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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: AUGUST 31, 1995
OR
- ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
For the transition period from to .
---------- ----------------
Commission file number: 0-10824
GENOME THERAPEUTICS CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2297484
(State or other jurisdiction of incorporation (I.R.S. employer
or organization) identification number)
100 BEAVER STREET, WALTHAM, MASSACHUSETTS 02154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (617) 893-5007
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $.10 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of
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registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K / /
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of November 27, 1995 was approximately $86,753,315.
The number of shares outstanding of the registrant's common stock as
of November 27, 1995 was 13,695,085.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for use at its Special
Meeting of Shareholders in lieu of an Annual Meeting to be held on February 16,
1996 (the "Proxy Statement") are incorporated by reference into Part III of
this Report.
Exhibit Index appears on Page 48.
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PART I
Item 1. BUSINESS
OVERVIEW
Genome Therapeutics Corporation ("GTC" or "the Company") is a leader
in the field of genomics--the sequencing, discovery and characterization of
genes. The Company's objective is to identify gene targets which can be used
to develop novel therapeutic, vaccine, and diagnostic products for commercially
important diseases. The Company uses its proprietary high-throughput
sequencing technology to sequence the genomes of infectious organisms and uses
its positional cloning and cDNA sequencing technologies to discover and
characterize genes that cause or predispose individuals to common diseases.
The Company believes that the identification of biologically relevant genes
from infectious organisms and the identification of human disease genes will
facilitate the development of highly specific and effective antibiotics,
therapeutics, diagnostics, and vaccines. The Company's current pathogen
sequencing development programs include: Helicobacter pylori ("H. pylori"),
Mycobacterium tuberculosis ("M. tuberculosis"), and Staphylococcus aureus
("Staph."). The Company has sequenced the genome of H. pylori, and in August
1995, the Company entered into a strategic alliance with Astra AB to develop
pharmaceutical, vaccine, and diagnostic products effective against
gastrointestinal infections or other disease caused by H. pylori. The Company
also has development programs to identify and characterize the human disease
genes associated with fascioscapulohumeral muscular dystrophy, prostate cancer,
benign prostatic hypertrophy ("BPH"), and manic depression.
The Company intends to leverage its genomic technologies --
high-throughput sequencing, positional cloning, cDNA comparative sequencing and
bioinformatics -- to identify therapeutic, vaccine and diagnostic products for
commercial development. The Company intends to focus its resources in two
principal areas, the discovery and characterization of human disease genes, and
the sequencing of the genomes of particular pathogens. The Company believes
that there is a significant market opportunity for novel antibiotics, other
therapeutic products, vaccines and diagnostics based on genetic targets
identified through genomics.
SCIENTIFIC BACKGROUND
A genome is defined as the total genetic content of an organism and
generally consists of DNA, a chemically complex material made-up of four
different nucleotides, the building blocks of DNA. These nucleotides are:
adenine (A), guanine (G), cytosine (C), and thymine (T). The sequence in which
these nucleotides are linked together in a molecule of DNA determines the
informational content of the genes, the elements which
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define the inherited characteristics of an organism. The specific DNA sequence
of a gene is generally translated through messenger RNA (mRNA), an intermediary
molecule, into a protein product. A defect in a gene which leads to the
over-production, improper function, or absence of a single protein molecule may
cause an imbalance in the organism's complex cellular system and result in
disease or death of that organism.
The human genome consists of 23 pairs of DNA sequences or chromosomes.
These chromosomes contain approximately 100,000 human genes spread over about
three billion nucleotides. Human genes are found in the chromosomes as
interrupted sequences, i.e, there are coding regions of DNA, called exons,
which are separated from each other by non-coding regions of DNA called
introns. The number of exons found in human genes can be quite large as can be
the distance between exons. The DNA sequence of a human gene is transcribed
into a mRNA molecule which is processed to contain only the uninterrupted exon
sequences. The mRNA molecule is, in turn, translated into a protein product.
The function of the majority of human DNA is unknown. By contrast, genomes of
pathogenic bacteria generally consist of a single chromosome which contains
several thousand genes spread over millions of nucleotides. With rare
exceptions, the genes in pathogens are uninterrupted and their genomes consist
mainly of genes and regulatory elements.
There are various technologies used in the discovery of genes
including:
Sequencing
Sequencing is the process of identifying genes through the
determination of the order or sequence of nucleotides in DNA fragments.
Sequencing the genome of a pathogen is an efficient and cost effective way of
discovering all of the genes contained within that organism. However, given
the size of the human genome and because only a small portion of the human
genome contains gene sequences, large-scale sequencing of complementary copies
of messenger RNA molecules made in a test tube (often referred to as cDNA), is
a more practical way to identify human genes.
Biology
Knowing the DNA sequence of a gene allows one to predict the primary
chemical sequence of the resulting protein molecule. Such information,
however, does not necessarily allow one to identify the role or function that a
given protein or gene plays in the biological processes of an organism. As a
first approach to determining the function of a gene, databases are searched to
determine whether proteins with similar sequences have been identified before
and whether the function of such proteins is known. The presence of specific
sequences within the gene and, hence, structural motifs within the gene
product, also helps to indicate the function of the genes and resulting
protein. Further experiments are generally needed to determine and confirm the
function of a newly identified gene and
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its protein product. Expression of the gene in a recombinant system and
purification of the resulting protein product provide ample material for study
in vitro and in vivo. With human genes, elimination of the homologous gene in
an animal can create a model system for determining the biochemical role of the
gene product and, if the gene is responsible for causing an important disease,
the pathophysiology of the disease. Such animal models can also be used for
testing possible pharmaceutical approaches for treating a disease in man.
Bacterial pathogens are more amenable to such biological experiments
since the total number of genes contained in their genomes is significantly
less than that found in humans. Thus, knock-out experiments, in which the
function of a particular gene is disrupted by the random or targeted
interruption of the wild-type gene sequence, can be used to identify which
genes are required for the survival of a pathogen within its human host. Such
biologically relevant genes then become candidate targets for the development
of therapeutic molecules for treating infections caused by the pathogen. Since
there are approximately 100,000 genes in the human genome, biological evidence
that a gene is involved in causing a disease must be obtained in a more
efficient manner than is possible with bacterial pathogens. Such evidence is
generally obtained by positional cloning.
Positional Cloning
In positional cloning, genetic mapping is first used to identify the
region on a particular chromosome where the disease causing gene is located.
Genetic mapping involves using genetic markers, called DNA probes, which detect
regions of DNA that vary in sequence content from individual to individual.
The position of these DNA sequences on a chromosome, as detected by the DNA
probes, constitutes a genetic linkage map of that chromosome. By following the
inheritance patterns of these DNA markers in families in which a particular
disease is segregating and looking for the co-inheritance of DNA markers and
the disease, the chromosomal location of a gene responsible for causing or
predisposing an individual to that disease can be determined.
Such a search is generally done genome-wide with a set of DNA markers
that span the genome and are separated from each other by an approximately
equal genetic distance. The regions which are initially examined generally are
those regions which contain genes that are viewed as candidates for causing or
predisposing an individual to the disease.
Once specific chromosomal locations have been mapped, a physical map
of the relevant chromosomal region(s) is constructed. Libraries containing
random clones of large genomic DNA fragments are examined to find those clones
which contain pieces of DNA fragments from each relevant chromosomal region.
The aligning of these DNA clones, so that the resulting order represents how
these DNA fragments are related to each other in the genome, is called physical
mapping. These clones, which constitute the physical map, can then be used to
identify the genes which are contained within that chromosomal region. These
genes can be isolated in the form of cDNA clones by using
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special cloning vectors which trap the exons contained within genomic DNA.
Alternatively or in combination with exon trapping, the genomic DNA can be
sequenced and computer algorithms used to predict the exons which are contained
within that genomic DNA. Such information can then be used to search cDNA
libraries for clones which contain these presumed exons. Each identified gene
becomes a candidate for causing the disease. Proof of such involvement is
sought by determining the sequence of such genes in individuals with the
diseases and comparing it to the sequence of that gene from healthy
individuals. DNA sequence differences, which are only found in individuals who
have inherited the disease, are taken as proof that the gene which contains
these differences is responsible for causing that disease.
Bio-informatics
The Company's gene discovery programs create significant challenges in
data management, data analysis, data storage, data retrieval and data security.
GTC has developed a proprietary bio-informatics system that integrates the vast
amount of data generated in a manner in which the important scientific
information can be distilled. Genetic Data are collected from various sources
both within and outside the company and are configured in relational databases
for use by the scientists.
COMPANY TECHNOLOGY
A genomic approach to drug discovery represents a change from
traditional scientific approaches. Historically, most drug discovery has been
based on random screening of candidate drug compounds to determine their impact
on diseases. A molecular genetic approach allows scientists to first identify
the genetic target causing a particular disease and then develop drugs to treat
the root cause of the disease. In that process GTC uses the following genomic
technologies:
High-throughput Multiplex Sequencing
Gene sequencing involves determining the order of the nucleotides in a
DNA fragment. The increasing demand to sequence DNA can be best met by systems
that are high-throughput and can be applied on a large scale. GTC uses a
proprietary high-throughput sequencing process called "computer-assisted,
multiplex sequencing". Multiplex sequencing is a sequencing process whereby
individual DNA samples are mixed together and then processed as mixtures. At
the end of the sequencing process, the individual sequences are decoded from
this mixture by hybridizing with oligonucleotide probes that are complementary
to the unique tags which surround each DNA sequence in the cloning vector. The
Company used multiplex sequencing to sequence the H. pylori genome in 1994.
The H. pylori genome is approximately 1.7 million nucleotides long. The
Company is using multiplex sequencing to sequence other pathogens it believes
offer commercial potential.
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The Company has obtained an exclusive worldwide license from Harvard
University to use the multiplex sequencing technology for commercial
applications. Under this license, the Company paid Harvard a nonrefundable
license fee of $100,000 and must pay Harvard royalties based on license fees,
royalties and other income received by the Company in respect of sublicenses
granted by the Company, products sold that include the multiplex sequencing
technology, and services performed that utilize the multiplex sequencing
technology. In addition, the Company must pay Harvard minimum annual royalties
ranging from $5,000 in 1995 to $35,000 in 1998.
Positional Cloning: The Company uses positional cloning in its
efforts to discover human disease-related genes. Starting with a disease
target, the Company identifies families in which the disease occurrence in
individuals within a family is substantially higher than in the general
population. Having identified such families, the Company begins collecting
blood samples from the members of these families. Once the samples are
collected, the Company uses its high-throughput, multiplex genotyping
technology to facilitate the processing of the DNA samples. Genotyping is the
process of using DNA probes to determine the genetic composition of specific
regions on each chromosome of each family member. After the samples have been
analyzed, linkage analysis is performed to determine which genetic marker(s) is
inherited along with the disease which is segregating within the family. The
product of that analysis is the determination of the specific chromosomal
region(s) of the genome linked to the disease. Then, the Company constructs a
physical map of that region and uses exon trapping and DNA sequencing
technologies to clone the gene responsible for the disorder.
cDNA Comparative Sequencing: The Company is also using cDNA
sequencing to identify human disease genes. This technology is another means
of identifying genes and involves the study of human diseased tissues at
various stages of disease development in comparison to healthy tissues. Prior
to sequencing genes, the Company first extracts expressed mRNA from tissues in
normal and diseased states and then prepares a "library" which consists of cDNA
derived from representative samples of the mRNA that is expressed from the
genes of a particular tissue. Once the libraries are made, GTC uses its
high-throughput sequencing capability to identify the genes expressed in those
different samples. The Company supplements this technology with differential
display technology in order to rapidly identify differently expressed genes.
This technology is being used in the Company's prostate cancer and benign
prostatic hypertrophy development projects.
Bio-informatics: The rapid gene discovery capability of the Company
is substantially enhanced by its expertise in bio- informatics.
Bio-informatics is the use of computer software and complex databases to
process, store, retrieve and analyze data that is generated in genetic mapping
and large-scale DNA sequencing. The Company was a pioneer in developing rapid,
efficient methods of organizing and analyzing the vast quantities of data
obtained from constructing genetic linkage maps. The Company used
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such software to develop the first genetic linkage map of the entire human
genome which appeared in a landmark publication in the journal CELL in 1987.
Computer-assisted multiplex sequencing allows the high-throughput sequencing of
pieces of human genes as well as the subsequent computer analysis of each of
these gene sequences so that they can be compared to genes with known functions
in order to predict the biological function of the newly discovered gene. The
Company's database and outside databases are checked to compare known sequences
to the newly identified sequence in order to try to determine whether the newly
identified sequence is similar to a known protein. If information is found in
either database indicating that it does correspond to a known sequence,
scientists may infer a likely function for the protein product of the newly
discovered gene.
