
taxes, liens and charges with respect to the issue thereof. The Company further
covenants and agrees that it will pay when due and payable any and all federal
and state taxes (not including taxes on or measured by the net income or capital
gains of the Holder) which may be payable in respect of the issue of this
Warrant or any Common Stock or certificates therefor issuable upon the exercise
of this Warrant. The Company further covenants and agrees that the Company will
at all times have authorized and reserved, free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant. The Company further covenants and agrees
that if any shares of capital stock to be reserved for the purpose of the
issuance of shares upon the exercise of this Warrant require registration with
or approval of any governmental authority under any federal or state law before
such shares may he validly issued or delivered upon exercise, then the Company
will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be. If and so long as the Common Stock
issuable upon the exercise of this Warrant is listed on any national securities
exchange, the Company will, if permitted by the rules of such exchange, list and
keep listed on such exchange, upon official notice of issuance, all shares of
such Common Stock issuable upon exercise of this Warrant.
SECTION 4. Adjustment of Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price as provided in Section 5, the Holder shall thereafter be entitled
to purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
SECTION 5. Adjustment of Warrant Price. The Warrant Price shall be subject
---------------------------
to adjustment from time to time as follows:
(i) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date fixed for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Warrant Price shall be appropriately decreased so that the number of shares
of Common Stock issuable upon the exercise hereof shall be increased in
proportion to such increase in outstanding shares.
(ii) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Warrant Price shall appropriately increase so that the number
of shares of Common Stock issuable upon the exercise hereof shall be decreased
in proportion to such decrease in outstanding shares.
(iii) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one tenth (l/10) of a share, as the case may be.
(iv) The Current Market Price at any date of one share of Common Stock
shall be deemed to be the average of the daily closing prices for the 15
consecutive business days ending on the third business day before the day in
question (as adjusted for any stock dividend, split,
4
<PAGE>
combination or reclassification that took effect during such 15 business day
period). The closing price for each day shall be the last reported sales price
or, in case no such reported sales took place on such day, the average of the
last reported bid and asked prices, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or as reported by Nasdaq (or if the Common Stock is not at the time listed or
admitted for trading on any such exchange or if prices of the Common Stock are
not reported by Nasdaq then such price shall be equal to the average of the last
reported bid and asked prices on such day as reported by The National Quotation
Bureau Incorporated or any similar reputable quotation and reporting service, if
such quotation is not reported by The National Quotation Bureau Incorporated);
provided, however, that if the Common Stock is not traded in such manner that
the quotations referred to in this clause (v) are available for the period
required hereunder, the Current Market Price shall be determined in good faith
by the Board of Directors of the Company or, if such determination cannot be
made, by a nationally recognized independent investment banking firm selected by
the Board of Directors of the Company (or if such selection cannot be made, by a
nationally recognized independent investment banking firm selected by the
American Arbitration Association in accordance with its rules).
(v) Whenever the Warrant Price shall be adjusted as provided in Section
5, the Company shall prepare a statement showing the facts requiring such
adjustment and the Warrant Price that shall be in effect after such adjustment.
The Company shall cause a copy of such statement to be sent by mail, first class
postage prepaid, to each Holder of this Warrant at its, his or her address
appearing on the Company's records. Where appropriate, such copy may be given in
advance and may be included as part of the notice required to be mailed under
the provisions of subsection (viii) of this Section 5.
(vi) Adjustments made pursuant to clauses (i) and (ii) above shall be
made on the date such dividend, subdivision, split-up, combination or
distribution, as the case may be, is made, and shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to such dividend, subdivision, split-up,
combination or distribution.
(vii) In the event the Company shall propose to take any action of the
types described in clauses (i) or (ii) of this Section 5, the Company shall
forward, at the same time and in the same manner, to the Holder of this Warrant
such notice, if any, which the Company shall give to the holders of Common Stock
of the Company.
(viii) In any case in which the provisions of this Section 5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
5
<PAGE>
SECTION 6. Ownership.
---------
6.1. Ownership of This Warrant. The Company may deem and treat the
-------------------------
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2. Transfer and Replacement. This Warrant and all rights hereunder
------------------------
are transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees (and in the name of the Holder, if a partial transfer is
effected) shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 13
hereof. In the event of any purported transfer of this Warrant not in accordance
with the terms hereof, the Company shall not be required (i) to transfer on its
books any of the rights to acquire shares of Common Stock or Common Stock
issuable upon the exercise of such rights, or (ii) to treat as owner of such
rights to acquire shares of Common Stock or Common Stock issuable upon the
exercise of such rights. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft or destruction, and, in such case, of
indemnity or security reasonably satisfactory to it, and upon surrender of this
Warrant if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu of this Warrant; provided that if the Holder hereof is an
instrumentality of a state or local government or an institutional holder or a
nominee for such an instrumentality or institutional holder an irrevocable
agreement of indemnity by such Holder shall be sufficient for all purposes of
this Section 6, and no evidence of loss or theft or destruction shall be
necessary. This Warrant shall be promptly cancelled by the Company upon the
surrender hereof in connection with any transfer or replacement. Except as
otherwise provided above, in the case of the loss, theft or destruction of a
Warrant, the Company shall pay all expenses, taxes (not including taxes on or
measured by the net income or capital gains of the Holder) and other charges
payable in connection with any transfer or replacement of this Warrant, other
than stock transfer taxes (if any) payable in connection with a transfer of this
Warrant, which shall be payable by the Holder. Notwithstanding anything to the
contrary herein, Holder will not transfer this Warrant and the rights hereunder
except in compliance with federal and state securities laws.
SECTION 7. Mergers, Consolidation, Sales. In the case of any proposed
-----------------------------
consolidation or merger of the Company with another entity, or the proposed sale
of all or substantially all of its assets to another person or entity, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable hereunder, such
shares of stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for the number of shares of such Common Stock
purchasable hereunder immediately before such consolidation, merger, sale,
reorganization or reclassification. In any such case appropriate provision
shall be made with respect to the rights and interests of the
6
<PAGE>
Holder of this Warrant to the end that the provisions hereof shall thereafter be
applicable as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of this Warrant.
SECTION 8. Notice of Dissolution or Liquidation. In case of any
------------------------------------
distribution of the assets of the Company in dissolution or liquidation (except
under circumstances when the foregoing Section 7 shall be applicable), the
Company shall give notice thereof to the Holder hereof and shall make no
distribution to shareholders until the expiration of twenty (20) days from the
date of mailing of the aforesaid notice and, in any case, the Holder hereof may
exercise this Warrant within twenty (20) days from the date of the giving of
such notice, and all rights herein granted not so exercised within such thirty-
day period shall thereafter become null and void.
SECTION 9. Notice of Extraordinary Dividends. If the Board of Directors of
---------------------------------
the Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than twenty (20) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. Fractional Shares. Fractional shares shall not be issued upon
-----------------
the exercise of this Warrant but in any case where the Holder would, except for
the provisions of this Section 10, be entitled under the terms hereof to receive
a fractional share upon the complete exercise of this Warrant, the Company
shall, upon the exercise of this Warrant for the largest number of whole shares
then called for, pay a sum in cash equal to the excess of the Current Market
Price over the Warrant Price for such fractional share.
SECTION 11. Special Arrangements of the Company. The Company covenants and
-----------------------------------
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant.
11.1. Will Reserve Shares. The Company will reserve and set apart and
-------------------
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. Will Not Amend Certificate. The Company will not amend its
--------------------------
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. Will Bind Successors. This Warrant shall be binding upon any
--------------------
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. Representations and Covenants of the Holder. This Warrant has
-------------------------------------------
been entered into by the Company in reliance upon the following representations
and covenants of the Holder:
(a) Investment Purpose. The right to acquire Common Stock or the Common
Stock issuable upon exercise of the Holder's rights contained herein will be
acquired for investment
7
<PAGE>
and not with a view to the sale or distribution of any part thereof, and the
Holder has no present intention of selling or engaging in any public
distribution of the same except pursuant to a registration or exemption.
(b) Private Issue. The Holder understands (i) that the Common Stock
issuable upon exercise of this Warrant is not registered under the Securities
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant will be exempt from registration and
qualifications requirements, and (ii) that the Company's reliance on such
exemption is predicated on the representations set forth in this Section 12.
(c) Disposition of Holder's Rights. In no event will the Holder make a
disposition of any of its rights to acquire Common Stock or Common Stock
issuable upon exercise of such rights unless and until (i) it shall have
notified the Company of the proposed disposition, and (ii) if requested by the
Company, it shall have furnished the Company with an opinion of counsel (which
counsel may either be inside or outside counsel to the Warrantholder)
satisfactory to the Company and its counsel to the effect that (a) appropriate
action necessary for compliance with the Securities Act has been taken, or (B)
an exemption from the registration requirements of the Securities Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Common Stock or Common Stock
issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Common Stock when (1) such security shall have been effectively
registered under the Securities Act and sold by the holder thereof in accordance
with such registration or (2) such security may be sold without registration in
compliance with Rule 144 under the Securities Act, or (3) a letter shall have
been issued to the Holder at the request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Holder at its
request by such Commission stating that no action shall be recommended by such
staff or taken by such commission, as the case may be, if such security is
transferred without registration under the Securities Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever
the restrictions imposed hereunder shall terminate as hereinabove provided the
Holder or holder of a share of Common Stock then outstanding as to which such
restrictions have terminated shall be entitled to receive from the Company,
without expense to such holder, one or more new certificates for the Warrant or
for such shares of Common Stock not bearing any restrictive legend.
(d) Financial Risk. The Holder has such knowledge and experience in
financial and business matters and in investing in companies similar to the
Company as to be capable of evaluating the merits and risk of its investment,
and has the ability to bear the economic risks of its investment.
(e) Authority. The Holder has full power and authority to enter into
and to perform this Agreement in accordance with its terms. The Holder has not
been organized, reorganized or recapitalized specifically for the purpose of
investing in the Company .