The Company is continuing the refinement of its existing
bio-informatics tools through the integration of new hardware and software.
The Company is currently improving proprietary software to integrate GTC's
database, outside gene databases, sequence data from production and biological
experiments from the laboratory benches into a network which can provide
interactive analysis for our scientists. This will enable our scientists to
perform motif profile searches to define functional groupings and it will also
help our scientists in the identification of transcriptionally coupled genes,
operons, promoters, regulatory elements, etc. The Company is also using its
interactive software to do real-time genomic subtraction. Genomic subtraction
is the comparative analysis of genomes of different organisms in order to
identify genes and protein sequences which are similar.
STRATEGY
The Company's objective is to identify gene targets which can be used to
develop novel therapeutic, vaccine and diagnostic products for commerically
important diseases. The Company intends to focus its resources in two
principal areas, the discovery and characterization of human disease genes, and
the sequencing of the genomes of particular pathogens. The Company intends to
achieve its objective through the following strategies:
Sequencing of Pathogens - In the pathogen area, the Company's
development strategy is to identify and sequence the genomes of pathogens
representing significant commercial opportunity. In particular, the Company
believes that pathogens that have exhibited resistance to existing antibiotics
may offer unique opportunities for new therapeutic and vaccine products based
on the genomic information of such pathogens. The Company intends to enter
into strategic partnerships with pharmaceutical companies in order to develop
vaccine and therapeutic products based on the genomic information of the
pathogens. The Company has recently sequenced the genome of the H. pylori
bacterium and entered into a collaborative agreement with Astra Hassle AB for
the development of therapeutic, diagnostic and vaccine products effective
against gastrointestinal and any other disease caused by H. pylori. The
Company believes its pathogen sequencing programs will
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permit the Company to generate royalty revenue sooner than its human gene
discovery efforts.
Discovery of Human Disease Genes - In human gene discovery, the
Company plans to obtain exclusive rights to collections of DNA samples from
relevant family resources in order to identify and then characterize genes
responsible for targeted human diseases. The Company intends to seek
collaborations with clinicians and academic researchers in order to obtain
these rights. Once the family resources are obtained, the Company believes its
experience and its multiplex genotyping, multiplex sequencing and bio-
informatics technology will permit the Company to speed the gene discovery
process. The Company intends to seek strategic alliances in order to
commercialize therapeutic products based on the human disease genes discovered.
When appropriate, based on market size, projected development costs and other
factors, the Company plans to retain certain rights related to the human
disease genes the Company identifies. The Company plans to increase spending
on its human gene discovery programs.
Strategic Alliances - The Company's strategy is to seek pharmaceutical
companies and other corporate partners active in the Company's areas of
research for the development of therapeutic products and vaccines based on the
Company's genomic discoveries. This strategy will allow the Company to focus
its resources on its pathogen sequencing and human gene discovery efforts. If
successful, this strategy will also permit the Company to benefit from the
commercialization of the therapeutic products and vaccines developed, without
expending the substantial costs required to develop and commercialize
therapeutic and vaccine products. Typically, the Company will exclusively
license to its partner all rights to therapeutic products and vaccines (and,
depending upon the gene, diagnostic products) developed based on the particular
genetic database licensed by the Company. In return, the Company will seek a
combination of upfront license fees, research funding, milestone payments and
royalty payments on product sales.
Government Grants and Contracts - The Company also plans to continue to
seek government grants and research contracts for research related to the
Company's technology and its development programs. These research grants permit
the Company to continue to improve its genomics technology and to develop an
experienced labor pool. These grants also have the effect of lowering the
Company's overhead expenses.
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RESEARCH PROGRAMS
Pathogen Programs
Therapies for the treatment of infectious diseases represent a
sizeable market opportunity. The Company believes that information derived
from identifying and characterizing the genes of pathogens may lead to the
development of antibacterial and antifungal products that can overcome the
resistance exhibited by many pathogens to currently available therapies. The
Company is currently conducting development programs targeted at H. pylori, M.
tuberculosis, and Staph. The Company intends to initiate development programs
against other pathogens depending upon such factors as projected commercial
potential, effectiveness of current therapies, status of programs initiated by
the Company's competitors and projected development costs, which are often
directly related to the complexity of the genome of the target pathogen.
Helicobacter pylori - H. pylori is the bacterium responsible for
causing peptic ulcers in 80% of ulcer patients. H. pylori can cause an
infection that leads to either a duodenal or gastric ulcer. Peptic ulcer
disease is a chronic inflammatory condition of the stomach and duodenum that
affects as many as 5% of the population of the world at some time in their
lives. The disease has relatively low mortality but results in substantial
human suffering and high economic costs. Studies have also linked H. pylori
with development of certain stomach cancers. Using its proprietary
high-throughout multiplex sequencing technology, the Company sequenced the
genome of H. pylori. Under an agreement signed with Astra Hassle AB, the
Company is identifying the genes critical to the survival of the organism and,
through a research collaboration, is endeavoring to develop therapeutics to
address the clinical need created by H. pylori infections. See "Collaborative
Agreements -- Pharmaceutical Company Collaborations".
Mycobacterium tuberculosis - M. tuberculosis is the pathogen
responsible for causing tuberculosis. The bacteria attacks patches of tissue
in the lungs, killing cells and making breathing difficult. Left untreated,
the damage from infection prevents proper functioning of the lung and the
patient suffocates. As strains of tuberculosis have become resistant to the
drugs that have long controlled the infection, tuberculosis has once again
become a deadly disease. There are approximately 10 million cases of active
tuberculosis worldwide resulting in approximately 3 million deaths annually,
the largest number of annual deaths caused by any single organism. Using its
large-scale multiplex sequencing technology, the Company, with financial
support from its DNA sequencing technology grant, has completed the sequencing
of numerous, large contiguous segments of mycobacterial genomic DNA. Within
the 1.6 million base-pairs of mycobacterial DNA sequenced, the Company has
identified over 1200 full-length genes. The Company has filed patent
applications for a broad family of related mycobacterial genes.
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Staphylococcus aureus - Staph. is a bacterium involved in hospital
acquired infections (nosocomial) and can enter a patient's blood stream through
wounds, burns or surgical incisions. The antibiotic vancomycin is currently
the only effective antibiotic for the treatment of methycilllin resistant
Staph. infections. Between 60,000 and 80,000 patients in the United States die
each year of causes related to infections they acquire in hospitals, and more
than half of those deaths are connected with antibiotic-resistant bacteria.
Using its high-throughput sequencing capability, the Company is currently
sequencing the genome of the Staph. bacterium.
Gene Discovery Programs
GTC has initiated programs to identify genes that are responsible for
human disorders either through positional cloning strategies or through a
multifaceted approach incorporating both comparative gene sequencing and
positional cloning. The Company's current human disease gene discovery
programs include prostate cancer and benign prostatic hypertrophy, manic
depressive illness, and fascioscapulohumeral muscular dystrophy ("FSHD"). The
Company is also conducting preliminary research regarding osteoporosis and
asthma. The Company's decision to initiate more significant research programs
for these diseases, to undertake other gene discovery research programs will be
based, among other factors, on the commercial opportunity, the availability of
relevant DNA and family resources, the status of competitors' programs, and
projected development costs. With the exception of FSHD, the Company currently
targets common diseases with complex etiologies that are most likely due to
defects in more than a single gene. The status of these programs are described
below.
FSHD - FSHD is a form of muscular dystrophy characterized by muscular
weakness and atrophy initially concentrated in the face and shoulder girdle.
It is a rare disease in that only one in 20,000 people is affected by this
disorder. A single gene responsible for FSHD has been mapped to the tip of the
long arm of chromosome 4. GTC has further refined this chromosomal region and
has determined the DNA sequence of an approximately 60,000 base pair region
that spans the disease locus. Based on the DNA sequence, several candidate
genes have bene identified. Further efforts are underway to evaluate these
candidates in affected individuals and normal controls.
Prostate Cancer and Benign Prostatic Hypertrophy - Prostate cancer is
the most commonly diagnosed cancer in males and the second most common cause of
death. Approximately 200,000 new cases are diagnosed per year, with 40,000
deaths. BPH, a common disease in men, causes lower urinary tract obstructive
symptoms and results from the slow growth of prostatic tissue. It is non- life
threatening but can have a significant effect on the quality of life. GTC has
initiated a multifaceted program to identify genes for these disorders
including efforts to clone a tumor suppresser gene on chromosome 10, to develop
gene expression profiles in normal and disease tissue, and to identify
appropriate
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families exhibiting early onset (<55 years of age) of prostate cancer for
subsequent genetic mapping efforts.
To date, a putative tumor suppressor gene for prostate cancer has been
localized to a refined region on the long arm of chromosome 10 based on loss of
heterozygosity observed in DNA isolated from tumors versus peripheral blood
samples. A high resolution physical map of the region is currently being
constructed. Using these developing resources, a large scale sequencing effort
is in progress to determine the DNA sequence of a set of clones which span the
region. In parallel experiments, several putative genes in the region have
been identified through exon trapping techniques. Efforts to further
characterize these genes are underway.
Gene expression profiles have been initiated by constructing cDNA
libraries from normal prostate, prostatic tumors, and from tissue exhibiting
BPH. High throughput DNA sequencing efforts are in progress. GTC is also
supplementing this approach with differential display technologies which
utilize reverse transcription coupled with polymerase chain reaction to rapidly
identify differentially expressed genes.
Manic depressive illness - Manic depressive illness is a serious
neuropsychiatric disorder characterized by alternating mood swings of mania and
depression. It affects approximately one percent of the United States
population. GTC has been collaborating with key academic researchers at the
National Institute of Mental Health to conduct a genome wide search for DNA
markers associated with this disorder in several Old Order Amish pedigrees.
This population is especially valuable since it represents a relatively
genetically isolated community with a small number of founders in the 1800's.
Strict pressures against substance abuse also facilitate accurate disease
diagnoses. The Company has completed a genome wide scan at 15-20 cM intervals
and three candidate regions have been identified. Further efforts to evaluate
and refine these candidate regions for subsequent gene identification efforts
are in progress.
COLLABORATIVE AGREEMENTS
Pharmaceutical Company Collaborations
Astra AB - In August 1995, the Company entered into a collaboration
agreement with Astra Hassle AB ("Astra") to develop pharmaceutical, vaccine and
diagnostic products effective against gastrointestinal infection or any other
disease caused by H. pylori. Under the terms of the agreement, the Company
granted Astra exclusive access to its H. pylori genomic sequence database and
agreed to undertake certain research efforts in exchange for a minimum of
approximately $11 million and up to $22 million in license fees, expense
allowances, research funding and milestone payments. The agreement grants
Astra exclusive worldwide rights to make, use and sell products based on the
Company's H. pylori technology and requires Astra to provide research funding
to the Company over
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a period of two and one-half years to further develop and annotate the
Company's H. pylori genomic sequence database, identify therapeutic and vaccine
targets and develop appropriate biological assays. Research under the
agreement will be directed by a Joint Management Committee and a Joint Research
Committee, each consisting of representatives from both parties. The Company
has received approximately $5 million in license fees, expense allowances and
research funding under the Astra agreement through November 1995. The Company
will also be entitled to receive royalties on Astra's sale of any products (i)
protected by the claims of patents licensed exclusively to Astra by the Company
pursuant to the agreement, or (ii) the discovery of which was enabled in a
significant manner by the genomic data base licensed to Astra by the Company.
Government Collaboration
The Company has a number of grants and contracts from various agencies
of the Federal government which represent an important element of the Company's
research and development programs. These research grants permit the Company to
continue to improve its genomics technology and to develop an experienced labor
pool. These grants also have the effect of lowering the Company's overhead
expenses. Under the agreements, the Company has exclusive rights to any
commercial applications of technology developed, including all gene
discoveries, inventions, and technology improvements created or discovered
under such research. However, the government retains certain rights to
practice such technology. See "Patent and Proprietary Rights". The scope of
the research covered by the grants and contracts encompasses technology
development, sequencing production, technology automation projects and
positional cloning projects. Since 1990, the Company has received over $37
million in funding from the government. Listed below are the major grants and
contracts on which the Company is currently working:
<TABLE>
<CAPTION>
Term
Award of
Project Date Project Value
------- ---- ------- -----
<S> <C> <C> <C>
Genome Sequencing Center August, 1994 3 yrs. $10.4M
Microbial Genome Sequencing December, 1994 3 yrs. $3.0M
Physical Map of Chromosome 10 May, 1994 3 yrs. $1.9M
Gene Expression (NINDS) December, 1993 3 yrs. $1.5M
FSHD September, 1994 3 yrs. $1.0M
</TABLE>
These grants and research contracts are subject to appropriation by
Congress each year.
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PATENTS AND PROPRIETARY TECHNOLOGY
The Company's commercial success will be dependent in part on its
ability to obtain patent protection on genes, or products based on genes,
discovered by it. The current criteria for obtaining patent protection for
partially sequenced genes and for genes whose functions have not been
characterized are unclear. The Company's current strategy is to apply for
patent protection upon the identification of a gene and to apply for expanded
patent protection once the function of the gene has been characterized.
However, there can be no assurance that the Company will be able to obtain
patent protection on such genes, and even if such patents are issued, the scope
of the coverage or protection provided by any such patents is uncertain. In
addition, there can be no assurance that any patents, if issued, will provide
protection against any competitors, will provide the Company with competitive
advantages, or will not be challenged by others. The Company has filed patent
applications with respect to a number of genes of the H. pylori and M.
tuberculosis bacteria, however, there is no assurance that any patents will
issue in respect of such applications. The Company has not yet filed any
patent applications on human genes.
There are an estimated 100,000 genes in the human genome and the
Company believes that virtually all such genes will be identified, albeit
largely without known function, within two to three years. A number of groups
are attempting to rapidly identify and patent gene fragments and full length
genes whose functions have not been characterized, as well as fully
characterized genes. There is substantial uncertainty regarding the
patentability of gene fragments and genes without known function. There have
been recent proposals for review of the appropriateness of patents on gene
fragments and genes. The Congressional Office of Technology Assessment has
announced that it is conducting a review of this area with a particular focus
on the patentability of gene fragments. The United States Patent and Trademark
Office initially rejected a patent application by the National Institutes of
Health on certain partial gene sequences. To the extent any patents issue on
such partial or full length genes, the risk increases that the potential
products of the Company or its strategic partners may give rise to claims that
such products infringe the patents of others. Such groups could bring legal
actions against the Company or its strategic partners claiming damages and
seeking to enjoin drug development efforts or the manufacturing or marketing of
the affected products. If any such actions are successful, in addition to any
potential liability for damages, the Company or its strategic partners could be
required to obtain a license in order to continue to manufacture or market the
affected products. These can be no assurance that the Company 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.
The Company believes that there may be significant litigation in the industry
regarding patent and other intellectual property rights. If the Company
becomes involved in such litigation, it could consume a substantial portion of
the Company's management and financial resources.
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In addition, publication of information concerning genes prior to the
time the Company applies for patent protection based on the full-length gene
could adversely affect the Company's ability to obtain patent protection with
respect to genes identified by it. Washington University is currently
identifying genes through partial sequencing pursuant to funding provided by
Merck & Co., Inc. and depositing the partial sequences identified in a public
database.
Under the Company's government grants and research contracts, the
government has a statutory right under certain circumstances (including
inaction on the part of the Company or its licensees to achieve practical
application of the invention or a need to alleviate public health or safety
concerns not reasonably satisfied by the Company or its licensees) to grant to
other parties licenses under any inventions developed based on research funded
by the government.
The Company also relies on trade secret protection for its
confidential and proprietary information. The Company believes it has
developed proprietary technology for gene discovery, including proprietary
multiplex sequencing technology, multiplex genotype technology and its
bio-informatics system. The Company has not sought patent protection for this
technology although the Company's licensor with respect to the multiplex
sequencing technology has filed for patent protection of such technology.
Additionally, the Company is developing a database of DNA samples that it has
analyzed. The Company has taken security measures to protect its data and is
in the process of exploring ways to further enhance the security for its data.
There can be no assurance that such measures will provide adequate protection
for the Company's trade secrets or other proprietary information. In addition,
while the Company has entered into proprietary information agreements with its
employees, consultants and advisors, there can be no assurance that these
agreements will provide meaningful protection for the Company's proprietary
information in the event of unauthorized use or disclosure of such information.
In addition, there can no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its trade secrets.
COMPETITION
Competition among entities attempting to identify the genes
responsible for human diseases is intense and is expected to increase. The
Company will face competition from pharmaceutical and biotechnology companies
both in the United States and abroad. In addition, significant research to
identify and sequence genes is being conducted by universities, other
non-profit research institutions and United States and foreign
government-sponsored entities. A number of entities are attempting to identify
rapidly and patent randomly sequenced human genes and the genome of other
organisms. Certain entities are utilizing positional cloning to identify and
characterize genes. Any one of these companies or other entities may discover
and establish a competitive advantage in one or
15
<PAGE> 16
more development programs which the Company has commenced. The Company also
faces competition from these and other entities in gaining access to DNA
samples used in its research and development programs.
The Company believes that its ability to compete is dependent, in
part, upon its ability to create and maintain scientifically advanced
technology, the speed with which it can identify and characterize the genes
involved in targeted complex diseases, its ability to rapidly sequence the
genomes of selected pathogens, its strategic partners' ability to
develop and commercialize pharmaceutical products based upon the Company's gene
discoveries, as well as its ability to attract and retain qualified personnel,
obtain patent protection or otherwise develop proprietary technology or
processes and secure sufficient capital resources for the expected substantial
time period between technological conception and commercial sales of products
based upon the Company's gene discoveries.
Many of the Company's competitors have substantially greater research
and product development capabilities and financial, scientific, marketing and
human resources than the Company. These competitors may succeed in identifying
genes or developing products earlier than the Company or its strategic
partners, obtaining authorization from the FDA for such products more rapidly
than the Company or its strategic partners, or developing products that are more
effective than those proposed to be developed by the Company or its strategic
partners. Any potential products based on genes identified by the Company will
face competition both from companies developing gene-based products and from
companies developing other forms of treatment for particular diseases targeted
by the Company. Certain of the Company's and its strategic partners'
competitors may be further advanced than the Company in identifying genes and
developing potential products that may compete with potential products of the
Company or its strategic partners. There can be no assurance that research and
development by others will not render the products which the Company or its
strategic partners may seek to develop obsolete or uneconomical or result in
treatments or cures superior to any other therapy developed by the Company or
its strategic partners, or that any therapy developed by the Company or its
strategic partners will be preferred to any existing or newly developed
technologies.
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products which may be developed by the Company or a strategic
partner of the Company. The nature and the extent to which such regulation may
apply to the Company or its strategic partners will vary depending on the nature
of any such pharmaceutical products. Virtually all of the Company's or its
strategic partners' pharmaceutical products will require regulatory approval by
governmental agencies prior to commercialization. In particular, human
pharmaceutical therapeutic products are subject to rigorous preclinical
16
<PAGE> 17
and clinical testing and other approval procedures by the FDA in the United
States and similar health authorities in foreign countries. Various federal
and, in some cases, state statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and marketing of such
pharmaceutical products. The process of obtaining these approvals and the
subsequent compliance with appropriate federal and foreign statutes and
regulations are time consuming and require the expenditure of substantial
resources.
Generally, in order to gain FDA pre-market approval, a company first
must conduct pre-clinical studies in the laboratory and in animal model systems
to gain preliminary information on an agent's efficacy and to identify any
safety problems. The results of these studies are submitted as a part of an
investigational new drug application ("IND"), which the FDA must review before
human clinical trials of an investigational drug can start. In order to
commercialize any products, the Company or its strategic partner will be
required to sponsor and file an IND and will be responsible for initiating and
overseeing the clinical studies to demonstrate the safety, efficacy and potency
that are necessary to obtain FDA approval of any such products. Clinical trials
are normally done in three phases and generally take two to five years, but may
take longer, to complete. After completion of clinical trials of a new
product, FDA marketing approval must be obtained. If the product is classified
as a new drug, the Company or its strategic partner will be required to file a
New Drug Application ("NDA") and receive approval before commercial marketing
of the drug. The testing and approval processes require substantial time and
effort and there can be no assurance that any approval will be granted on a
timely basis, if at all. NDAs submitted to the FDA can take, on average, two
to five years to receive approval. If questions arise during the FDA review
process, approval can take more than five years. Even if FDA regulatory
clearances are obtained, a marketed product is subject to continual review, and
later discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restrictions on the marketing
of a product or withdrawal of the product from the market as well as possible
civil or criminal sanctions. For marketing outside the United States, the
Company will also be subject to foreign regulatory requirements governing human
clinical trials and marketing approval for pharmaceutical products. The
requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country. The specific
regulatory requirements with which the Company or its strategic partners will
have to comply may change due to the matters of therapies based on genome
information.
The Company also intends to develop diagnostic products based upon
genes that it identifies. The diagnostic products to be developed by the
Company or its strategic partners are likely to be regulated by the FDA as
devices rather than drugs. The nature of the FDA requirements applicable to
such diagnostic devices depends on their classification by the FDA. A
diagnostic device developed by the Company or a strategic partner would most
likely be classified as a Class III device, requiring pre-market
17
<PAGE> 18
approval. Obtaining pre-market approval involves the costly and time-consuming
process, comparable to that for new drugs, of conducting pre-clinical studies,
obtaining an investigational device exemption to conduct clinical tests, filing
a pre-market approval application, and obtaining FDA approval.
Guidelines for the regulation of recombinant DNA research have been
adopted by the City of Waltham, Massachusetts, where the Company's recombinant
DNA research and development activities are currently conducted. Under the
ordinance, which was passed by the Waltham City Council in 1981, a private
company engaged in recombinant DNA research must agree to abide by guidelines
promulgated by the National Institutes of Health for recombinant DNA research
and must provide Waltham with certain additional information.
The Company's research and development activities involve the
controlled use of hazardous materials, chemicals and various radioactive
materials. The Company is subject to federal, state and local laws and
regulations governing the use, storage, handling and disposal of such materials
and certain waste products. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any liability could exceed the resources of the
Company.
HUMAN RESOURCES
As of August 31, 1995, the Company had 105 full-time employees, of
whom 93 were engaged in research, development and production activities, and 12
in general and administrative functions. Eighteen of the Company's employees
hold Ph.D. degrees and 25 others hold other advanced degrees.
The Company provides its employees with opportunities for internal and
external interaction with scientific professionals through consultation with
scientific advisory consultants, technical meetings and scientific
collaborations and publications in leading scientific journals.
None of the Company's employees are covered by a collective bargaining
agreement, and the Company considers its relations with its employees to be
excellent. The Company believes that its compensation and other employee
benefit plans are competitive, and key scientific and management personnel have
been or will be offered an equity participation opportunity which the Company
believes to be necessary to attract and retain such personnel.
Item 2. PROPERTIES
18
<PAGE> 19
The Company's research and development activities are conducted at
facilities located at 100 Beaver Street and 1365 Main Street, Waltham,
Massachusetts. The Company has leased approximately 14, 000 square feet of
space at 1365 Main Street under a lease expiring December 31, 1997 with the
option for a five-year renewal. The Company's executive offices and additional
labs are located at 100 Beaver Street, Waltham, Massachusetts, where the
Company has leased approximately 23,305 square feet of space under a lease
expiring July 1999 with the option for a five-year renewal.
During fiscal 1995, the Company incurred aggregate rental costs,
excluding maintenance, taxes and utilities, for all facilities of approximately
$411,000. The aggregate minimum rental cost to be paid in fiscal 1996 is
expected to be approximately $411,000.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
19
<PAGE> 20
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is traded on the NASDAQ National Market
System (ticker symbol "GENE"). The table below sets forth the range of high
and low quotations for each fiscal quarter of the Company during 1995 and 1994
as furnished by the National Association of Securities Dealers Quotation
System.
<TABLE>
<CAPTION>
1995 1994
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 2 11/16 1 13/16 2 7/16 1 1/4
Second Quarter 2 7/8 1 1/2 5 1/8 2
Third Quarter 6 1/4 2 1/2 3 1/8 1 3/4
Fourth Quarter 8 5/8 5 1/8 3 1 3/4
</TABLE>
As of November 27, 1995 there were approximately 1,489 shareholders of
record of the Company's Common Stock.
The Company has not paid any dividends since its inception and
presently anticipates that all earnings, if any, will be retained for
development of the Company's business and that no dividends on its Common Stock
will be declared in the foreseeable future. Any future dividends will be
subject to the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, the operating and financial
condition of the Company, its capital requirements and general business
conditions.