(f) Risk of No Registration. The Holder understands that if the Company
does not register with the Securities and Exchange Commission pursuant to
Section 12 of the Securities
8
<PAGE>
Act, or file reports pursuant to Section 15(d) of the Securities Exchange Act of
1934, or if a registration statement covering the securities under the
Securities Act is not in effect when it desires to sell (i) the rights to
purchase Common Stock pursuant to this Warrant, or (ii) the Common Stock
issuable upon exercise of the right to purchase, it may be required to hold such
securities for an indefinite period. The Holder also understands that any sale
of its rights to purchase Common Stock or Common Stock which may be made by it
in reliance upon Rule 144 under the Securities Act may be made only in
accordance with the terms and conditions of that Rule.
SECTION 13. Notices. Any notice or other document required or permitted to
-------
be given or delivered to the Holder shall be delivered at, or sent by certified
or registered mail to, the Holder at Meier Mitchell & Company, 4 Orinda Way,
Suite 200-B, Orinda, California 94563 or to such other address as shall have
been furnished to the Company in writing by the Holder. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered at, or sent by certified or registered mail to, the Company at 45
Moulton Street, Cambridge, Massachusetts 02138, Attention: Vice President,
Finance with a copy to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts
02109, Attention: Mark G. Borden, Esq. or to such other address as shall have
been furnished in writing to the Holder by the Company. Any notice so addressed
and mailed by registered or certified mail shall be deemed to be given when so
mailed. Any notice so addressed and otherwise delivered shall be deemed to be
given when actually received by the addressee.
SECTION 14. No Rights as Stockholder; Limitation of Liability. This Warrant
-------------------------------------------------
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No provision
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the Warrant Price
hereunder or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
SECTION 15. Law Governing. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF
-------------
THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE, LAWS OF
THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 16. Miscellaneous. This Warrant and any provision hereof may be
-------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the Company and the Holder (or any respective successor in interest
thereof). The headings in this Warrant are for purposes of reference only and
shall not affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this __day of November, 1997.
[CORPORATE SEAL] ONTOGENY, INC.
By:__________________________________
9
<PAGE>
Title:_______________________________
MM VENTURES
By:________________________________
Name:
Title:
10
<PAGE>
FORM OF NOTICE OF EXERCISE
[To be signed only upon exercise of the Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase __________ shares of
Common Stock which the undersigned is entitled to purchase by the terms of the
within Warrant according to the conditions thereof, and herewith
[check one] [_] makes payment of $ therefor; or
[_] directs the Company to issue _____ shares, and to
withhold _____ shares in lieu of payment of the
Warrant.
All shares to be issued pursuant hereto shall be issued in the name of and the
initial address of such person to be entered on the books of the Company shall
be:
The shares are to be issued in certificates of the following denominations:
The Holder confirms and acknowledges the investment representations made in
Section 12 of the Warrant.
__________________________________________________
[Type Name of Holder]
By:_______________________________________________
Title:_______________________________
Dated: _________________
11
<PAGE>
FORM OF ASSIGNMENT
(ENTIRE)
[To be signed only upon transfer of entire Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ________________________ hereby sells, assigns and
transfers unto _______________________ all rights of the undersigned under and
pursuant to the within Warrant, and the undersigned does hereby irrevocably
constitute and appoint ________________________, Attorney to transfer the said
Warrant on the books of the Company, with full power of substitution.
____________________________________________
[Type Name of Holder]
By:_________________________________________
Title:______________________________________
Dated:
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
Acknowledged and accepted:
_______________________________________
[Type name of assignee]
12
<PAGE>
FORM OF ASSIGNMENT
(PARTIAL)
[To he signed only upon partial transfer of Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED _____________________ hereby sells, assigns and
transfers unto _________________________ (i) the rights of the undersigned to
purchase ____ shares of Common Stock under and pursuant to the within Warrant,
and (ii) on a non-exclusive basis, all other rights of the undersigned under and
pursuant to the within Warrant, it being understood that the undersigned shall
retain, severally (and not jointly) with the transferee(s) named herein, all
rights assigned on such non exclusive basis. The undersigned does hereby
irrevocably constitute and appoint __________________________ Attorney to
transfer the said Warrant on the books of the Company, with full power of
substitution.
__________________________________________
[Type Name of Holder]
By:_______________________________________
Title:____________________________________
Dated: __________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
Acknowledged and accepted:
______________________________
[Type name of assignee]
13
<PAGE>
Exhibit 10.59
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Common Stock of
ONTOGENY, INC.
Dated as of September 1, 1999 (the "Effective Date")
WHEREAS, Ontogeny, Inc., a Delaware corporation (the "Company") has entered
into a Master Lease Agreement dated as of October 25, 1994, Equipment Schedules
Nos. VL-4 and VL-5 dated September 1, 1999, and related Schedules (the "Leases")
with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Common Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.
-------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 10,000 fully paid and non-
assessable shares of the Company's Convertible Common Stock ("Common Stock") at
a purchase price of $5.00 per share (the "Exercise Price"). The number and
purchase price of such shares are subject to adjustment as provided in Section 8
hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Common Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of ten (10)
years after the date of this Agreement.
(b) Acceleration of Term Upon Initial Public Offering. Notwithstanding the
-------------------------------------------------
term of this Warrant Agreement fixed pursuant to Section 2(a) hereof,
Warrantholder's right to purchase Common Stock as granted herein shall expire,
if not previously exercised, immediately upon the closing of the issuance and
sale of shares of Common Stock of the
<PAGE>
Company in the Company's first public offering of securities for its own account
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Initial Public Offering"), provided that the underwriters
request that the Warrantholder exercise this Warrant.
The Company shall notify the Warrantholder if the Initial Public Offering
is proposed, within a reasonable period of time prior to the filing of a
registration statement and if the Company fails to deliver such written notice
within a reasonable period of time, anything to the contrary in this Warrant
Agreement notwithstanding, the rights to purchase will not expire until ten (10)
business days after the Company delivers such notice to the Warrantholder. Such
notice shall also contain such details of the proposed Initial Public Offering
as are reasonable in the circumstances and notice that this Warrant Agreement is
expected to expire upon closing thereof. If such closing does not take place,
the Company shall promptly notify the Warrantholder that such proposed
transaction has been terminated. Anything to the contrary in this Warrant
Agreement notwithstanding, the Warrantholder may rescind any exercise of its
purchase rights promptly after such notice of termination of the proposed
transaction if the exercise of Warrants occurred after the Company notified the
Warrantholder that the Initial Public Offering was proposed or if the exercise
were otherwise precipitated by such proposed Initial Public Offering. In the
event of such rescission, the Warrants will continue to be exercisable on the
same terms and conditions.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Common Stock purchased and shall execute the Notice
of Exercise indicating the number of shares which remain subject to future
purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Common Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X= the number of shares of Common Stock to be issued to the
Warrantholder.
Y = the number of shares of Common Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
-2-
<PAGE>
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public
offering, and if the Company's Registration Statement relating to such
public offering has been declared effective by the SEC, then the fair
market value shall be the initial "Price to Public" specified in the final
prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with
the Company's Initial Public Offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the average of the closing prices
over a twenty-one (21) day period ending three days before
the day the current fair market value of the securities is
being determined; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the average of the closing bid and
asked prices quoted on the NASDAQ system (or similar
system) over the twenty-one (21) day period ending three
days before the day the current fair market value of the
securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving
party, in which case the fair market value of Common stock shall be deemed
to be the value per share of Common Stock received by the holders of the
Company's Common Stock on a common equivalent basis pursuant to such merger
or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights to purchase Common Stock as provided for herein.
(b) Registration or Listing. If any shares of Common Stock required to be
-----------------------
reserved hereunder require registration with or approval of any governmental
authority under
-3-
<PAGE>
any Federal or State law (other than any registration under the 1933 Act, as
then in effect, or any similar Federal statute then enforced, or any state
securities law, required by reason of any transfer involved in such conversion),
or listing on any domestic securities exchange, before such shares may be issued
upon conversion, the Company will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered,
listed or approved for listing on such domestic securities exchange, as the case
may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Common Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number and
kind of shares of stock or other securities of the successor corporation or cash
or other property that the Warrantholder would have been entitled to receive if
such Warrantholder had exercised this Warrant immediately prior to the Merger
Event. In any such case, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interest of
the Warrantholder after the Merger Event to the end that the provisions of this
Warrant Agreement (including adjustments of the Exercise Price and number of
shares of Common Stock purchasable) shall be applicable to the greatest extent
possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the Common Stock exist into the same or a different
number of securities of any other class or classes, this Warrant Agreement shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
Agreement
-4-
<PAGE>
immediately prior to such combination, reclassification, exchange, subdivision
or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
shall combine or subdivide its Common Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription pro rata to the
holders of any class of its Common Stock or other convertible stock any
additional shares of stock of any class or other rights; (iii) there shall be
any Merger Event; or (iv) there shall be any voluntary or involuntary
dissolution, liquidation or winding up of the Company; then, in connection with
each such event, the Company shall send to the Warrantholder (A) at least twenty
(20) days' prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution,
subscription rights (specifying the date on which the holders of Common Stock
shall be entitled thereto) or for determining rights to vote in respect of such
Merger Event, dissolution, liquidation or winding up; and (8) in the case of any
such Merger Event, dissolution, liquidation or winding up, at least twenty (20)
days' prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such Merger Event, dissolution, liquidation or winding up).
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(e) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (e) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Common Stock. The Common Stock issuable upon exercise
---------------------------
of the Warrantholder's rights has been duty and validly reserved and, when
issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Common Stock issuable pursuant to this Warrant Agreement may be subject to
restrictions on transfer under state and/or Federal securities laws. The Company
has made available to the Warrantholder true, correct and complete copies of its
Charter. The issuance of certificates for shares of Common Stock upon exercise
of the Warrant shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Common
Stock. The Company shall not be required to pay any tax which may be payable in
respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
-5-
<PAGE>
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Common Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approval. No consent or approval of, giving of notice
---------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for any filing required by applicable state
securities law, which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
------------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A)
50,000,000 shares of common Stock, $.01 par value per share (the "Common
Stock"), 2,456,435 shares which are issued and outstanding, (B) 5,000,000
shares of undesignated preferred stock, none of which are issued and
outstanding, (C) 4,922,299 shares of Series A Convertible Preferred Stock,
of which 4,853,334 shares of which are issued and outstanding, (D)
8,000,000 shares of Series B Convertible Preferred Stock, 7,447,223 shares
of which are issued and outstanding, (E) 1,000,000 shares, collectively, of
Series C Convertible Preferred Stock and Series D Convertible Preferred
Stock, all of which are issued and outstanding, (G) 10,000,000 shares of
Series E Convertible Preferred Stock, all of which are issued and
outstanding and (H) 10,000,000 shares of Series F Convertible Preferred
Stock, 8,379,593 shares of which are issued and outstanding.