20
<PAGE> 21
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Year Ended August 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Government Research $ 7,014,280 $ 6,077,346 $ 5,021,975
Contract Research, License Fees and Royalties 3,923,944 314,428 361,494
Product and Service 37,217 85,559 893,083
Total $ 11,207,103 $ 6,618,917 $ 6,450,340
Net Income ( Loss) $ 585,204 $ (1,078,718) $ (3,481,857)
Per Common Share $ 0.05 $ (0.10) $ (0.33)
Weighted Average Common and Common Equivalent Shares 12,961,734 11,097,224 10,668,628
Cash, Cash Equivalents and Short-term Investments $ 8,226,776 $ 4,122,506 $ 3,915,306
Working Capital 5,498,782 3,244,260 3,264,454
Total Assets 11,528,674 5,910,682 5,288,691
Shareholders' Equity $ 7,238,503 $ 4,224,555 $ 3,676,333
<CAPTION>
For the Year Ended August 31, 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Government Research $ 4,210,053 $ 2,193,245
Contract Research, License Fees and Royalties 121,348 22,720
Product and Service 792,225 6,763,636
Total $ 5,508,336 $ 9,119,707
Net Income ( Loss) $ (2,078,711) $ (1,687,095)
Per Common Share $ (0.19) $ (0.16)
Weighted Average Common and Common Equivalent Shares 10,662,551 10,659,249
Cash, Cash Equivalents and Short-term Investments $ 7,144,140 $ 9,040,913
Working Capital 5,768,331 8,779,828
Total Assets 9,354,613 10,790,253
Shareholders' Equity $ 7,081,311 $ 9,109,330
</TABLE>
No dividends on Common Stock have been declared or paid by the Company since its
organization
21
<PAGE> 22
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Genome Therapeutics Corporation ("GTC" or "the Company") is a leader
in the field of genomics--the sequencing, discovery and characterization of
genes. The Company's objective is to identify gene targets which can be used
to develop novel therapeutic, vaccine, and diagnostic products for commercially
important diseases. The Company uses its proprietary high-throughput
sequencing technology to sequence the genomes of infectious organisms and uses
its positional cloning and cDNA sequencing technologies to discover and
characterize genes that cause or predispose individuals to common diseases.
The Company believes that the identification of biologically relevant genes
from infectious organisms and the identification of human disease genes will
facilitate the development of highly specific and effective antibiotics,
therapeutics, diagnostics, and vaccines. The Company's current pathogen
sequencing development programs include: H. pylori, M. tuberculosis, and Staph.
The Company has sequenced the genome of H. pylori, and in August 1995, the
Company entered into a strategic alliance with Astra AB to develop
pharmaceutical, vaccine, and diagnostic products effective against
gastrointestinal infections or other disease caused by H. pylori. The Company
also has development programs to identify and characterize the human disease
genes associated with fascioscapulohumeral muscular dystrophy, prostate cancer,
BPH, and manic depression. In connection with the Astra agreement, the Company
received a $3.5 million nonrefundable payment on August 31, 1995.
The Company has incurred significant losses since inception. The results of
operations have fluctuated from period to period and may continue to fluctuate
in the future based upon the timing and composition of funding under existing
and new collaborative agreements. The Company is subject to risks common to
companies in its industry including development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, and compliance with FDA government
regulations and the need for additional funding.
Results of Operations
REVENUE
Total revenues increased 69% from $6,619,000 in fiscal 1994 to $11,207,000 in
fiscal 1995 and increased 3% from $6,450,000 in fiscal 1993 to $6,619,000 in
fiscal 1994. Government research revenue increased 15% from $6,077,000 in
fiscal 1994 to $7,014,000 in fiscal 1995 and increased 21% from $5,022,000 in
fiscal 1993 to $6,077,000 in fiscal 1994. The increase in government research
revenue in fiscal 1995 is primarily attributable to a 3-year $10 million grant
from the National Institutes of Health
22
<PAGE> 23
awarded in August 1994 as well as increased levels of funding under existing
government grants and contracts. The Company's government grants and contracts
research funding as of August 31, 1995 was $5,400,000. These grants are
typically funded annually and are subject to appropriation by Congress each
year.
Contract research, license fees and royalties increased from $314,000 in fiscal
1994 to $3,924,000 in fiscal 1995 primarily due to a $3.5 million payment
received from Astra AB in August 1995. Contract research, license fees and
royalties remained relatively unchanged in fiscal 1994 as compared to fiscal
1993. Product and service revenue significantly decreased after fiscal 1993
due to the sale by the Company of its diagnostic testing business in June 1993.
Interest income increased 64% from $142,000 in fiscal 1994 to $232,000 in
fiscal 1995, and interest income decreased 19% from $174,000 in fiscal 1993 to
$142,000 in fiscal 1994. The changes in interest income reflect the
fluctuations in interest rates as well as the increase in funds available for
investment in fiscal 1995 as a result of the Company's sale of common stock in
a private placement in March 1995.
COSTS AND EXPENSES
Total costs and expenses increased 38% from $7,698,000 in fiscal 1994 to
$10,622,000 in fiscal 1995 and decreased 22% from $9,932,000 in fiscal 1993 to
$7,698,000 in fiscal 1994. Cost of government and contract research includes
primarily payroll and related costs, laboratory supplies and overhead expenses
which include facilities and equipment expenses. The cost of government
research increased 25% from $5,144,000 in fiscal 1994 to $6,414,000 in fiscal
1995 and increased 14% from $4,528,000 in fiscal 1993 to $5,144,000 in fiscal
1994. The increase in cost of government research in fiscal 1995 and 1994 is
due primarily to increases in payroll and related costs associated with the
increase in government research revenue as well as an increase in overhead
expenses associated with the expansion of the Company's facilities. Cost of
government research, as a percentage of government contract revenue, was 91% in
fiscal 1995, 85% in fiscal 1994 and 90% in fiscal 1993. Cost of government
research, as a percentage of government research revenue fluctuates based upon
the nature of the government contracts and grants as well as changes in the
Company's overhead structure.
Cost of contract research increased from $89,000 in fiscal 1994 to $231,000 in
fiscal 1995 and decreased from $197,000 in 1993 to $89,000 in fiscal 1994. The
changes in cost of contract research are primarily due to fluctuations in the
level of contract research activity. Cost of product and service significantly
decreased after fiscal 1993 due to the sale of the diagnostic testing business
in June 1993.
Research and development expenses increased 350% from $276,000 in fiscal 1994
to $1,244,000 in fiscal 1995 and increased 22% from $226,000 in fiscal 1993 to
$276,000 in
23
<PAGE> 24
fiscal 1994. The increase in research and development expenses in fiscal 1995
and 1994 is primarily related to expenses incurred to sequence H. pylori, prior
to entering into the strategic alliance with Astra AB in August 1995. The
increase consisted primarily of payroll and related expenses, laboratory
supplies, and overhead expenses. The Company expects to increase investment in
company sponsored research and development in fiscal 1996, particularly with
respect to its human gene discovery programs.
Selling general and administrative expenses increased 25% from $2,176,000 in
fiscal 1994 to $2,730,000 in fiscal 1995 and decreased 22% from $2,802,000 in
fiscal 1993 to $2,176,000 in fiscal 1994. The increase in selling, general and
administrative expenses in fiscal 1995 is primarily due to increases in payroll
and related expenses, facilities expenses and other corporate expenses. The
decrease in selling, general and administrative expenses in fiscal 1994 is due
primarily to the sale of the diagnostics business in 1993 and cost cutting
actions taken by the Company in 1994 to preserve cash resources.
The Company sold all of the assets used in its diagnostics testing business to
Dianon Systems, Inc. in 1993 for $1.0 million. The Company recorded a loss of
$637,000 in fiscal 1993 on the sale of this business.
Liquidity and Capital Resources
The Company has funded its operation primarily through cash flows from
operations (including deferred contract revenue and accrued expenses),
borrowings under capital leases, the sale of equity securities, the utilization
of tax net operating loss carryforwards, and from existing cash resources. In
March 1995, the Company received net proceeds of approximately $2,403,000 from
the private sale of common stock and warrants and the exercise of stock
options. During fiscal 1994, the Company received net proceeds of
approximately $1,601,000 from the private sale of common stock and the exercise
of certain stock options. In fiscal 1995, the Company utilized approximately
$1,100,000 of net operating loss carryforwards.
As of August 31, 1995, the Company had cash, cash equivalents, short term
investments and restricted cash of approximately $9,011,000 (of which
approximately $784,000 is restricted in connection with certain capital lease
obligations) and working capital of approximately $5,499,000. The Company has
various capital lease line arrangements under which it can finance up to
$2,500,000 of certain office and laboratory equipment and leasehold
improvements. The Company is required to maintain certain financial ratios,
including minimum levels of tangible net worth, debt to tangible net worth,
maximum loss, and minimum restricted cash balances. At August 31, 1995, the
Company had approximately $494,000 available under its capital lease
arrangements.
The Company's operating activities provided cash of approximately $2,693,000 in
fiscal 1995. The Company's operating activities utilized cash of approximately
$639,000 and
24
<PAGE> 25
$3,252,000 in fiscal 1994 and 1993, respectively. Net cash provided in fiscal
1995 was composed primarily of deferred contract revenue, accrued expenses, and
operating income. Cash utilized in fiscal 1994 and 1993 was composed primarily
of the Company's operating loss. Deferred revenue represents amounts received
in advance of revenue recognition by the Company and may fluctuate based upon
the timing of the achievement of certain milestones by the Company and payments
from customers.
The Company's investing activities provided cash of approximately $6,000 in
fiscal 1995. The Company's investing activities have used cash of
approximately $1,550,000 in each of the fiscal years 1994 and 1993 to fund
cash used for operating activities.
Financing activities provided approximately $2,074,000 and $1,410,000 in fiscal
1995 and 1994, respectively, primarily due to the proceeds from the sale of
equity securities and warrants, net of payments of capital lease obligations.
Financing activities used approximately $451,000 in fiscal 1993 primarily due
to the payment of capital lease obligations.
The Company currently anticipates $1,500,000, of capital equipment purchases
during fiscal 1996 consisting primarily of bioinformatics hardware, lab
equipment and general equipment. Capital expenditures totaled $1,438,000
during fiscal 1995. The Company expects to increase its internally funded
research and development in fiscal 1996.
The Company believes that its capital resources are adequate to meet its
working capital needs through fiscal 1997. There can be no assurance, however,
that changes in the Company's plans or other events affecting the Company's
operations will not result in accelerated or unexpected expenditures.
The Company expects to seek additional funding through public or private
financing or collaborative or other arrangements with corporate partners. There
can be no assurance, however, that additional financing will be available from
any of these sources or will be available on terms acceptable to the Company.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required by Item 8 are set
forth at the pages indicated in Item 14 (a) below.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
25
<PAGE> 26
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is included under the captions
"Election of Directors" and "Executive Officers" in the Proxy Statement, and is
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is included under the caption
"Executive Compensation" in the Proxy Statement, and is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is included under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement, and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is included under the caption
"Certain Transactions" in the Proxy Statement, and is incorporated herein by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS REPORTS ON FORM
8-K
(a) (1) (2) Financial Statements and Financial Statement Schedule
See "Index to Consolidated Financial Statements and Financial
Statement Schedule" appearing on page 32.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3 Restated Articles of Organization and By-laws (1)
3.1 Amendment dated January 5, 1982 to Restated Articles of
Organization (2)
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
3.2 Amendment dated January 24, 1983 to Restated Articles of
Organization (3)
3.3 Amendment dated January 17, 1984 to Restated Articles of
Organization (4)
3.4 Amendment dated October 20, 1987 to the By-laws (8)
3.5 Amendment dated December 9, 1987 to Restated Articles of
Organization (9)
3.6 Amendment dated October 16, 1989 to the By-laws (11)
3.7 Amendment dated January 24, 1994 to Restated Articles of
Organization (15)
3.8 Amendment dated August 31, 1994 to Restated Articles of
Organization (15)
4 Series B Restricted Stock Purchase Plan (3)
10.1 Research Agreement with The Dow Chemical Company dated May 21,
1980 (1)
10.2 Research Agreement with The Dow Chemical Company dated August
19, 1981 (1)
10.3 1981 Amended Stock Option Plan and Form of Stock Option
Certificate (1)
10.4 Incentive Stock Option Plan and Form of Stock Option
Certificate (1)
10.5 1984 Stock Option Plan and Form of Stock Option Certificate
(5)
10.6 Collaborative Research Incentive Savings Plan (6)
10.7 Amendment dated November 4, 1986 to the Collaborative Research
Incentive Savings Plan dated March 1, 1985 (7)
10.8 Stock Option Agreement with Mr. Lawrence Levy (8)
10.9 Form of Amendment to the 1981 Incentive Stock Option Plan (8)
10.10 Stock Option Agreement with Mr. Mark Friedman (10)
10.11 1988 Stock Option Plan and Form of Stock Option Certificate
(10)
10.12 Stock Option Agreement with Dr. Rothchild (11)
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
10.13 Agreement with Health Sciences Research Institute (Hoken
Kagaku Kenkyojyo) (12)
10.14 1991 Stock Option Plan and Form of Stock Option Certificate
(13)
10.15 Lease dated November 17, 1992 relating to certain property in
Waltham, Massachusetts (14)
10.16 Lease dated June 3, 1993 relating to certain property in
Waltham, Massachusetts (14)
10.17 License Agreement with President and Fellows of Harvard
College (14)
10.18 Agreement with Becton Dickinson and Company (14)
10.19 Employment Agreement with Robert J. Hennessey (14)
10.20 Agreement with Immuno-Cor Inc. dated September 13, 1993 (14)
10.21 Agreement with DIANON Systems, Inc. (14)
10.22 Lease Amendment dated August 1, 1994 relating to certain
property in Waltham, MA (15)
10.23 Consulting Agreement with Dr. Philip Leder (15)
10.24 1993 Stock Option Plan and Form of Stock Option Certificate
(15)
10.25 Stock and Warrant Purchase Agreement among the Company and
certain purchasers named therein dated March 20, 1995 (16)
10.26 Registration Rights Agreement among the Company and certain
purchasers named therein dated March 20, 1995 (16)
10.27 Form of Warrant Certificate issued pursuant to the Stock and
Warrant Purchase Agreement (16)
10.28 Agreement between the Company and Astra Hassle AB dated August
31, 1995 (16)
23. Consent of Independent Public Accounts (16)
</TABLE>
28
<PAGE> 29
FOOTNOTES
(1) Filed as exhibits to the Company's Registration Statement on Form S-1
(No. 2-75230) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 27, 1982 and incorporated herein by reference.
(3) Filed as exhibits to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 26, 1983 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 25, 1984 and incorporated herein by reference.
(5) Filed as exhibits to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 1984 and incorporated herein by reference.
(6) Filed as exhibits to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 1985 and incorporated herein by reference.
(7) Filed as exhibits to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 1986 and incorporated herein by reference.
(8) Filed as exhibits to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 1987 and incorporated herein by reference.
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended November 28, 1987 and incorporated herein by reference.
(10) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1988 and incorporated herein by reference.
(11) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1989 and incorporated herein by reference.
(12) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1990 and incorporated herein by reference.
(13) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1992 and incorporated herein by reference.
(14) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1993 and incorporated herein by reference.
29
<PAGE> 30
(15) Filed as an Exhibit of the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1994 and incorporated herein by reference.
(16) Filed herewith.
(b) Reports on Form 8-K
No reports filed on Form 8-K during the quarter ended August 31, 1995.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Genome Therapeutics Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on November
28, 1995.
GENOME THERAPEUTICS CORPORATION
By /s/ ROBERT J. HENNESSEY
-----------------------
Robert J. Hennessey
Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated as of November 28, 1995.
<TABLE>
<CAPTION>
Signature Title
- ---------------------- -----
<S> <C>
/s/ROBERT J. HENNESSEY Chairman, President; Chief
- ---------------------- Executive Officer
Robert J. Hennessey
/s/ORRIE M. FRIEDMAN Director
- ----------------------
Orrie M. Friedman
/s/PHILIP LEDER Director
- ----------------------
Philip Leder
/s/LAWRENCE LEVY Director
- ----------------------
Lawrence Levy
/s/DONALD J. MCCARREN Director
- ----------------------
Donald J. McCarren
Director
- ----------------------
Steven M. Rauscher
/s/FENEL M. ELOI Vice President, Treasurer; and Chief
- ---------------------- Financial Officer (Principal Financial
Fenel M. Eloi and Accounting Officer)
</TABLE>
31
<PAGE> 32
GENOME THERAPEUTICS CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and
Financial Statement Schedules
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants 33
Consolidated Financial Statements:
Consolidated Balance Sheets as of August 31, 1995 and 1994 34
Consolidated Statements of Operations for the years ended 35
August 31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity for the years
ended August 31, 1995, 1994, and 1993 36
Consolidated Statements of Cash Flows for the years ended
August 31, 1995, 1994, and 1993 37
Notes to Consolidated Financial Statements
38
Financial Statement Schedules:
Schedule II: Valuation and Qualifying Accounts 47
</TABLE>
Schedules not included herein are omitted for the reason that they are not
applicable or that the required information appears in the Consolidated
Financial Statements or Notes thereto.
32
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Genome Therapeutics Corporation:
We have audited the accompanying consolidated balance sheets of Genome
Therapeutics Corporation (a Massachusetts corporation) and subsidiaries as of
August 31, 1995 and 1994, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended August 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Genome Therapeutics Corporation
and subsidiaries as of August 31, 1995, and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts,
October 4, 1995
33
<PAGE> 34
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31,
--------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 5,886,184 $ 1,114,162
Short-term Investments 2,340,592 3,008,344
Accounts Receivable (less allowances for doubtful accounts
of $-0- and $229,000 in 1995 and 1994, respectively) 360,793 391,151
Unbilled Costs 259,005 229,045
Prepaid Expenses and Other Current Assets 50,140 22,386
------------ ------------
Total Current Assets 8,896,714 4,765,088
------------ ------------
Equipment and Leasehold Improvements, at Cost:
Laboratory and Scientific Equipment 1,464,987 752,482
Leasehold Improvements 1,597,069 1,446,236
Office Equipment and Furniture 903,946 532,656
Construction in Progress 206,103 173,186
------------ ------------
4,172,105 2,904,560
Less Accumulated Depreciation 2,451,632 2,120,146
------------ ------------
1,720,473 784,414
Restricted Cash 784,471 94,674
Other Assets 127,016 266,506
------------ ------------
TOTAL ASSETS $ 11,528,674 $ 5,910,682
============ ============
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable $ 409,282 $ 450,854
Accrued Expenses 1,736,569 838,595
Deferred Contract Revenue 774,048 37,991
Current Maturities of Capital Lease Obligations 478,033 193,388
------------ ------------
Total Current Liabilities 3,397,932 1,520,828
------------ ------------
Capital Lease Obligations, Net of Current Maturities 892,239 165,299
Commitments (Note 6)
Shareholders' Equity:
Common Stock, $.10 Par Value ---Authorized--- 35,000,000 shares; Issued
and Outstanding--- 13,476,135 shares in 1995 and 11,778,946
in 1994 1,347,613 1,177,894
Series B Restricted Stock, $.10 Par Value - Issued
and Outstanding ---- 57,512 shares in 1995 and 1994 5,751 5,751
Additional Paid-in Capital 41,138,147 38,905,080
Accumulated Deficit (35,174,225) (35,759,429)
Deferred Compensation (1,817) (27,775)
Installment Receivable from Sale of Series B Restricted Stock (76,966) (76,966)
------------ ------------
Total Shareholders' Equity 7,238,503 4,224,555
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,528,674 $ 5,910,682
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE> 35
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Government Research $ 7,014,280 $ 6,077,346 $ 5,021,975
Contract Research, License Fees and Royalties 3,923,944 314,428 361,494
Interest Income 231,662 141,584 173,788
Product and Service 37,217 85,559 893,083
---------------------------------------------------
Total Revenues 11,207,103 6,618,917 6,450,340
---------------------------------------------------
COSTS AND EXPENSES:
Cost of Government Research 6,414,148 5,144,071 4,527,595
Cost of Contract Research 231,174 89,184 196,788
Research and Development 1,244,427 276,024 225,747
Selling, General and Administrative 2,729,504 2,175,910 2,801,633
Cost of Product and Service 2,646 12,446 1,543,407
Loss on Sale of Diagnostics Business 0 0 637,027
---------------------------------------------------
Total Costs and Expenses 10,621,899 7,697,635 9,932,197
---------------------------------------------------
Net Income (Loss) $ 585,204 ($ 1,078,718) ($ 3,481,857)
===================================================
NET INCOME (LOSS) PER COMMON SHARE:
Primary $ 0.05 ($ 0.10) ($ 0.33)
===================================================
Fully Diluted $ 0.04 -- --
===================================================
WEIGHTED AVERAGE NUMBER OF COMMON AND
AND COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 12,961,734 11,097,224 10,668,628
===================================================
Fully Diluted 13,036,741 -- --
===================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE> 36
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series B Additional
Common Stock Restricted Stock Paid-in
Shares Amount Shares Amount Capital
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1992 10,664,166 $1,066,416 57,512 $5,751 $37,440,631
Exercise of Stock Options 29,000 2,900 2,900
Amortization of Deferred Compensation
Cancellation of Stock Options (30,469)
Net Loss
- ----------------------------------------------------------------------------------------------------------
Balance at August 31, 1993 10,693,166 1,069,316 57,512 5,751 37,413,062
Exercise of Stock Options 84,276 8,428 138,779
Amortization of Deferred Compensation
Sale of Common Stock and Warrants 1,001,504 100,150 1,353,239
Net Loss
- ----------------------------------------------------------------------------------------------------------
Balance at August 31, 1994 11,778,946 1,177,894 57,512 5,751 38,905,080
Exercise of Stock Options 244,166 24,417 394,982
Amortization of Deferred Compensation
Sale of Common Stock and Warrants 1,453,023 145,302 1,838,085
Net Income
- ----------------------------------------------------------------------------------------------------------
Balance at August 31, 1995 13,476,135 $1,347,613 57,512 $5,751 $41,138,147
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Installment
Receivable Total
Accumulated Deferred From Sale Shareholders'
Deficit Compensation of Stock Equity
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at August 31, 1992 $(31,198,854) $(155,667) $(76,966) $7,081,311
Exercise of Stock Options 5,800
Amortization of Deferred Compensation 71,079 71,079
Cancellation of Stock Options 30,469 0
Net Loss (3,481,857) (3,481,857)
- ------------------------------------------------------------------------------------------------------
Balance at August 31, 1993 (34,680,711) (54,119) (76,966) 3,676,333
Exercise of Stock Options 147,207
Amortization of Deferred Compensation 26,344 26,344
Sale of Common Stock and Warrants 1,453,389
Net Loss (1,078,718) (1,078,718)
- ------------------------------------------------------------------------------------------------------
Balance at August 31, 1994 (35,759,429) (27,775) (76,966) 4,224,555
Exercise of Stock Options 419,399
Amortization of Deferred Compensation 25,958 25,958
Sale of Common Stock and Warrants 1,983,387
Net Income 585,204 585,204
- ------------------------------------------------------------------------------------------------------
Balance at August 31, 1995 $(35,174,225) $(1,817) $(76,966) $7,238,503
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE> 37
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 585,204 $(1,078,718) $(3,481,857)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities:
Loss on Sale of Assets 0 0 637,027
Depreciation and Amortization 350,230 205,889 325,591
Deferred Compensation 25,958 26,344 49,306
Changes in Assets and Liabilities:
Accounts Receivables 30,358 223,233 (141,691)
Unbilled Costs (29,960) (86,281) 25,284
Prepaid Expenses (30,854) 36,077 6,338
Other Assets 3,100 34,650 (39,200)
Accounts Payable 124,568 176,178 (127,331)
Accrued Expenses 897,974 (128,912) (197,305)
Deferred Contract Revenue 736,057 (47,289) (308,537)
----------- ----------- -----------
Total Adjustments 2,107,431 439,889 229,482
----------- ----------- -----------
Net Cash Provided by (Used in)
Operating Activities 2,692,635 (638,829) (3,252,375)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Short-term Investments (5,332,248) (4,985,970) (5,422,374)
Proceeds from Short-term Investments 6,000,000 4,000,000 3,400,000
Increase in Restricted Cash (689,797) (94,674) 0
Purchases of Equipment and Leasehold Improvements (97,016) (191,907) (158,657)
(Increase) Decrease in Other Assets 124,687 (277,398) 0
Payments for Net Assets Acquired 0 0 (268,500)
Proceeds from Sale of Assets 0 0 901,297
----------- ----------- -----------
Net Cash Provided by (Used in) Investing
Activities 5,626 (1,549,949) (1,548,234)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Common Stock and Warrants 1,983,387 1,453,389 0
Proceeds from Exercise of Stock Options 419,399 147,207 5,800
Payments on Capital Lease Obligations (329,025) (190,588) (456,399)
----------- ----------- -----------
Net Cash Provided by (Used in) Financing
Activities 2,073,761 1,410,008 (450,599)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 4,772,022 (778,770) (5,251,208)
Cash and Cash Equivalents at Beginning of Year 1,114,162 1,892,932 7,144,140
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,886,184 $ 1,114,162 $ 1,892,932
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Interest Paid during Period $ 85,759 $ 19,482 $ 44,100
=========== =========== ===========
Supplemental Schedule of Non-cash Investing Activities:
Property and Equipment Acquired under Capital Leases $ 1,340,611 $ 264,379 $ 318,151
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Genome Therapeutics Corporation (the Company) was formerly known as
Collaborative Research, Inc. Its mission is to translate the discoveries of the
Human Genome Project into significant commercial breakthroughs in human
medicine. The Company is devoting substantially all of its efforts towards
research and development and raising capital. The Company is subject to risks
common to companies in its industry including development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, and compliance with FDA government
regulations and the need for additional funding.