(ii) The Company has issued warrants to purchase 25,000 shares of
its Common Stock at an average exercise price of $2.50 per share, 68,965
shares of its Series A Convertible Preferred Stock at an average exercise
price of $0.87 per share and 142,222 shares of its Series B Convertible
Preferred Stock at an average exercise price of $1.125 per share. The
Company has reserved 4,000,000 shares of Common Stock for issuance pursuant
to its 1995 Stock Option Plan. The Company has reserved 3,040,000 shares of
Common Stock for issuance pursuant to its 1994 Restricted Stock Plan. There
are no other options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any authorized but
unissued shares of the Company's capital stock or other securities of the
Company.
(iii) Except as set forth in the Registration Rights and Right of
First Refusal Agreement dated October 30, 1998 between the Company and
certain shareholders and the Stock Purchase Agreement dated September 2,
1994 between the Company
-6-
<PAGE>
and a certain Institution, no shareholder of the Company has preemptive
rights to purchase new issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated.
(f) Other Commitments to Register Securities. Except as set forth in the
----------------------------------------
Registration Rights and Right of First Refusal Agreement dated October 30, 1998
between the Company and certain shareholders and the Stock Purchase Agreement
dated September 2, 1994 between the Company and a certain Institution, the
Company is not, pursuant to the terms of any other agreement currently in
existence, under any obligation to register under the 1933 Act any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
-------------------
representations in Section 10 hereof, the issuance of the Common Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the Illinois Corporate
Securities Law, in reliance upon Section 4 (G) thereof.
(h) Compliance with Rule 144. At the written request of the
------------------------
Warrantholder, who proposes to sell Common Stock issuable upon the exercise of
the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Common Stock or the Common
-------------------
Stock issuable upon exercise of the Warrantholder's rights contained herein will
be acquired for investment and not with a view to the sale or distribution of
any part thereof, and the Warrantholder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Common Stock
--------------
issuable upon exercise of this Warrant is not registered under the 1933 Act or
qualified under applicable state securities laws on the ground that the issuance
contemplated by this Warrant Agreement will be exempt from the registration and
qualifications requirements thereof, and (ii) that the Company's reliance on
such exemption is predicated on the representations set forth in this Section
10.
(c) Disposition of Warrantholder's Right. In no event will the
------------------------------------
Warrantholder make a disposition of any of its rights to acquire Common Stock or
Common Stock issuable upon exercise of such rights unless and until (i) it shall
have notified the Company of the
-7-
<PAGE>
proposed disposition, and (ii) if requested by the Company, it shall have
furnished the Company with an opinion of counsel (which counsel may either be
inside or outside counsel to the Warrantholder) satisfactory to the Company and
its counsel to the effect that (A) appropriate action necessary for compliance
with the 1933 Act has been taken, or (B) an exemption from the registration
requirements of the 1933 Act is available. Notwithstanding the foregoing, the
restrictions imposed upon the transferability of any of its rights to acquire
Common Stock or Common Stock issuable on the exercise of such rights do not
apply to transfers from the beneficial owner of any of the aforementioned
securities to its nominee or from such nominee to its beneficial owner, and
shall terminate as to any particular share of Common Stock when (1) such
security shall have been effectively registered under the 1933 Act and sold by
the holder thereof in accordance with such registration or (2) such security
shall have been sold without registration in compliance with Rule 144 under the
1933 Act, or (3) a letter shall have been issued to the Warrantholder at its
request by the staff of the Securities and Exchange Commission or a ruling shall
have been issued to the Warrantholder at its request by such Commission stating
that no action shall be recommended by such staff or taken by such Commission,
as the case may be, if such security is transferred without registration under
the 1933 Act in accordance with the conditions set forth in such letter or
ruling and such letter or ruling specifies that no subsequent restrictions on
transfer are required. Whenever the restrictions imposed hereunder shall
terminate, as hereinabove provided, the Warrantholder or holder of a share of
Common Stock then outstanding as to which such restrictions have terminated
shall be entitled to receive from the Company, without expense to such holder,
one or more new certificates for the Warrant or for such shares of Common Stock
not bearing any restrictive legend.
Notwithstanding anything to the contrary contained herein:
(i) The Warrantholder shall not sell or transfer or agree to sell
or transfer any rights to acquire shares of stock of the Company or any
shares of stock of the Company (collectively, the "Offered Shares"), unless
in each case the Warrantholder shall have first complied with this Section
10 (c). The Warrantholder shall deliver to the Company a written notice of
any proposed or intended sale of Offered Shares (the "Offer"), which Offer
shall (a) identify the Offered Shares, (b) describe the price and other
terms upon which they are to be sold or transferred, and the number or
amount of the Offered Shares to be sold or transferred, and (c) offer to
sell to the Company all (but not less than all) such Offered Shares. The
Company shall have the right, for a period of five (5) days following
delivery of the Offer, to purchase or acquire, at a price and upon the
other terms specified in the Offer, any and all Offered Shares described
above. The Offer by its term shall remain open and irrevocable for such 5-
day period.
(ii) To accept an Offer, the Company must deliver a written notice
to the Warrantholder prior to the end of the 5-day period of the Offer (the
"Notice of Acceptance"). If the Company does not accept the Offer, the
Warrantholder may sell the Offered Shares on the terms and conditions set
forth in the Offer for a period of forty-five (45) days following the end
of the 5-day period of the Offer.
(iii) Any Offered Shares not acquired by the Company or other persons
in accordance with this Section 10 (c) may not be issued, sold or exchanged
until they are again offered to the Company under the procedures specified
in this Agreement.
-8-
<PAGE>
(iv) The provisions of this Section 10 (c) shall terminate upon the
closing of the Company's initial public offering of shares of Common Stock
pursuant to an effective registration statement under the Securities Act.
(d) Financial Risk. The Warrantholder has such knowledge and experience
--------------
in financial and business matters and in investing in companies similar to the
Company as to be capable of evaluating the merits and risks of its investment,
and has the ability to bear the economic risks of its investment.
(e) Authority. The Warrantholder has full power and authority to enter
---------
into and to perform this Agreement in accordance with its terms. The
Warrantholder has not been organized, reorganized or recapitalized specifically
for the purpose of investing in the Company.
(f) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Common Stock pursuant to this Warrant Agreement,
or (ii) the Common Stock issuable upon exercise of the right to purchase, it may
be required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Common Stock or Common Stock which might be made by it in reliance upon Rule 144
under the 1933 Act may be made only in accordance with the terms and conditions
of that Rule.
11. TRANSFERS.
---------
(a) Subject to the terms and conditions contained in Section 10 hereof,
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit II (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
(b) Legends. Each certificate or agreement representing rights to acquire
-------
shares of Common Stock, Common Stock issuable upon the exercise of such rights
or shares of Common Stock issuable upon the conversion of the Common Stock shall
bear a legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such shares are registered under
such Act, or an opinion of counsel satisfactory to the Company
is obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144 under the Securities Act.
-9-
<PAGE>
(c) If any of the provisions set forth in this Agreement are violated, the
Company shall not be required (i) to transfer on its books any of the rights to
acquire shares of Common Stock, Common Stock issuable upon the exercise of such
rights or shares of Common Stock issuable upon the conversion of the Common
Stock, or (ii) to treat as owner of such rights to acquire shares of Common
Stock, Common Stock issuable upon the exercise of such rights or shares of
Common Stock issuable upon the conversion of the Common Stock or to pay
dividends to any transferee to whom any such rights to acquire shares of Common
Stock, Common Stock issuable upon the exercise of such rights or shares of
Common stock issuable upon the conversion of the Common Stock shall have been so
sold or transferred.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, cc:
General Counsel, (and/or, if by facsimile, (847) 518-5465 AND (847) 518-5088)
and (ii) to the Company at 45 Moulton, Cambridge, Massachusetts 02138,
attention: Vice-President, Finance(and/or if by facsimile, (617) 876-0866) , cc:
Hale & Dorr, 60 State Street, Boston, Massachusetts, 02109, att: Mark G. Borden
or at such other address as any such party may subsequently designate by written
notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable.
(g) No Impairment of Rights. The Company will not, by amendment of its
------------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment. Any and all costs
-10-
<PAGE>
incurred by the Company in assisting the Warrantholder in the protection of the
Warrantholder's rights shall be paid for, or reimbursed, by the Warrantholder.
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
ONTOGENY, INC. COMDISCO, INC.
By:_________________________________ By:_________________________________
Title:______________________________ Title:______________________________
-11-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: ________________________
(1) The undersigned Warrantholder hereby elects to purchase _______ shares of
the Common Stock of Ontogeny, Inc., pursuant to the terms of the Warrant
Agreement dated the 2nd day of December, 1997 (the "Warrant Agreement")
between Ontogeny, Inc. and the Warrantholder, and tenders herewith payment
of the purchase price for such shares in full, together with all applicable
transfer taxes, if any.
(2) In exercising its rights to purchase the Common Stock of Ontogeny, Inc.,
the undersigned hereby confirms and acknowledges the investment
representations and warranties made in Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below.
________________________________________
(Name)
________________________________________
(Address)
Warrantholder: COMDISCO, INC.
By:_____________________________________
Title:__________________________________
Date:___________________________________
-12-
<PAGE>
ACKNOWLEDGMENT OF EXERCISE
The undersigned _____________________________, hereby acknowledge receipt
of the "Notice of Exercise" from Comdisco, Inc., to purchase ______ shares of
the Common Stock of Ontogeny, Inc., pursuant to the terms of the Warrant
Agreement, and further acknowledges that ________ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company: ONTOGENY, INC.
By:___________________________________
Title:________________________________
Date:_________________________________
-13-
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to:
___________________________________________________________(Please Print)
whose address is:________________________________________________________
Dated____________________________________________________________________
Holder's Signature ______________________________________________________
Holder's Address:________________________________________________________
Signature Guaranteed:____________________________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing Warrant Agreement.
-14-
<PAGE>
Exhibit 10.60
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE
COUNSEL FOR THE COMPANY) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT.
No. 2
STOCK SUBSCRIPTION WARRANT
To Purchase Common Stock of
ONTOGENY, INC. (the "Company")
DATE OF INITIAL ISSUANCE: November 15, 1999
THIS CERTIFIES THAT for value received, TBCC FUNDING TRUST I or its
registered assigns (hereinafter called the "Holder") is entitled to purchase
from the Company, at any time during the Term of this Warrant, Ten Thousand
(10,000) shares of common stock, $0.01 par value, of the Company (the "Common
Stock"), at the Warrant Price, payable as provided herein. The exercise of this
Warrant shall be subject to the provisions, limitations and restrictions herein
contained, and may be exercised in whole or in part.
SECTION 1. Definitions.
-----------
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
Common Stock - shall mean and include the Company's authorized Common
------------
Stock, $0.01 par value, as constituted at the date hereof
Exchange Act - shall mean the Securities Exchange Act of 1934, as amended
------------
from time to time.
Securities Act - the Securities Act of 1933, as amended.
--------------
Term of this Warrant - shall mean the period beginning on the date of
--------------------
initial issuance hereof and ending on the earlier to occur of (i) five years
from the date of issuance or (ii) Borrower's initial public offering, subject to
the provisions of Section 2.3 below.
Warrant Price - $5.00 per share, subject to adjustment in accordance with
-------------
Section 5 hereof.
<PAGE>
Warrants - this Warrant and any other Warrant or Warrants issued in
--------
connection with a Commitment Letter dated June 1, 1999 executed by the Company
and Transamerica Business Credit Corporation (the "Commitment Letter") to the
original holder of this Warrant, or any transferees from such original holder or
this Holder.
Warrant Shares - shares of Common Stock purchased or purchasable by the
--------------
Holder of this Warrant upon the exercise hereof.
SECTION 2. Exercise of Warrant.
-------------------
2.1. Procedure for Exercise of Warrant. This Warrant may be exercised in
---------------------------------
whole or in part by the Holder at any time, or from time to time, prior to the
expiration of the Term. To exercise this Warrant in whole or in part (but not as
to any fractional share of Common Stock), the Holder shall deliver to the
Company at its office referred to in Section 13 hereof at any time and from time
to time during the Term of this Warrant: (i) the Notice of Exercise in the form
attached hereto, (ii) cash, certified or official bank check payable to the
order of the Company or wire transfer of funds to the Company's account (or any
combination of any of the foregoing) in the amount of the Warrant Price for each
share being purchased, and (iii) this Warrant. Notwithstanding any provisions
herein to the contrary, if the Current Market Price (as defined in Section 5) is
greater than the Warrant Price (at the date of exercise, as set forth below), in
lieu of exercising this Warrant as hereinabove permitted, the Holder may elect
to receive shares of Common Stock equal to the value (as determined below) of
this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the office of the Company referred to in Section 13 hereof, together
with the Notice of Exercise, in which event the Company shall issue to the
Holder that number of shares of Common Stock computed using the following
formula:
CS = WCS X (CMP-WP)
--------------
CMP
Where
CS equals the number of shares of Common Stock to be issued to the Holder
WCS equals the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being exercised (at the date of exercise)
CMP equals the Current Market Price (at the date of exercise)
WP equals the Warrant Price (as adjusted to the date of exercise)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered
-2-
<PAGE>
to the Holder hereof within a reasonable time, not exceeding fifteen (15) days,
after the rights represented by this Warrant shall have been so exercised; and,
unless this Warrant has expired, a new Warrant representing the number of shares
(except a remaining fractional share), if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the Holder
hereof within such time. The person in whose name any certificate for shares of
Common Stock is issued upon exercise of this Warrant shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
the Notice of Exercise and Warrant is delivered to the Company and payment of
the Warrant Price and any applicable taxes is made, irrespective of the date of
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
2.2. Transfer Restriction Legend. Each certificate for Warrant Shares
---------------------------
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged
or hypothecated unless and until such shares are registered
under such Act, or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is
not required."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
2.3. Acceleration of Term Upon Initial Public Offering. Notwithstanding
-------------------------------------------------
any provision to the contrary contained in this Warrant, the Holder's right to
exercise this Warrant shall expire, if not previously exercised, immediately
upon the closing of the issuance and sale of shares of Common Stock in the
Company's first public offering of securities for its own account pursuant to an
effective registration statement under the Securities Act (the "Initial Public
Offering"), provided that the underwriters request that the Holder exercise this
Warrant and provide at least fifteen (15) business days' opportunity to
exercise.
The Company shall notify the Holder if the Initial Public Offering is proposed,
within a reasonable period of time prior to the filing of a registration
statement. Such notice shall
-3-
<PAGE>
contain such details of the proposed Initial Public Offering as are reasonable
in the circumstances and notice that this Warrant is expected to expire upon
closing thereof (provided such notice is delivered at least fifteen (15)
business days prior thereto). If such closing does not take place, the Company
shall promptly notify the Holder that such proposed transaction has been
terminated. Anything to the contrary in this Warrant notwithstanding, the Holder
may rescind any exercise promptly after such notice of termination of the
proposed transaction if the exercise occurred after the Company notified the
Holder that the Initial Public Offering was proposed or if the exercise were
otherwise precipitated by such proposed Initial Public Offering. In the event of
such rescission, this Warrant will continue to be exercisable on the same terms
and conditions.
SECTION 3. Covenants as to Common Stock. The Company covenants and agrees
----------------------------
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable, and free from all taxes, liens and charges with respect
to the issue thereof. The Company further covenants and agrees that it will pay
when due and payable any and all federal and state taxes (not including taxes on
or measured by the net income or capital gains of the Holder) which may be
payable in respect of the issue of this Warrant or any Common Stock or
certificates therefor issuable upon the exercise of this Warrant. The Company
further covenants and agrees that the Company will at all times have authorized
and reserved, free from preemptive rights, a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant. The Company further covenants and agrees that if any shares of capital
stock to be reserved for the purpose of the issuance of shares upon the exercise
of this Warrant require registration with or approval of any governmental
authority under any federal or state law before such shares may be validly
issued or delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Common Stock issuable upon the exercise
of this Warrant is listed on any national securities exchange, the Company will,
if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon exercise of this Warrant.
SECTION 4. Adjustment of Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price as provided in Section 5, the Holder shall thereafter be entitled
to purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
SECTION 5. Adjustment of Warrant Price. The Warrant Price shall be subject
---------------------------
to adjustment from time to time as follows: (i) If, at any time during the Term
of this Warrant, the number of shares of Common Stock outstanding is increased
by a stock dividend payable in shares of Common Stock or by a subdivision or
split-up of shares of Common Stock, then, following the record date fixed for
the determination of holders of Common Stock entitled to
-4-
<PAGE>
receive such stock dividend, subdivision or split-up, the Warrant Price shall be
appropriately decreased so that the number of shares of Common Stock issuable
upon the exercise hereof shall be increased in proportion to such increase in
outstanding shares.
(ii) If, at any time during the Term of this Warrant, the number of shares
of Common Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for such combination,
the Warrant Price shall appropriately increase so that the number of shares of
Common Stock issuable upon the exercise hereof shall be decreased in proportion
to such decrease in outstanding shares.
(iii) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(iv) The Current Market Price at any date of one share of Common Stock
shall be deemed to be the average of the daily closing prices for the 15
consecutive business days ending on the third business day before the day in
question (as adjusted for any stock dividend, split, combination or
reclassification that took effect during such 15 business day period). The
closing price for each day shall be the last reported sales price or, in case no
such reported sales took place on such day, the average of the last reported bid
and asked prices, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or as reported by
Nasdaq (or if the Common Stock is not at the time listed or admitted for trading
on any such exchange or if prices of the Common Stock are not reported by Nasdaq
then such price shall be equal to the average of the last reported bid and asked
prices on such day as reported by The National Quotation Bureau Incorporated or
any similar reputable quotation and reporting service, if such quotation is not
reported by The National Quotation Bureau Incorporated); provided, however, that
if the Common Stock is not traded in such manner that the quotations referred to
in this clause (v) are available for the period required hereunder, the Current
Market Price shall be determined in good faith by the Board of Directors of the
Company or, if such determination cannot be made, by a nationally recognized
independent investment banking firm selected by the Board of Directors of the
Company (or if such selection cannot be made, by a nationally recognized
independent investment banking firm selected by the American Arbitration
Association in accordance with its rules).
(v) Whenever the Warrant Price shall be adjusted as provided in Section
5, the Company shall prepare a statement showing the facts requiring such
adjustment and the Warrant Price that shall be in effect after such adjustment.
The Company shall cause a copy of such statement to be sent by mail, first class
postage prepaid, to each Holder of this Warrant at its, his or her address
appearing on the Company's records. Where appropriate, such copy may be given in
advance and may be included as part of the notice required to be mailed under
the provisions of subsection (viii) of this Section 5.
(vi) Adjustments made pursuant to clauses (i) and (ii) above shall be made
on the date such dividend, subdivision, split-up, combination or distribution,
as the case may be, is made, and shall become effective at the opening of
business on the business day next
-5-
<PAGE>
following the record date for the determination of stockholders entitled to such
dividend, subdivision, split-up, combination or distribution.
(vii) In the event the Company shall propose to take any action of the
types described in clauses (i) or (ii) of this Section 5, the Company shall
forward, at the same time and in the same manner, to the Holder of this Warrant
such notice, if any, which the Company shall give to the holders of Common Stock
of the Company.
(viii) In any case in which the provisions of this Section 5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
SECTION 6. Ownership.