The accompanying consolidated financial statements reflect the application of
certain accounting policies described in this note and elsewhere in the
accompanying notes to the consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany accounts have been
eliminated in consolidation.
REVENUE RECOGNITION
Substantially all of the Company's research and contract revenues are derived
from government grants and various contract arrangements. Research revenues are
recognized as earned under grants, cost plus fixed fee contracts and fixed price
contracts. Milestone payments from collaborative research and development
arrangements are recognized when they are achieved. License fees are recognized
as earned. Unbilled costs represent revenue recognized prior to billing.
Deferred contract revenue represents amounts received prior to revenue
recognition. Royalty revenue is recorded as earned.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are depreciated over their estimated useful
lives using the straight-line method. The estimated useful life for leasehold
improvements is the lesser of the term of the lease or the estimated useful life
of the assets. Equipment and all other depreciable assets' useful lives vary
from three to ten years.
38
<PAGE> 39
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed by dividing net
income by the weighted average number of common and common equivalent shares
outstanding during the year using the treasury method. Net loss per share is
computed by dividing the net loss by the weighted average number of common
shares outstanding during the year.
RECLASSIFICATIONS
The Company has reclassified certain prior year information to conform with the
current year's presentation.
2. CASH EQUIVALENT AND SHORT-TERM INVESTMENTS:
The Company applies Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"). The Company considers all highly liquid investments with original
maturities of three months or less at the time of acquisition to be cash
equivalents . Cash equivalents consist of money market funds, repurchase
agreements and debt securities at August 31, 1995. Cash equivalents consist of
money market funds and repurchase agreements at August 31, 1994. The Company has
$784,471 and $94,674 in restricted cash at August 31, 1995 and 1994,
respectively, in connection with certain capital lease obligations. (See Note
7).
The Company's portfolio of investments are marketable securities classified as
held-to-maturity (recorded at amortized cost). Marketable securities consisted
of commercial paper and medium-term notes at August 31, 1995 and 1994 with an
average maturity of six months. Realized gains and losses on the sale of
marketable securities for the year ended August 31, 1994 and 1995 were not
material.
3. INCOME TAXES:
The Company applies Statement of Financial Accounting Standard No. 109, ("SFAS
109"),"Accounting for Income Taxes". SFAS 109 requires the Company to recognize
deferred tax assets and liabilities for expected future tax consequences of
events that have been recognized in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using the enacted tax rates in effect for the year in which the
differences are expected to reverse. SFAS 109 requires deferred tax assets and
liabilities to be adjusted when the tax rates or other provisions of the income
39
<PAGE> 40
tax laws change. The effect of the adoption of SFAS 109 was not material to the
Company's financial statements.
At August 31, 1995, the Company had net operating loss and tax credit
carryforwards of approximately $35,007,000 and $1,120,000, respectively,
available to reduce federal taxable income and federal income taxes,
respectively, if any. Net operating loss carryforwards and credits are subject
to review and possible adjustments by the Internal Revenue Service and may be
limited in the event of certain cumulative changes in the ownership interest of
significant shareholders over a three-year period in excess of 50%. In the year
ended August 31, 1995, the Company utilized approximately $1,100,000 of net
operating loss carryforwards to offset taxable income.
The net operating loss carryforwards and tax credits expire approximately as
follows:
<TABLE>
<CAPTION>
Net Operating Research Tax Credit Investment Tax
Expiration Date Loss Carryforwards Carryforwards Credit Carryforwards
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 $ - $ 80,000 $103,000
1998 6,108,000 208,000 90,000
1999 5,039,000 273,000 143,000
2000 3,829,000 84,000 75,000
2001 4,812,000 24,000 3,000
2002-2010 15,219,000 - 37,000
----------------------------------------------------------
$35,007,000 $669,000 $451,000
----------------------------------------------------------
</TABLE>
The components of the deferred tax assets recognized in the Company's balance
sheet at the respective dates are as follows:
<TABLE>
<CAPTION>
August 31,
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carryforwards $ 12,699,000 $ 12,357,000
Research and development credits 669,000 669,000
Investment tax credits 451,000 414,000
Other, net 1,167,000 526,000
-------------------------------
$ 14,986,000 $ 13,966,000
Valuation allowance (14,986,000) (13,966,000)
-------------------------------
$ -0- $ -0-
-------------------------------
</TABLE>
40
<PAGE> 41
The valuation allowance has been provided due to the uncertainty surrounding the
realization of the deferred tax assets.
4. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
August 31,
1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C>
Intangible assets (net of accumulated amortization
of $25,695 and $10,892, respectively) $ 48,110 $105,525
Deposits 78,906 60,981
Other -0- 100,000
----------------------
$127,016 $266,506
----------------------
</TABLE>
Intangible assets consist of licenses and patents. Intangible assets are
recorded at cost and are amortized over their expected useful life of five years
using the straight-line method.
5. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
August 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Payroll and related expenses $ 630,290 $ 330,654
Severance 326,723 -0-
Employee relocation 230,468 -0-
License and other fees 283,971 227,391
All other 265,117 280,550
-----------------------------
$1,736,569 $ 838,595
-----------------------------
</TABLE>
41
<PAGE> 42
6. COMMITMENTS:
At August 31, 1995, the Company has operating leases for office and laboratory
facilities which expire on July 31, 1999. Minimum lease payments under the
leases at August 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 613,094
1997 619,405
1998 567,499
1999 534,895
----------
$2,334,893
----------
</TABLE>
Rental expense was approximately $411,000, $208,000, and $296,000 in the years
ended August 31, 1995, 1994, and 1993, respectively. Rental expense for the year
ended August 31, 1994 was offset by approximately $100,000 of sublease rental
income.
7. CAPITAL LEASE OBLIGATIONS:
The Company has various capital lease line arrangements under which it can
finance up to $2,500,000 of certain office and laboratory equipment. These
leases are payable in thirty-six monthly installments. The interest rate ranges
from prime (8.75% at August 31, 1995) plus 1.5% to 11.42%. The Company is
required to maintain certain restricted cash balances, as defined (see Note 2).
In addition, the Company is required to maintain certain financial ratios
pertaining to minimum cash balances, tangible net worth, debt to tangible net
worth and maximum loss. The Company has $493,711 available under these various
capital lease agreements at August 31, 1995.
Additionally, in connection with its facilities lease, the Company issued a
$100,000 note payable in September 1994 to its lessor to finance leasehold
improvements. The note bears interest at 9% and is payable in sixty monthly
payments of $2,076.
42
<PAGE> 43
Future minimum lease commitments at August 31, 1995, are as follows:
<TABLE>
<S> <C>
1996 $ 589,644
1997 587,276
1998 354,272
1999 40,135
----------
Total minimum lease payments 1,571,327
Less-Amount representing interest (201,055)
----------
Present value of total minimum
lease payments 1,370,272
Less-Current portion (478,033)
----------
$ 892,239
----------
</TABLE>
8. SHAREHOLDERS' EQUITY:
PRIVATE PLACEMENT
On March 20 1995, the Company completed a private placement of 850,000 shares of
common stock at $2.43 per share resulting in proceeds of approximately
$2,000,000 net of issuance costs. In connection with the private placement, the
Company issued warrants to purchase 1,020,000 shares of common stock at a
exercise price of $2.43 per share. These warrants were exercised on July 18,
1995 and resulted in the net issuance of 603,023 shares of common stock. The net
issuance represents the excess fair market value of the shares purchasable
pursuant to the warrants on the date of exercise over the total exercise price
of such warrants.
SERIES B RESTRICTED STOCK
The Company has designated 625,000 shares of common stock as Series B Restricted
Stock ("Series B Stock") and issued 57,512 shares of Series B Stock in exchange
for a subscription receivable. In the event of liquidation, holders of common
stock are entitled to receive, prior to and in preference to any distribution of
the Company's assets to the holders of Series B Stock, the greater of: (a) $5.00
per share; or (b) an amount per share equal to ten (10) times the amount which,
after such distribution, would remain available for distribution to holders of
the Series B Stock. After such preferential distribution, the remaining assets,
if any, of the Company would be distributed ratably to the holders of common
stock and Series B Stock.
43
<PAGE> 44
STOCK OPTIONS
The Company adopted the 1988, 1991 and 1993 stock option plans for key employees
and consultants. Under these plans, the stock option committee may grant options
to purchase up to 1,750,000 of the Company's common shares. The purchase price
and vesting schedule applicable to each option grant is determined by the stock
option committee. Under separate agreements, the Company has granted directors
and certain consultants of the Company options to purchase common stock. In
addition, the Company has granted stock options under the 1981 and 1984 stock
option plans, and non-statutory stock option plan. No further options may be
granted under any of these plans.
The Company records deferred compensation when stock options are granted at an
exercise price per share which is less than the fair market value of the grant.
Deferred compensation is recorded in an amount equal to the excess of the fair
value per share over the exercise price times the number of options granted.
Deferred compensation will be recognized as an expense over the vesting period
of the underlying options. Compensation expense included in the statement of
operations was approximately $26,000, $26,000 and $71,000 for the year ended
August 31, 1995, 1994 and 1993, respectively.
There were 139,650 common shares available for future grants at August 31, 1995
under existing stock option plans. The following is a summary of all stock
option activity .
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Options shares:
Granted 355,275 970,100 1,791,350
Exercised (244,166) (84,276) (29,000)
Cancelled (70,624) (108,288) (157,798)
---------- ---------- -----------
Outstanding at August 31 3,540,187 3,499,702 2,722,166
---------- ---------- -----------
Price range of outstanding options
at end of period $.20-$8.00 $.20-$8.00 $.20-$11.94
Price range of exercised options
during period $.81-$4.00 $.88-$2.94 $.20
</TABLE>
44
<PAGE> 45
9. INCENTIVE SAVINGS PLAN 401(k):
The Company maintains an incentive savings plan (the "Plan") for the benefit of
all employees, as defined. Matching contributions are made to the Plan by the
Company at a rate of 50% for the first 2% of salary and 25% for the next 4% of
salary, limited to the first $50,000 of annual salary. On November 4, 1986, the
Company granted to each active employee one hundred (100) shares, or a pro rated
amount, of its common stock. The Company contributed $43,533, $43,233 and
$36,315 to the Plan for 1995, 1994 and 1993, respectively.
10. COLLABORATION AGREEMENT
Astra AB - In August 1995, the Company entered into a collaboration
agreement with Astra Hassle AB ("Astra") to develop pharmaceutical, vaccine and
diagnostic products effective against gastrointestinal infection or any other
disease caused by H. pylori. Under the terms of the agreement, the Company
granted Astra exclusive access to its H. pylori genomic sequence database and
agreed to undertake certain research efforts in exchange for a minimum of
approximately $11 million and up to $22 million in license fees, expense
allowances, research funding and milestone payments. The agreement grants Astra
exclusive worldwide rights to make, use and sell products based on the Company's
H. pylori technology and requires Astra to provide research funding to the
Company over a period of two and one-half years to further develop and annotate
the Company's H. pylori genomic sequence database, identify therapeutic and
vaccine targets and develop appropriate biological assays. Research under the
agreement will be directed by a Joint Management Committee and a Joint Research
Committee, each consisting of representatives from both parties. In August 1995,
the Company received $4,269,000, of which $3,500,000 was recorded as a
nonrefundable license fee and capital allowance which is included in contract
research, license fees and royalties on the accompanying consolidated statement
of operations and $769,000 was recorded as deferred revenue on the accompanying
consolidated balance sheet. The Company will also be entitled to receive
royalties on Astra's sale of any products (i) protected by the claims of patents
licensed exclusively to Astra by the Company pursuant to the agreement, or (ii)
the discovery of which were enabled in a significant manner by the genomic data
base licensed to Astra by the Company.
11. LOSS ON SALE OF DIAGNOSTIC TESTING BUSINESS:
On June 27, 1993, the Company sold all of the assets of its diagnostic testing
business to Dianon Systems, Inc. for $1.0 million. The transaction resulted in a
non-recurring loss of $.6 million.