---------
6.1. Ownership of This Warrant. The Company may deem and treat the
-------------------------
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2. Transfer and Replacement. This Warrant and all rights hereunder
------------------------
are transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees (and in the name of the Holder, if a partial transfer is
effected) shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 13
hereof. In the event of any purported transfer of this Warrant not in accordance
with the terms hereof, the Company shall not be required (i) to transfer on its
books any of the rights to acquire shares of Common Stock or Common Stock
issuable upon the exercise of such rights, or (ii) to treat as owner of such
rights to acquire shares of Common Stock or Common Stock issuable upon the
exercise of such rights. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft or destruction, and, in such case, of
indemnity or security reasonably satisfactory to it, and upon surrender of this
Warrant if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu of this Warrant; provided that if the Holder hereof is an
instrumentality of a state or local government or an institutional holder or a
nominee for such an instrumentality or institutional holder an irrevocable
agreement of indemnity by such Holder shall be sufficient for all purposes of
this Section 6, and no evidence of loss or theft or destruction shall be
necessary. This Warrant shall be
-6-
<PAGE>
promptly cancelled by the Company upon the surrender hereof in connection with
any transfer or replacement. Except as otherwise provided above, in the case of
the loss, theft or destruction of a Warrant, the Company shall pay all expenses,
taxes (not including taxes on or measured by the net income or capital gains of
the Holder) and other charges payable in connection with any transfer or
replacement of this Warrant, other than stock transfer taxes (if any) payable in
connection with a transfer of this Warrant, which shall be payable by the
Holder. Notwithstanding anything to the contrary herein, Holder will not
transfer this Warrant and the rights hereunder except in compliance with federal
and state securities laws.
SECTION 7. Mergers, Consolidation, Sales. In the case of any proposed
-----------------------------
consolidation or merger of the Company with another entity, or the proposed sale
of all or substantially all of its assets to another person or entity, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable hereunder, such
shares of stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for the number of shares of such Common Stock
purchasable hereunder immediately before such consolidation, merger, sale,
reorganization or reclassification. In any such case appropriate provision shall
be made with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof shall thereafter be applicable as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of this Warrant.
SECTION 8. Notice of Dissolution or Liquidation. In case of any
------------------------------------
distribution of the assets of the Company in dissolution or liquidation (except
under circumstances when the foregoing Section 7 shall be applicable), the
Company shall give notice thereof to the Holder hereof and shall make no
distribution to shareholders until the expiration of twenty (20) days from the
date of mailing of the aforesaid notice and, in any case, the Holder hereof may
exercise this Warrant within twenty (20) days from the date of the giving of
such notice, and all rights herein granted not so exercised within such
thirty-day period shall thereafter become null and void.
SECTION 9. Notice of Extraordinary Dividends. If the Board of Directors of
---------------------------------
the Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than twenty (20) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
-7-
<PAGE>
SECTION 10. Fractional Shares. Fractional shares shall not be issued upon
-----------------
the exercise of this Warrant but in any case where the Holder would, except for
the provisions of this Section 10, be entitled under the terms hereof to receive
a fractional share upon the complete exercise of this Warrant, the Company
shall, upon the exercise of this Warrant for the largest number of whole shares
then called for, pay a sum in cash equal to the excess of the Current Market
Price over the Warrant Price for such fractional share.
SECTION 11. Special Arrangements of the Company. The Company covenants and
-----------------------------------
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant:
11.1. Will Reserve Shares. The Company will reserve and set apart and
-------------------
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. Will Not Amend Certificate. The Company will not amend its
--------------------------
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. Will Bind Successors. This Warrant shall be binding upon any
--------------------
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. Representations and Covenants of the Holder. This Warrant has
-------------------------------------------
been entered into by the Company in reliance upon the following representations
and covenants of the Holder:
(a) Investment Purpose. The right to acquire Common Stock or the
Common Stock issuable upon exercise of the Holder's rights contained herein will
be acquired for investment and not with a view to the sale or distribution of
any part thereof, and the Holder has no present intention of selling or engaging
in any public distribution of the same except pursuant to a registration or
exemption.
(b) Private Issue. The Holder understands (i) that the Common Stock
issuable upon exercise of this Warrant is not registered under the Securities
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant will be exempt from registration and
qualifications requirements, and (ii) that the Company's reliance on such
exemption is predicated on the representations set forth in this Section 12.
(c) Disposition of Holder's Rights. In no event will the Holder make
a disposition of any of its rights to acquire Common Stock or Common Stock
issuable upon exercise of such rights unless and until (i) it shall have
notified the Company of the proposed disposition, and (ii) if requested by the
Company, it shall have furnished the Company with an opinion of counsel (which
counsel may either be inside or outside counsel to the Warrantholder)
satisfactory to the Company and its counsel to the effect that (a) appropriate
-8-
<PAGE>
action necessary for compliance with the Securities Act has been taken, or (b)
an exemption from the registration requirements of the Securities Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Common Stock or Common Stock
issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Common Stock when (1) such security shall have been effectively
registered under the Securities Act and sold by the holder thereof in accordance
with such registration or (2) such security may be sold without registration in
compliance with Rule 144 under the Securities Act, or (3) a letter shall have
been issued to the Holder at the request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Holder at its
request by such Commission stating that no action shall be recommended by such
staff or taken by such commission, as the case may be, if such security is
transferred without registration under the Securities Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate as hereinabove provided the
Holder or holder of a share of Common Stock then outstanding as to which such
restrictions have terminated shall be entitled to receive from the Company,
without expense to such holder, one or more new certificates for the Warrant or
for such shares of Common Stock not bearing any restrictive legend.
(d) Financial Risk. The Holder has such knowledge and experience in
financial and business matters and in investing in companies similar to the
Company as to be capable of evaluating the merits and risk of its investment,
and has the ability to bear the economic risks of its investment.
(e) Authority. The Holder has full power and authority to enter into
and to perform this Agreement in accordance with its terms. The Holder has not
been organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
(f) Risk of No Registration. The Holder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the Securities Act, or file reports pursuant to Section 15(d)
of the Securities Exchange Act of 1934 ' or if a registration statement covering
the securities under the Securities Act is not in effect when it desires to sell
(i) the rights to purchase Common Stock pursuant to this Warrant, or (ii) the
Common Stock issuable upon exercise of the right to purchase, it may be required
to hold such securities for an indefinite period. The Holder also understands
that any sale of its rights to purchase Common Stock or Common Stock which may
be made by it in reliance upon Rule 144 under the Securities Act may be made
only in accordance with the terms and conditions of that Rule.
SECTION 13. Notices. Any notice or other document required or permitted to
-------
be given or delivered to the Holder shall be delivered at, or sent by certified
or registered mail to, the Holder at Transamerica Technology Finance Division,
76 Batterson Park Road, Farmington, Connecticut 06032, Attention: Assistant Vice
President, Lease Administration, with a copy to
-9-
<PAGE>
the Lender at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont,
Illinois 60018, Attention: Legal Department or to such other address as shall
have been furnished to the Company in writing by the Holder. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered at, or sent by certified or registered mail to, the Company at 45
Moulton Street, Cambridge, Massachusetts 02138, Attention: Vice President,
Finance with a copy to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts
02109, Attention: Mark Borden, Esq. or to such other address as shall have been
furnished in writing to the Holder by the Company. Any notice so addressed and
mailed by registered or certified mail shall be deemed to be given when so
mailed. Any notice so addressed and otherwise delivered shall be deemed to be
given when actually received by the addressee.
SECTION 14. No Rights as Stockholder; Limitation of Liability. This Warrant
-------------------------------------------------
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No provision
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the Warrant Price
hereunder or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
SECTION 15. Law Governing. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF
-------------
THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 16. Miscellaneous. This Warrant and any provision hereof may be
-------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the Company and the Holder (or any respective successor in interest
thereof). The headings in this Warrant are for purposes of reference only and
shall not affect the meaning or construction of any of the provisions hereof.
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this 15/th/ day of November, 1999.
ONTOGENY, INC.
[CORPORATE SEAL]
/s/ George A. Eldridge
-----------------------
George A. Eldridge
Vice President, Finance & CFO
TRANSAMERICA BUSINESS
CREDIT CORPORATION
By:____________________________
Name:
Title:
-11-
<PAGE>
FORM OF NOTICE OF EXERCISE
[To be signed only upon exercise of the Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase _____ shares of
Common Stock which the undersigned is entitled to purchase by the terms of the
within Warrant according to the conditions thereof, and herewith
[check one]
[_] makes payment of $_______ therefor; or
[_] directs the Company to issue ____ shares, and
to withhold ____ shares in lieu of payment of
the Warrant Price, as described in Section 2.1
of the Warrant.
All shares to be issued pursuant hereto shall be issued in the name of and the
initial address of such person to be entered on the books of the Company shall
be:
The shares are to be issued in certificates of the following denominations:
The Holder confirms and acknowledges the investment representations made in
Section 12 of the Warrant.
____________________________________
[Type Name of Holder]
By:
____________________________________
Title:
____________________________________
Dated: __________________________
-12-
<PAGE>
FORM OF ASSIGNMENT
(ENTIRE)
(To be signed only upon transfer of entire Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ___________________________________ hereby sells,
assigns and transfers unto___________________________ all rights of the
undersigned under and pursuant to the within Warrant, and the undersigned does
hereby irrevocably constitute and appoint _________________________________
Attorney to transfer the said Warrant on the books of the Company, with fall
power of substitution.
____________________________________
[Type Name of Holder]
By:
____________________________________
Title:
____________________________________
Dated: _____________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
Acknowledged and accepted:
___________________________________
[Type name of assignee]
-13-
<PAGE>
FORM OF ASSIGNMENT
(PARTIAL)
[To be signed only upon partial transfer of Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ___________________________________ hereby sells,
assigns and transfers unto _____________________________ (i) the rights of the
undersigned to purchase _______ shares of Common Stock under and pursuant to the
within Warrant, and (ii) on a non-exclusive basis, all other rights of the
undersigned under and pursuant to the within Warrant, it being understood that
the undersigned shall retain, severally (and not jointly) with the transferee(s)
named herein, all rights assigned on such non-exclusive basis. The undersigned
does hereby irrevocably constitute and appoint
____________________________ Attorney to transfer the said Warrant on the books
of the Company, with full power of substitution.
__________________________________
[Type Name of Holder]
By: ______________________________
Title: ___________________________
Dated: _____________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
Acknowledged and accepted:
___________________________________
[Type name of assignee)
-14-
<PAGE>
Exhibit 10.61
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMEPANY COUNSEL) REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
1933 ACT.
WARRANT AGREEMEENT
To Purchase 5,000 Shares of Common Stock of
ONTOGENY, INC.
Dated as of December 17, 1999 (the "Effective Date")
WHEREAS, Ontogeny, Inc., a Delaware corporation (the "Company") has entered
into a Master Equipment Lease Agreement dated as of December 17, 1999, Lease
Line Schedule No. 01, and certain other related schedules and other documents
(collectively, as amended or supplemented from time to time the "Leases") with
Lighthouse Capital III, L.P., a Delaware limited partnership (the
"Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Common Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of the mutual covenants and
agreements contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, at a price per share equal to $5.00
(the "Exercise Price"), 5,000 fully paid and nonassessable shares of the
Company's Common Stock, $.01 par value per share (the "Common Stock"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Common Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of ten (10)
years.
(b) Acceleration of Term Upon Initial Public Offering. Notwithstanding the
term of this Warrant Agreement fixed pursuant to Section 2(a) hereof,
Warrantholder's right to purchase Common Stock as granted herein shall expire,
if not previously exercised, immediately upon the closing of the issuance and
sale of shares of Common Stock of the Company in the Company's first public
offering of securities for its own account pursuant to an effective
<PAGE>
registration statement under the 1933 Act (the "Initial Public Offering"),
provided that the underwriters request that the Warrantholder exercise this
Warrant.
The Company shall notify the Warrantholder if the Initial Public Offering
is proposed, within a reasonable period of time prior to the filing of a
registration statement and if the Company fails to deliver such written notice
within a reasonable period of time, anything to the contrary in this Warrant
Agreement notwithstanding, the rights to purchase will not expire until ten (10)
business days after the Company delivers such notice to the Warrantholder. Such
notice shall also contain such details of the proposed Initial Public Offering
as are reasonable in the circumstances and notice that this Warrant Agreement is
expected to expire upon the later of (i) the closing of the Initial Public
Offering or (ii) the date which is ten (10) days after the date the
Warrantholder receives the notice. If such closing does not take place within
six (6) months, the Company shall promptly notify the Warrantholder that such
proposed transaction has been terminated. Anything to the contrary in this
Warrant Agreement notwithstanding, the Warrantholder may rescind any exercise of
its purchase rights promptly after such notice of termination of the proposed
transaction if the exercise of Warrants occurred after the Company notified the
Warrantholder that the Initial Public Offering was proposed or if the exercise
were otherwise precipitated by such proposed Initial Public Offering. In the
event of such rescission, the Warrants will continue to be exercisable on the
same terms and conditions.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Common Stock purchased and shall execute the Notice
of Exercise indicating the number of shares which remain subject to future
purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, (ii) by the surrender by the Warrantholder to the Company of
any promissory notes or other obligations issued by the Company, with all such
notes and obligations so surrendered being credited against the Exercise Price
in an amount equal to the principal amount thereof plus accrued interest to the
date of surrender, (iii) by surrender of Warrants ("Net Issuance") as determined
below, or (iv) by any combination of the foregoing. If the Warrantholder elects
the Net Issuance method, the Company will issue Common Stock in accordance with
the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued
to the Warrantholder.
-2-
<PAGE>
Y = the number of shares of Common Stock requested
to be exercised under this Warrant Agreement.
A = the fair market value of one (1) share of
Common Stock.
B = the Exercise Price in effect under the Warrant
Agreement at the time the net issue election is
made pursuant to this Section 3.
As used herein, current fair market value of a share of Common Stock shall
mean with respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public
offering, and if the Company's Registration Statement relating to such public
offering has been declared effective by the SEC, then the initial "Price to
Public" specified in the final prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(1) if traded on a securities exchange, the fair market value of
the Common Stock shall be deemed to be the average of the closing prices over a
twenty-one (21 ) day period ending three days before the day the current fair
market value of the securities is being determined and the fair market value of
the Common Stock shall be deemed to be such fair market value of the Common
Stock;
(2) if actively traded over-the-counter, the fair market value
of the Common Stock shall be deemed to be the average of the closing bid and
asked prices quoted on the NASDAQ system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair market value
of the securities is being determined and the fair market value of the Common
Stock shall be deemed to be such fair market value of the Common Stock; and
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of the Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, and the fair market value of the Common Stock shall be deemed to be
such fair market value of the Common Stock; provided, that if the Company shall
become subject to a merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, the fair market value of the Common
Stock shall be deemed to be the value per share of the consideration received by
the holders of the Company's Common Stock pursuant to such merger or acquisition
and the fair market value of the Common Stock shall be deemed to be such fair
market value of the Common Stock.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable
-3-
<PAGE>
hereunder. All other terms and conditions of such amended Warrant Agreement
shall be identical to those contained herein, including, but not limited to the
Effective Date hereof
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights to purchase Common Stock as provided for herein.
(b) Registration or Listing. If any shares of Common Stock required to be
reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Common Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number and
kind of shares of stock or other securities of the
-4-
<PAGE>
successor corporation or cash or other property that the Warrantholder would
have been entitled to receive if such Warrantholder had exercised this Warrant
immediately prior to the Merger Event. In any such case, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant Agreement with respect to
the rights and interest of the Warrantholder after the Merger Event to the end
that the provisions of this Warrant Agreement (including adjustments of the
Exercise Price and number of shares of Common Stock purchasable) shall be
applicable to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the Common Stock into the same or a different number of
securities of any other class or classes, this Warrant Agreement shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
Agreement immediately prior to such combination, reclassification, exchange,
subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide (by split-up or otherwise) its Common Stock or issue
additional shares of Common Stock in payment of a stock dividend on the Common
Stock, the number of shares of Common Stock issuable on the exercise of this
Warrant Agreement shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination, and the Exercise Price shall be proportionately decreased in the
case of a subdivision or stock dividend, or proportionately increased in the
case of a combination.
(d) Antidilution Rights. Additional antidilution rights applicable to the
Common Stock purchasable hereunder are as set forth in the Company's Certificate
of Incorporation, as amended through the Effective Date, a true and complete
copy of which is attached hereto as Exhibit III (the "Charter"). The Company
shall promptly provide the Warrantholder with any restatement, amendment,
modification or waiver of the Charter affecting such anti-dilution rights. The
Company will give Warrantholder notices of all dilutive issuances of its stock.
(e) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription pro rata to the
holders of any class of its Preferred Stock or other convertible stock any
additional shares of stock of any class or other rights; (iii) there shall be
any Merger Event; or (iv) there shall be any voluntary or involuntary
dissolution, liquidation or winding up of the Company; then, in connection with
each such event, the Company shall send to the Warrantholder: (A) at least
twenty (20) days prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution,
subscription rights (specifying the date on which the holders of Common Stock
shall be entitled thereto) or for determining rights to vote in respect of such
Merger Event, dissolution, liquidation or winding up; and (B) in the case of any
such Merger Event, dissolution, liquidation or winding up, at least twenty (20)
days prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Common Stock shall be entitled to
exchange their
-5-
<PAGE>
Common Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up).
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(f) Timely Notice. Failure to timely provide such notice required by
subsection (e) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Common Stock. The Common Stock issuable upon exercise
of the Warrantholder's rights and the Common Stock issuable upon conversion
thereof has been duly and validly reserved and, when issued in accordance with
the provisions of this Warrant Agreement, will be validly issued, fully paid and
non-assessable, and will be free of any taxes, liens, charges or encumbrances of
any nature whatsoever; provided, however, that the Common Stock issuable
pursuant to this Warrant Agreement may be subject to restrictions on transfer
under state and/or Federal securities laws. The Company has made available to
the Warrantholder true, correct and complete copies of its Charter and Bylaws,
as amended, and minutes of all Board of Directors (including all committees of
the Board of Directors, if any) and Shareholder meetings from inception through
September 8, 1997. The issuance of certificates for shares of Common Stock upon
exercise of the Warrant shall be made without charge to the Warrantholder for
any issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Common
Stock. The Company shall not be required to pay any tax which may be payable in
respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Common Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other
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<PAGE>
governmental authority or agency is required with respect to the execution,
delivery and performance by the Company of its obligations under this Warrant
Agreement, except for the filing of notices pursuant to Regulation D under the
1933 Act and Section 25102(f) of the California Corporate Securities Law, which
filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital stock of the Company consists of (A)
50,000,000 shares of common stock, $.01 par value per share (the "Common
Stock"), 2,844,765 shares of which are issued and outstanding (including
1,487,535 shares issued pursuant to the 1994 Restricted Stock Plan of the
Company), (B) 5,000,000 shares of undesignated preferred stock, none of which
are issued or outstanding, (C) 4,922,299 shares of Series A Convertible
Preferred Stock, 4,853,334 shares of which are issued and outstanding, (D)
8,000,000 shares of Series B Convertible Preferred Stock, 7,449,223 shares of
which are issued and outstanding, (E) 1,800,000 shares, collectively, of Series
C Convertible Preferred Stock, Series C1 Convertible Preferred Stock, and Series
D Convertible Preferred Stock, all of which are issued and outstanding, (G)
10,000,000 shares of Series E Convertible Preferred Stock, all of which are
issued or outstanding, (H) 10,000,000 Series F Convertible Preferred Stock,
8,379,593 of which are issued and outstanding, (I) 400,000 Series G Convertible
Preferred Stock, 400,000 of which are issued and outstanding.
(ii) The Company has issued warrants to purchase 68,962 shares of
its Series A Convertible Preferred Stock at an average exercise price of $0.87
per share and 142,222 shares of its Series B Convertible Preferred Stock at an
average exercise price of $1.125 per share. The Company has reserved 7,494,770
shares of Common Stock for issuance pursuant to its 1995 and 1997 Stock Option
Plans. The Company has reserved 1,487,535 shares of Common Stock for issuance
pursuant to its 1994 Restricted Stock Plan of which 1,487,535 shares are issued
and outstanding.
(iii) Except as stated in the Company's Charter and the Company's
Amended and Restated Registration Rights and Right of First Refusal Agreement,
no shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated.