45
<PAGE> 46
12. HARVARD LICENSE AGREEMENT:
On November 12, 1993, the Company entered into an agreement with Harvard Medical
School for an exclusive worldwide license for commercial applications of their
patented multiplex sequencing technology. Under this agreement, the Company had
paid a nonrefundable license fee of $100,000, of which $50,000 can be credited
against future royalties. In addition, the Company must pay minimum royalties
ranging from $5,000 in 1995 to $35,000 in 1998. During 1995, the Company
incurred a royalty expense of $100,000, of which $50,000 was credited against
prepaid royalties. The Company may terminate this agreement upon 90 days notice.
46
<PAGE> 47
Schedule II
Genome Therapeutics Corporation and Subsidiaries
Valuation and Qualifying Accounts
For the Years Ended August 31, 1995, 1994 and 1993
Reserves for Doubtful Accounts
<TABLE>
<S> <C>
Balance, August 31, 1992 $ 74,390
Additions charged to expense 124,992
Write-off of uncollecticible accounts, net (20,800)
---------
Balance, August 31, 1993 $ 178,582
=========
Additions charged to expense 59,102
Write-off of uncollecticible accounts, net (8,418)
---------
Balance, August 31, 1994 $ 229,266
=========
Additions charged to expense 0
Write-off of uncollecticible accounts, net (229,266)
---------
Balance, August 31, 1995 $ 0
=========
</TABLE>
47
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
10.25 Stock and Warrant Purchase Agreement among the Company
and certain purchasers of the Company's Common Stock
and warrants dated March 20, 1995
10.26 Registration Rights Agreement among the Company and
certain purchasers named therein dated March 20, 1995
10.27 Form of Warrant issued pursuant to the Stock and
Warrant Purchase Agreement
10.28 Agreement between the Company and Astra Hassle AB
dated August 31, 1996
23 Consent of Arthur Anderson LLP
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.25
GENOME THERAPEUTICS CORP.
STOCK AND WARRANT
PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made this 20th day
of March, 1995 by and among Genome Therapeutics Corp., a Massachusetts
corporation (the "Company") and the persons whose names are set forth on
Schedule I hereto (the "Investors").
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Purchase and Sale of Stock and Warrants.
1.1. Authorization of Shares. The Company has authorized the issue
and sale of (i) 850,000 shares of Common Stock, $.10 par value (the "Common
Stock"), of the Company to be issued under this Agreement and (ii) warrants
representing the right to purchase an additional 1,020,000 shares of Common
Stock at an exercise price of $2.43 per share.
1.2. Purchase and Sale of the Common Stock and Warrants. Subject to
the terms and conditions of this Agreement and on the basis of the
representations and warranties set forth herein, the Company agrees to issue and
sell to the Investors and each of the Investors agree, severally and not
jointly, to purchase from the Company (i) the number of shares of Common Stock
set forth opposite such investor's name on Schedule I (the "Shares") and (ii)
the number of Warrants set forth opposite such investor's name on Schedule I
(collectively, the "Warrants") at a purchase price of $2.30 for each share of
Common Stock and $0.10833 for each warrant or $2.43 for each "unit" of one share
of Common Stock and one and two-tenths (1.20) Warrants (the "Units"). The
Company and Investors agree that, notwithstanding any appraisal or other
valuation to the contrary, for income tax and other purposes each shall use only
the separate value of a share of the Common Stock and a Warrant set forth above
as the true value of a share of Common Stock and a Warrant and the purchase
price for each Unit shall be allocated in a similar manner among the share of
Common Stock and the Warrants included in each Unit. The rights, privileges and
terms of the Warrants are as set forth in the form of Warrant attached hereto as
Exhibit A.
- 1 -
<PAGE> 2
1.3. The Closing. Subject to the other terms and conditions of this
Agreement, the purchase and sale of the Units (the "Closing") will take place on
March 20, 1995, at 10:00 a.m. Boston time, at the offices of Ropes & Gray, One
International Place, Boston, Massachusetts, or at such other time or such other
place as the parties shall mutually agree. At the Closing, the Company will
deliver to each of the respective Investors (i) a certificate or certificates,
registered in such Investor's name, representing the Shares to be acquired by
such Investor and (ii) a certificate substantially in the form of Exhibit A
hereto, registered in such Investor's name, representing the Warrants to be
acquired by such Investor, pursuant to this Agreement at such Closing, against
payment of the purchase price thereof in lawful money of the United States of
America by wire transfer payable to the Company.
2. Representations and Warranties of the Company Regarding the Company and the
Units.
In order to induce the Investors to enter, severally and not jointly,
into this Agreement and to acquire the Units hereunder, the Company hereby
represents and warrants to the Investors with regard to the Company and its
subsidiaries and affiliates:
2.1. Organization and Authority. The Company is a corporation duly
organized and validly existing under the laws of Massachusetts and has full
corporate power, right and authority to own its property, to carry on its
business as presently conducted or contemplated to be conducted and, subject to
necessary shareholder approval, to enter into and carry out the transactions
contemplated by this Agreement. The Company is duly qualified to transact
business as a foreign corporation and is in good standing in each of the other
jurisdictions in which the ownership or leasing of its properties or the conduct
of its business requires such qualification. The Company has full corporate
power and authority and all necessary governmental authorizations to own or
lease its properties and assets and to carry on its business as now being
conducted. Except as set forth in Exhibit 22 of its 1994 Annual Report on Form
10-K, the Company does not control any corporation or other entity and each such
entity or corporation listed on such Form 10-K is currently inactive.
- 2 -
<PAGE> 3
2.2. Authorization. The Company has full legal right, power,
capacity and authority to execute and deliver this Agreement and each of the
other agreements contemplated hereby, to consummate the transactions
contemplated hereby and to comply with the terms, conditions and provisions
hereof. This Agreement and each of the other agreements contemplated hereby
have been duly authorized, executed and delivered by the Company and are the
legal, valid and, assuming due execution and delivery by the parties thereto,
binding obligation of the Company, enforceable in accordance with their terms.
The execution, delivery and performance of this Agreement and each of the other
agreements contemplated hereby will have been duly authorized and approved by
all necessary corporate action of the Company and does not require any further
authorization or consent of the Company or any other person.
2.3. Validity of Shares and Warrants. The Shares and Warrants, when
issued and the consideration therefor received by the Company, will be validly
issued, fully paid and non-assessable. The Company has the full corporate power,
right and authority, to issue and sell to the Investors at the Closing the
Shares and the Warrants, as contemplated herein and upon consummation of the
transactions contemplated by this Agreement, each of the Investors will have
acquired good and marketable title to the Shares and the Warrants, as the case
may be, free and clear of any claims, liens, restrictions on transfer or voting
or encumbrances other than those arising under the federal and state securities
laws of the United States of America.
2.4. Capitalization. (a) The authorized capital stock of the Company
consists solely of 35,000,000 shares of Common Stock. As of the date hereof,
and before giving effect to the transactions contemplated hereby, of the
35,000,000 authorized shares of Common Stock, 11,778,946 shares are issued and
outstanding, zero shares are held by the Company as treasury shares, an
aggregate of 38,075 shares of Common Stock are reserved under the warrants set
forth in Schedule 2.4 (the "Existing Warrants"), an aggregate of 3,940,502
shares of Common Stock are reserved under the Company's plans (the "Plans") set
forth on Schedule 2.4, of which options to purchase the number of shares of
Common Stock set forth opposite each such plan are currently outstanding
(vested/unvested) at the respective prices shown on Schedule 2.4 and additional
options to purchase shares
- 3 -
<PAGE> 4
of the Common Stock may be issued only under certain of such plans as indicated
on Schedule 2.4 (collectively, the "Existing Options"), and no other shares
have been reserved for issuance for any other purpose.
(b) As of the date hereof there are no securities outstanding
(other than the Existing Warrants and the Existing Options) that are convertible
into or exchangeable for (upon the occurrence of any event or condition or
otherwise) any shares of the Company's capital stock, nor will there be any
outstanding subscription agreements, warrants, options, preemptive rights,
rights of first offer or refusal or other rights (contingent or otherwise) to
purchase any shares of capital stock of the Company or any such convertible or
exchangeable securities other than the Existing Options and the Existing
Warrants. Except as described on Schedule 2.4, as of the date hereof there
exists no (i) agreement or understanding to which the Company or any affiliate
is a party under which the Company or such affiliate will be obligated,
contingently or otherwise, to purchase or redeem any capital stock of the
Company, any securities that are convertible into or exchangeable for (upon the
occurrence of any event or condition or otherwise) any shares of the Company's
capital stock or any subscription agreements, warrants, options, preemptive
rights or other rights (contingent or otherwise) to purchase any shares of
capital stock of the Company or any such convertible or exchangeable securities,
(ii) agreement or understanding to which the Company or any affiliate is a party
pursuant to which the Company or such affiliate is obligated (contingently or
otherwise) to register any securities under the Securities Act of 1933, as
amended (the "1933 Act"), or any state securities laws, other than the
Registration Rights Agreement), (iii) voting agreement, voting trust,
irrevocable proxy or any other agreement or instrument in effect to which any
securities holder of the Company (to the knowledge of the Company) is a party
relating to the voting rights of any securities of the Company or (iv) put
option, right of first offer or refusal, tag-along, drag-along or co-sale
agreement or other agreement or understanding pursuant to which (to the
knowledge of the Company) any Person other than the Company has the right
(contingent or otherwise) to sell or purchase any capital stock of the Company,
any securities that are convertible into or exchangeable for (upon the
occurrence of any event or condition or otherwise) any shares of the Company's
capital stock or any subscription agreements, warrants, options,
- 4 -
<PAGE> 5
preemptive rights or other rights (contingent or otherwise) to purchase any
shares of capital stock of the Company or any such convertible or exchangeable
securities.
(c) As of the date hereof, all outstanding securities of the
Company have been duly authorized and validly issued without violation of any
preemptive rights, are fully paid and non-assessable, and have been offered and
issued without violation of the 1933 Act or any applicable state securities
laws.
2.5. No Defaults. The Company is not in default on the Company's
properties or assets or the business of the Company, as presently conducted or
proposed to be conducted, (a) under its charter documents or its By-Laws or any
note, indenture, mortgage, lease, agreement, contract, purchase order or other
instrument, document or agreement to which it is a party or by which it or any
of its property is bound or affected or (b) with respect to any order, writ,
injunction or decree of any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. To the knowledge of the Company, there exists no
condition, event or act which after notice, lapse of time, or both, is
reasonably likely to constitute a default by the Company which would have a
material adverse impact on the Company's properties or assets or the business of
the Company as presently conducted or proposed to be conducted. To the
Company's knowledge, no third party is in default under any agreement, contract
or other instrument, document, or agreement to which the Company or any
subsidiary is a party or by which any of them or any of their property is
affected, which default would have a material adverse impact on the Company's
properties or assets.
2.6. Effect of Transactions. The execution, delivery and performance
of this Agreement, the Registration Rights Agreement, and any other agreements,
instruments, or documents contemplated hereby, the issuance, sale and delivery
of the Shares and the Warrants and compliance with the provisions hereof and
thereof by the Company, do not and will not, with or without the passage of time
or the giving of notice or both (a) violate any provision of law, statute, rule
or regulation or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body, or (b) conflict with or
result in any
- 5 -
<PAGE> 6
breach of any of the terms, conditions or provisions of, or constitute a default
(or give rise to any right of termination, cancellation or acceleration) under,
or result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company under its charter or bylaws
or under any note, indenture, mortgage, lease, license agreement, contract,
purchase order or other instrument, document or agreement to which the Company
is a party or by which it or any of its property is bound or affected which
would have a material adverse effect on the Company's properties or assets or
the business of the Company as presently conducted or as proposed to be
conducted.
2.7. Litigation. There is no action, suit, proceeding or
investigation at law or equity or before or by any governmental commission,
board or other administrative agency pending or, to the knowledge of the
Company, threatened against or affecting the Company which questions the
validity of this Agreement, the Registration Rights Agreement, any other
agreements, instruments or documents entered into by the Company pursuant to
this Agreement or the Registration Rights Agreement, the right of the Company to
enter into them or to consummate the transactions contemplated hereby or
thereby, or which might result, either individually or in the aggregate, in any
material adverse effect upon the business, assets, conditions, operations,
certificate of convenience and necessity, profits, condition (financial or
other), affairs or, in the reasonable business judgment of the Company,
prospects of the Company, financial or otherwise, or any change in the current
equity ownership of the Company. There is no action, suit or proceeding by the
Company currently pending or which the Company presently intends to initiate.
There is no action, suit or proceeding pending against, or to the knowledge of
the Company, threatened against or affecting, the Company or any of its
properties before any court or arbitrator or any governmental body, agency or
official which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay any of the transactions contemplated hereby.