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement, the Amended and Restated Registration Rights and Right of
First Refusal Agreement dated as of March 12, 1997 between the Company and
certain shareholders and the Stock Purchase Agreement dated September 2, 1994
between the Company and a certain Institution, the Company is not pursuant to
the terms of any other agreement currently in
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<PAGE>
existence, under any obligation to register under the 1933 Act any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Common Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the California
Corporate Securities Law, in reliance upon Section 25102(f) thereof.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Common Stock issuable upon the exercise of the Warrant in
compliance with Rule 144 promulgated by the Securities and Exchange Commission,
the Company shall furnish to the Warrantholder, within ten days after receipt of
such request, a written statement confirming the Company's compliance with the
filing requirements of the Securities and Exchange Commission as set forth in
such Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Common Stock or the Common
Stock issuable upon exercise of the Warrantholder's rights contained herein will
be acquired for investment and not with a view to the sale or distribution of
any part thereof, and the Warrantholder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Common Stock
issuable upon exercise of this Warrant is not registered under the 1933 Act or
qualified under applicable state securities laws on the ground that the issuance
contemplated by this Warrant Agreement will be exempt from the registration and
qualifications requirements thereof, and (ii) that the Company's reliance on
such exemption is predicated on the representations set forth in this Section
10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Common Stock or
Common stock issuable upon exercise of such rights unless and until (i) it shall
have notified the Company of the proposed disposition, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
(which counsel may either be inside or outside counsel to the Warrantholder)
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the 1933 Act has been taken, or (B) an
exemption from the registration requirements of the 1933 Act is available.
Notwithstanding the foregoing, the restrictions imposed on the transferability
of any of its rights to acquire Common Stock or Common Stock issuable on the
exercise of such rights do not apply to transfers from the beneficial owner of
any of the aforementioned securities to its nominee or from such nominee to its
beneficial owner, and shall terminate as to any particular share of Common Stock
when (1) such security shall have
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<PAGE>
been effectively registered under the 1993 Act and sold by the holder thereof in
accordance with such registration or (2) such security shall have been sold
without registration in compliance with Rule 144 under the 1933 Act, or (3) a
letter shall have been issued to the Warrantholder at its request by the staff
of the Securities and Exchange Commission stating that no action shall be
recommended by such staff or taken by such Commission, as the case may be, if
such security is transferred without registration under the 1933 Act in
accordance with the conditions set forth in such letter or ruling and such
letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a share of Common Stock
then outstanding as to which such restrictions have terminated shall be entitled
to receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Common Stock not bearing any
restrictive legend.
Notwithstanding anything to the contrary contained herein:
(i) The Warrantholder shall not sell or transfer or agree to sell or
transfer any rights to acquire shares of stock of the Company or any shares of
stock of the Company (collectively, the "Offered Shares"), unless in each case
the Warrantholder shall have first complied with this Section 10(c). The
Warrantholder shall deliver to the Company a written notice of any proposed or
intended sale of Offered Shares (the "Offer"), which Offer shall (a) identify
the Offered Shares, (b) describe the price and other terms upon which they are
to be sold or transferred, and the number or amount of the Offered Shares to be
sold or transferred, and (c) offer to sell to the Company all (but not less than
all) such Offered Shares. The Company shall have the right, for a period of five
(5) days following delivery of the Offer, to purchase or acquire, at a price and
upon the other terms specified in the Offer, any and all Offered Shares
described above. The Offer by its term shall remain open and irrevocable for
such 5-day period.
(ii) To accept an Offer, the Company must deliver a written notice to
the Warrantholder prior to the end of the 5-day period of the Offer (the "Notice
of Acceptance"). If the Company does not accept the Offer, the Warrantholder
may sell the Offered Shares on the terms and conditions set forth in the Offer
for a period of forty-five (45) days following the end of the 5-day period of
the Offer.
(iii) Any Offered Shares not acquired by the Company or other persons
in accordance with this Section 10(c) may not be issued, sold or exchanged until
they are again offered to the Company under the procedures specified in this
Agreement.
(iv) The provisions of this Section 10(c) shall terminate upon the
closing of the Company's initial public offering of shares of Common Stock
pursuant to an effective registration statement under the Securities Act.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters and in investing in companies similar to the
Company as to be capable of evaluating the merits and risks of its investment,
and has the ability to bear the economic risks of its investment.
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<PAGE>
(e) Authority. The Warrantholder has full power and authority to enter
into and to perform this Agreement in accordance with its terms. The
Warrantholder has not been organized, reorganized or recapitalized specifically
for the purpose of investing in the Company.
(f) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Common Stock pursuant to this Warrant Agreement,
or (ii) the Common Stock issuable upon exercise of the right to purchase, it may
be required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Common Stock or Common Stock which might be made by it in reliance upon Rule 144
under the 1933 Act may be made only in accordance with the terms and conditions
of that Rule.
11. TRANSFERS.
(a) Subject to the terms and conditions contained in Section 10 hereof,
this Warrant Agreement and all rights hereunder are transferable in whole or in
part by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit II (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
(b) Legends. Each certificate or agreement representing rights to acquire
shares of Common Stock shall bear a legend substantially in the following form:
"The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and until
such shares are registered under such Act, or an
opinion of counsel satisfactory to the Company is
obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144 under the Securities Act.
(c) If any of the provisions set forth in this Agreement are violated, the
Company shall not be required (i) to transfer on its books any of the rights to
acquire shares of Common Stock, or (ii) to treat as owner of such rights to
acquire shares of Common Stock or to pay dividends to any transferee to whom any
such rights to acquire shares of Common Stock shall have been so sold or
transferred.
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<PAGE>
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceeding
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
California.
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at 100
Drakes Landing Road, Suite 260, Greenbrae, CA 94904 with a copy to William S.
Veatch, Esq., c/o Cooley, Godward, Castro, Huddleson & Tatum, Five Palo Alto
Square, 3000 El Camino Real, Palo Alto, CA 94306-2155 and (ii) to the Company at
45 Moulton Street, Cambridge, MA 02138, (and/or if by facsimile, (617) 876-
0866), c/o Chief Financial Officer or at such other address as any such party
may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment. Any and all costs incurred by the Company in
assisting the Warrantholder in the protection of the Warrantholder's rights
shall be paid for, or reimbursed, by the Warrantholder.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
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<PAGE>
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be replace
by a mutually acceptable valid, legal and enforceable provision, which comes
closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company
shall also supply such other documents as the Warrantholder may from time to
time reasonably request.
IN WITNESS WHEREOF, the parties hereto have cause this Warrant Agreement to
be executed by its officers thereunto duly authorized as of the Effective Date.
COMPANY:
ONTOGENY, INC.
By: /s/ George A. Eldridge
------------------------------------
Name: George A. Eldridge
Title: Vice President, Finance
WARRANTHOLDER:
LIGHTHOUSE CAPITAL PARTNERS III, L.P.
By: LIGHTHOUSE MANAGEMENT
PARTNERS III, L.L.C., its general partner
By: /s/ Gwill E. York
------------------------------------
Name: Gwill E. York
Title: Managing Director
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<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:_______________________________
(1) The undersigned Warrantholder hereby elects to purchase ______ shares of
the Common Stock of ___________ pursuant to the terms of the Warrant
Agreement dated the _______________ day of __________,19_____ (the "Warrant
Agreement") between _______________ and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full.
(2) In exercising its rights to purchase the Common Stock of _________________,
the undersigned hereby confirms and acknowledges the investment
representations and warranties made in Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below.
__________________________________
(Name)
__________________________________
(Address)
Warrantholder:
By:_______________________________
Title:____________________________
Date:_____________________________
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<PAGE>
ACKNOWLEDGMENT OF EXERCISE
The undersigned __________________, hereby acknowledge receipt of the
"Notice of Exercise" from __________________ to purchase __________ shares of
the Common Stock of _______________ pursuant to the terms of the Warrant
Agreement, and further acknowledges that ____________ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company:
By:_________________________________
Title:______________________________
Date:_______________________________
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<PAGE>
NET ISSUE ELECTION NOTICE
To:_____________________________________ Date:______________________
The undersigned hereby elects under Section 3 to surrender the right to
purchase _______ shares of Common Stock pursuant to this Warrant Agreement.
The certificate(s) for such shares issuable upon such net issue election shall
be issued in the name of the undersigned or as otherwise indicated below:
_____________________________________
Signature
_____________________________________
Name for Registration
_____________________________________
Mailing Address
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<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
_______________________________________________
(Please Print)
___________________ whose address is _____________________________________
______________________________________________________________________.
Dated:______________________________________
Holder's Signature:_________________________
Holder's Address:___________________________
____________________________________________
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<PAGE>
EXHIBIT III
Copy of the Certificate of Incorporation
-17-
<PAGE>
Exhibit 10.64
PLEDGE AGREEMENT
----------------
This is a pledge agreement made as of the 17th day of June, 1996 between
Doros Platika ("Pledgor") and Ontogeny, Inc. ("Pledgee").
1. Pledge of Collateral. Pledgor hereby grants Pledgee a security
--------------------
interest in the stock identified in Exhibit A, annexed hereto, which Pledgor has
delivered to Pledgee (the "Collateral").
2. Obligations Secured. The security interest in the Collateral granted
-------------------
hereby secures payment and performance of the promissory note from Pledgor to
Pledgee of even date herewith in the principal amount of $500,000 (the "Note"),
together with all interest on such Note (the "Obligations").
3. Pledgee's Rights and Duties with Respect to the Collateral. Pledgee's
----------------------------------------------------------
only duty with respect to the Collateral shall be to exercise reasonable care to
secure the safe custody thereof. Pledgee shall be relieved of all responsibility
for the Collateral upon surrendering it to Pledgor.
4. Pledgor's Warranties and Indemnity. Pledgor represents, warrants and
----------------------------------
covenants (a) that he is and will be the lawful owner of the Collateral, (b)
that the Collateral is and will be fully paid and non-assessable, (c) that the
Collateral is and will remain free and clear of all liens, encumbrances and
security interests other than the security interest granted by Pledgor
hereunder, and (d) that Pledgor has the sole right and lawful authority to
pledge the Collateral and otherwise to comply with the provisions hereof. In the
event that any adverse claim is asserted in respect of the Collateral or any
portion thereof, except such as may result from an act of Pledgee not authorized
hereunder, Pledgor promises and agrees to indemnify Pledgee and hold Pledgee
harmless from and against any losses, liabilities, damages, expenses, costs and
reasonable counsel fees incurred by Pledgee in exercising any
<PAGE>
right, power or remedy of Pledgee hereunder or defending, protecting or
enforcing the security interests created hereunder. Any such loss, liability or
expense so incurred shall be paid by Pledgor upon demand, become part of the
Obligations secured by the Collateral and bear interest at the rate provided in
the Note until paid.
5. Voting of Collateral. While Pledgor is not in default hereunder,
--------------------
Pledgor may vote stock and other securities pledged as Collateral.
6. Dividends and Other Distributions. While Pledgor is not in default
---------------------------------
hereunder, Pledgor may receive cash dividends and other distributions payable
with respect to Collateral, provided, however, that Pledgor shall immediately
-------- -------
inform Pledgee of the receipt of any such dividend or other distribution and
shall hold the amount thereof in trust for Pledgee unless and until Pledgee
shall in writing release Pledgor from such trust. Pledgor shall cause all non-
cash dividends and distributions with respect to Collateral to be distributed
directly to Pledgee, to be held by Pledgee as additional Collateral, and if any
such distribution is made to Pledgor he shall receive such distribution in trust
for Pledgee and shall immediately transfer it to Pledgee.
7. Pledgor's Default. Pledgor shall be in default hereunder upon the
-----------------
occurrence of any of the following events:
(a) If any warranty of Pledgor hereunder is or shall become false in
any material respect;
(b) If Pledgor fails to fulfill any material obligation hereunder,
which is not cured within 30 days after written notice thereof; or
(c) If Pledgor fails to pay or perform any of the Obligations when
such payment of performance is due.
8. Pledgee's Rights upon Default. Upon the occurrence of any default as
-----------------------------
defined in the preceding section, Pledgee may, if Pledgee so elects in its sole
option:
2
<PAGE>
(a) at any time and from time to time, sell, assign and deliver the
whole or any part of the Collateral at a sale through a broker in a public
market where securities of the type constituting such Collateral are usually
traded, without any advertisement, presentment, demand for performance, protest,
notice of protest, notice of dishonor or any other notice;
(b) at any time and from time to time sell, assign and deliver all or
any part of the Collateral, or any interest therein, at any other public or
private sale, for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as Pledgee in its absolute discretion may determine, provided that
--------
(i) at least ten days' notice of the time and place of any such sale shall be
given to Pledgor, and (ii) in the case of any private sale, such notice shall
also contain the terms of the proposed sale and Pledgee shall sell the
Collateral proposed to be sold to any purchaser procured by Pledgor who is
ready, willing and able to purchase, and who prior to the time of such sale
tenders the purchase price of, such Collateral on terms more favorable to
Pledgee than the terms contained in such notice;
(c) exercise the right to vote, the right to receive cash dividends
and other distributions, and all other rights with respect to the Collateral as
though Pledgee were the absolute owner thereof, whether or not such rights were
retained by Pledgor as against Pledgee before default; and
(d) exercise all other rights available to a secured party under the
Uniform Commercial Code and other applicable law.
9. Application of Sale Proceeds. In the event of a sale of Collateral,
----------------------------
the proceeds shall first be applied to the payment of the expenses of the sale,
including brokers' commissions, counsel fees, any taxes or other charges imposed
by law upon the Collateral or the transfer thereof and all other charges paid or
incurred by Pledgee pertaining to the sale;
3
<PAGE>
and, second, to satisfy outstanding Obligations, in the order in which Pledgee
elects in its sole discretion; and, third, the surplus (if any) shall be paid to
Pledgor.
10. Notices. All notices made or required to be made hereunder shall be
-------
sent by United States first class or certified or registered mail, with postage
prepaid, or delivered by hand to Pledgee or to Pledgor at the addresses first
above written. Notice by mail shall be deemed to have been made on the date when
the notice is deposited in the mail.
11. Heirs, Successors, Etc. This Pledge Agreement and all of its terms and
----------------------
provisions shall benefit and bind the heirs, successors, assigns, transferees,
executors and administrators of each of the parties hereto. If this Pledge
Agreement is executed by more than one Pledgor, then (a) "Obligations" shall
include the Obligations of either or both of the Pledgors, (b) Pledgors shall be
in default if any of the events described in Section 7 above takes place with
respect to either Pledgor, (c) any notice required of Pledgee shall be given to
both Pledgors and (d) all Pledgors' covenants, warranties and representations
hereunder shall be joint and several.
12. Pledgee's Forbearance. Any forbearance, failure or delay by Pledgee in
---------------------
exercising any right, power or remedy hereunder shall not be deemed a waiver of
such right, power or remedy. Any single or partial exercise of any right, power
or remedy of Pledgee shall continue in full force and effect until such right,
power or remedy is specifically waived in writing by Pledgee.
EXECUTED under seal at Boston, Massachusetts as of the date first above
written.
/s/ Doros Platika
-------------------------------------
Doros Platika
ONTOGENY, INC.
By:__________________________________
4
<PAGE>
EXHIBIT A
---------
400,000 shares of Common Stock of Ontogeny, Inc.
5
<PAGE>
Exhibit 23.2
Independent Auditors' Consent
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
joint proxy statement-prospectus.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 13, 2000
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Curis, Inc. on Form S-4 of our report dated February 15, 2000 (which
expresses an unqualified opinion and includes an emphasis paragraph referring
to the merger with Ontogeny, Inc., and Reprogenesis, Inc. to form Curis, Inc.)
relating to the Consolidated Financial Statements of Creative BioMolecules,
Inc., included in the Annual Report on Form 10-K, and to the use of our report
appearing in this Joint Proxy Statement-Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Creative Selected
Consolidated Financial Data" and "Experts" in such Joint Proxy-Prospectus.
/s/ Deloitte & Touche llp
Boston, Massachusetts
March 13, 2000
<PAGE>
Exhibit 23.4
INDEPENDENT ACCOUNTANTS' CONSENT
We hereby consent to the use in this joint proxy statement-prospectus of
Curis, Inc. of our report dated February 15, 2000, relating to the financial
statements of Ontogeny, Inc., which appears in such joint proxy statement-
prospectus. We also consent to the references to us under the headings
"Experts" and "Ontogeny Selected Financial Data" in such joint proxy statement-
prospectus.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 10, 2000
<PAGE>
Exhibit 23.8
CONSENT OF CHASE SECURITIES INC.
March 13, 2000
Board of Directors
Creative BioMolecules, Inc.
101 Huntington Avenue, Suite #2400
Boston, Massachusetts 02199
Members of the Board:
We hereby consent to the use of our opinion letter dated February 14, 2000
to the Board of Directors of Creative BioMolecules, Inc. ("Creative"), included
as Annex C to the Joint Proxy Statement-Prospectus which forms a part of the
Registration Statement on Form S-4 of Curis, Inc. relating to the proposed
business combination involving Creative, Ontogeny, Inc. and Reprogenesis, Inc.,
and to the references therein to such opinion in the section entitled "The
Merger--Opinion of Creative's Financial Advisor."
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Chase Securities Inc.
By: /s/ Mit Mehta
----------------------------------
Name: Mit Mehta
Title: Vice President, Investment
Banking
<PAGE>
Exhibit 23.9
[SG LOGO APPEARS HERE]
CONSENT OF SG COWEN SECURITIES CORPORATION
March 13, 2000
Board of Directors
Ontogeny, Inc.
SG Cowen 45 Moulton Street
Cambridge, MA 02138-1118
We hereby consent to the inclusion of our opinion, dated
February 14, 2000, in the joint proxy statement-prospectus of Curis,
Inc., which is a part of this Registration Statement on Form S-4,
File No. 333- . In executing this consent, we do not admit or
acknowledge that SG Cowen Securities Corporation is within the class
of persons whose consent is required by Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations promulgated
thereunder.
SG COWEN SECURITIES CORPORATION
By: /s/ Joseph A. Augustine
-----------------------
Joseph A. Augustine
Managing Director
SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, NY 10020
tel 212 278 6000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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FINANCIAL DATA SCHEDULE FOR REPROGENESIS
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 6,492,341 1,692,219
<SECURITIES> 0 0
<RECEIVABLES> 213,023 1,149,869
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<CURRENT-ASSETS> 6,868,376 2,950,150
<PP&E> 2,263,923 2,198,982
<DEPRECIATION> (673,245) (299,952)
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<CURRENT-LIABILITIES> 1,272,035 1,195,791
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0 0
0 0
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<OTHER-SE> 6,228,739 2,400,652
<TOTAL-LIABILITY-AND-EQUITY> 8,495,712 4,885,838
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<NET-INCOME> (8,004,352) (3,617,110)
<EPS-BASIC> (0.74) (0.35)
<EPS-DILUTED> (0.74) (0.35)
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE FOR CREATIVE
</LEGEND>
<CIK> 0000857121
<NAME> CREATIVE BIOMOLECULES, INC.
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 2,751,069 17,738,044
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<TOTAL-ASSETS> 28,892,291 66,164,057
<CURRENT-LIABILITIES> 4,461,317 9,292,483
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0 23,052,787
0 0
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<OTHER-SE> 23,054,935 32,760,753
<TOTAL-LIABILITY-AND-EQUITY> 28,892,291 66,164,057
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<TOTAL-REVENUES> 5,137,950 12,624,934
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<TOTAL-COSTS> 17,247,740 34,020,072
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 161,385 327,304
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<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (14,505,349) (22,381,725)
<EPS-BASIC> (0.40) (0.66)
<EPS-DILUTED> (0.40) (0.66)
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<ARTICLE> 5
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FINANCIAL DATA SCHEDULE FOR ONTOGENY
</LEGEND>
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<RECEIVABLES> 65,000 178,317
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<PP&E> 4,691,215 3,748,771
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 49,610,919 54,136,288
<CURRENT-LIABILITIES> 4,896,135 3,338,663
<BONDS> 0 0
0 0
0 0
<COMMON> 28,585 26,894
<OTHER-SE> (22,796,410) (17,946,796)
<TOTAL-LIABILITY-AND-EQUITY> 49,610,919 54,136,288
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<TOTAL-REVENUES> 4,469,399 4,708,333
<CGS> 0 0
<TOTAL-COSTS> 17,737,926 14,592,668
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 917,058 427,092
<INCOME-PRETAX> (11,710,851) (8,774,058)
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<NET-INCOME> (11,905,408) (8,900,788)
<EPS-BASIC> (4.59) (3.91)
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