2.8. SEC Filings and Reports. The Company has filed with the
Securities and Exchange Commission ("SEC") all required reports, schedules,
forms, statements and other documents for the preceding three years. As of its
filing date, each such report, proxy or information statement (as amended or
supplemented, if
- 6 -
<PAGE> 7
applicable), filed pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act") and all registration statements and other materials filed with
the SEC under the 1933 Act, complied in all material respects with the
applicable rules and regulations of the SEC thereunder, and did not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
2.9. Reports. The Company has heretofore furnished to BVF Partners,
L.P. ("BVF") copies of (i) the Company's Annual Report on Form 10-K for the year
ended August 31, 1994, (ii) the Company's Quarterly Report on Form 10-Q for the
quarter ended November 26, 1994, (iii) the Company's Proxy Statement dated
December 23, 1994 relating to its 1995 Annual Meeting of Shareholders and (iv)
the Company's 1994 Annual Report to Shareholders (such annual reports, quarterly
report and proxy statement being hereinafter called collectively the "Reports").
All financial statement contained in the Reports present fairly the financial
position of the Company at the respective dates thereof and the results of its
operations for the periods covered thereby in conformity with generally accepted
accounting principles applied on a consistent basis. The Company has filed no
reports on Form 8- K since November 26, 1994
The Company has no known liabilities, contingent or otherwise, as of
the date hereof not disclosed in the financial statements included in the
Reports, or in the notes thereto or elsewhere herein, that materially affects
or may (so far as the Company can now foresee) in the future materially affect
the financial position of the Company.
2.10. Material Adverse Changes. Since November 26, 1994, there has
been no material adverse change in the business, operations, assets, properties,
profits or condition, financial or other, of the Company, and neither its
properties nor business has been adversely affected in any material manner as
the result of any fire, windstorm, explosion, accident, flood, drought, blight,
earthquake, strike, embargo, lockout, riot, sabotage, or confiscation,
condemnation or purchase of any property by governmental authority, activities
or armed forces or acts of God or the public enemy, or other similar event,
condition or development; provided, however, that the Company expects to
- 7 -
<PAGE> 8
report in its February 28, 1995 quarterly report on Form 10-Q a net loss of
approximately $456,000 and a reduction in its cash position of approximately
$409,000 since November 26, 1994.
2.11. Taxes. The Company has filed all federal, state, local and
other tax returns required by law to be filed by it, and all taxes shown to be
due and all additional assessments, fees, governmental charges, interest and
penalties have been paid. The federal income tax liabilities of the Company for
the fiscal year 1993 and for all prior years, have been determined or accepted
by the Internal Revenue Service and paid. No objection to any return or claim
for additional taxes is currently being asserted against the Company and the
Company does not know of any proposed additional tax assessment against the
Company. The Company believes all filed returns were prepared in accordance
with applicable statutes and generally accepted principles applicable to
taxation.
2.12. Limitations. There are no limitations in the Company's By-laws
or in any indenture, deed of trust or other agreement or instrument to which the
Company is a party with respect to the issuance and sale of the Shares or
Warrants as the case may be, or with respect to the payment or accumulation of
dividends on the Shares and Warrants, except in each such case those contained
in the Company's Restated Articles of Organization.
2.13. Use of Proceeds. The Company will use the proceeds from the
sale of the Shares and Warrants only for working capital purposes and not use
such proceeds contrary to any federal, state or local law, rule, regulation,
guideline, requirement, order, directive or other mandatory proscription or
authority. The Company will not use any part of the proceeds from the sale of
the Shares and Warrants, directly or indirectly, to purchase or carry any
"margin security," as such term is defined in Regulation G of the Board of
Governors of the Federal Reserve System, as amended (12 C.F.R., Part 207), or to
reduce or retire any indebtedness originally incurred to purchase or carry any
such security. None of the transactions contemplated by this Agreement,
including, without limitation, the issue and sale of the Shares and Warrants and
the application of the proceeds thereof, will violate or result in a violation
of Section 7 of the Securities Exchange Act, or any regulations issued pursuant
- 8 -
<PAGE> 9
thereto, including without limitation Regulation G, T, and X of the Board of
Governors of the Federal Reserve System.
2.14. H. Pylori. The Company has successfully sequenced substantially
all of the genome Helicobacter pylori and is currently in the process of
negotiating licensing and collaboration agreements with various drug
manufacturers with respect thereto.
2.15. Government Grants and Contracts. Schedule 2.15 sets forth each
current government grant or contract valued in excess of $500,000 that the
Company has been awarded. The Company is not aware of any government grant or
contract that the Company was awarded, including those grants or contracts set
forth on Schedule 2.15, which has been or is to be terminated or withdrawn. The
Company is not in possession of any material information not generally available
to the public that would indicate that any of such grants or contracts that are
subject to annual funding authorization are not likely to be so reauthorized.
2.16. Key Employees. The Company has heretofore delivered to BVF true
and correct copies of employment contracts, as heretofore amended, entered into
between the Company and each of Robert J. Hennessey and Philip Leder, M.D., the
Chief Executive Officer and the Chairman of the Scientific Advisory Committee,
respectively, of the Company. The Company is not aware, has no reason to
believe and has not received any indication that any of such officers or
consultants intends to resign from or terminate his relationship with the
Company.
2.17. Harvard License Agreement. The Company has provided to BVF a
true and correct copy of the Company's agreement, as heretofore amended, with
Harvard Medical School ("HMS") for an exclusive worldwide license for commercial
applications for HMS's patented multiplex sequencing technology. Such agreement
has not been terminated and the Company has received no notice or communication
from HMS that the Company is in default thereunder.
2.18. Registration. It is not necessary in connection with the
purchase, sale or exchange contemplated hereby, in the manner
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<PAGE> 10
contemplated hereby, to register the Shares or the Warrants under the 1933 Act.
2.19. Brokerage. There are no claims for brokerage commission or
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Company, and the Company agrees to indemnify and hold each
Investor harmless against any damages incurred as a result of any such claims.
2.20. Performance. The Company has performed and complied with all
agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
3. Representations and Warranties and other Agreements of the Investors.
3.1. Representations and Warranties. Each of the Investors hereby
represents and warrants, severally and not jointly, to the Company that:
(a) Authorization. Such Investor has full power and authority
to execute, deliver and perform this Agreement and to acquire the
Shares and the Warrants, as contemplated herein; this Agreement
constitutes the valid and legally binding obligation of such Investor,
enforceable against the Investor in accordance with its terms.
(b) Purchase Entirely for Own Account. The Shares and Warrants
to be received by such Investor as contemplated by this Agreement will
be acquired for investment for such Investor for its own account, not
as a nominee or agent and not with a view to the distribution of any
part thereof. Such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. Such
Investor does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participation
to such person or to any third person, with respect to the Shares.
(c) Restricted Securities. Such Investor understands that the
Shares and the Warrants may not be
- 10 -
<PAGE> 11
sold, transferred, or otherwise disposed of without registration under
the 1933 Act, or an exemption therefrom, and that, in the absence of
an effective registration statement covering the Shares or the
Warrants, as the case may be, or an available exemption from
registration under the 1933 Act, the Shares and the Warrants must be
held indefinitely. In the absence of an effective registration
statement covering the Shares or the Warrants, as the case may be,
such Investor will sell, transfer, or otherwise dispose of the Shares
or the Warrants, as the case may be, only in a manner consistent with
its representations and agreements set forth herein and the terms and
conditions set forth in the Registration Rights Agreement.
(d) Suitability. Such Investor is an "accredited investor"
as such term is defined in Rule 501(a) promulgated pursuant to the 1933
Act; provided, however, that Julian Baker is not an "accredited
investor" but has been furnished with all information regarding the
Company necessary to make an informed investment decision.
(e) Financial Condition. Such Investor's financial
condition is such that it is able to bear the risk of holding the
Shares for an indefinite period of time and can bear the loss of its
entire investment in the Shares.
(f) Experience. Such Investor has such knowledge and
experience in financial and business matters and in making high risk
investments of this type that it is capable of evaluating the merits
and risks of the purchase of the Shares.
(g) Brokerage. There are no claims for brokerage
commissions or finder's fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of such Investor, and
such Investor agrees to indemnify and hold the Company harmless
against any damages incurred as a result of any such claims.
3.2. Legends. It is understood that the certificates evidencing
the Shares will bear substantially the following legends:
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<PAGE> 12
(a) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale,
pledged or hypothecated (i) in the absence of a registration statement
in effect with respect to the securities under such Act, (ii) or an
opinion of counsel satisfactory to the Corporation that such
registration is not required or (iii) unless sold pursuant to an
exemption from registration under such Act."
(b) Any legend required by the Registration Rights Agreement
or the laws of any other applicable jurisdiction.
4. Conditions to the Investors' Obligations at the Closing.
The obligations of each of the Investors, severally and not jointly,
under this Agreement are subject to the fulfillment on or before the Closing of
each of the following conditions unless waived by each of the Investors in
accordance with Section 9.5 hereof:
4.1. Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true and correct on
and as of the date of the Closing.
4.2. Proceedings; Documents; Officer's Certificate. All corporate
and other proceedings in connection with the transactions contemplated at the
Closing and all documents incident thereto shall be reasonably satisfactory in
form and substance to each of the Investors and such Investor's counsel, and
they shall have received all such counterpart original and certified or other
copies of such documents as they may reasonably request.
4.3. Other Agreements. The Registration Rights Agreement
substantially in the form of Exhibit B attached hereto shall have been executed
and delivered by the Company.
4.4. Opinion. The Investors shall have received from Ropes & Gray,
counsel for the Company, an opinion dated the Closing Date, in form and
substance satisfactory to the Investors and their counsel, to the effect set
forth in Exhibit C.
5. Conditions to the Company's Obligations at the Closing.
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<PAGE> 13
The obligations of the Company under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions unless
waived by the Company in accordance with Section 9.5 hereof:
5.1. Representations and Warranties. The representations and
warranties of the Investors contained in Section 3 shall be true and correct on
and as of the date of such Closing.
5.2. Payment of Purchase Price. The Investors shall have delivered
payment of the aggregate purchase price of the Units to be purchased by them at
the Closing as set forth in Section 1.3.
5.3. Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Company and Company's counsel, and they shall have received all
such counterpart original and certified or other copies of such documents as
they may reasonably request.
6. Affirmative Covenants of the Company.
6.1. Information and Reports to be Furnished by the
Company/Inspection. The Company will deliver to each Investor, so long as such
Investor holds the Shares or the Warrants or securities exchanged or converted
therefor:
(a) As soon as available after the close of each of the first
three fiscal quarters in each of the Company's fiscal years, the
Quarterly Report on Form 10-Q as filed with the SEC.
(b) As soon as available, after the end of each fiscal year of
the Company, the Company's Annual Report on Form 10-K as filed with the
SEC.
(c) Promptly upon the sending, making available or filing
of the same, all such reports, financial statements and registration
statements (other than on Form S-8) as the Company or any subsidiary
shall (i) send or make available to its shareholders or to any holder
of its long-term indebtedness for borrowed money or (ii) file with the
SEC or
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<PAGE> 14
any governmental agency succeeding to the functions of such Commission or
with any national securities exchange.
(d) Promptly after receipt of any filing made by any third Person
with the SEC with respect to the Company, the company shall send a copy of
such filing to each Investor.
(e) The Company shall comply with the reporting requirements of
Sections 13 and 15(d) of the Exchange Act, whether or not it shall be
required to do so pursuant to such Sections, and shall comply with all
other public information reporting requirements of the SEC from time to
time in effect necessary for the availability for an exemption from the
registration requirements of the 1933 Act for the sale of any Shares or
Warrants, including Rule 144, Rule 144A or any other substituted or
comparable rules or regulations. The Company shall also cooperate with each
Investor and its successors and assigns in supplying such information as
may be necessary to complete and file any information reporting forms
currently or hereafter required by the SEC as a condition to the
availability of an exemption from the 1933 Act for the sale of any Shares
or Warrants.
(f) The Company will make available from time to time, but not less
frequently than once per month, the Chief Executive Officer and/or the
Chief Financial Officer of the Company to respond telephonically or in
person to any requests of the Investors regarding the Company's personnel,
business, financial, legal, compensation and other data and information
concerning the Company.
6.2. Maintenance of Public Market. The Company will not proceed with a
program of acquisition of its own Common Stock, initiate a corporate
reorganization or recapitalization, or authorize or consent to any action which
would have the effect of:
(a) removing the Common Stock of the Company from registration with
the SEC under the Exchange Act, or
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<PAGE> 15
(b) reducing substantially or eliminating the public market for
shares of Common Stock of the Company, as such public market existed on the
date of this Agreement.
7. Termination.
7.1. Events of Termination. This Agreement may be terminated as follows:
(a) By mutual written consent of Company and each of the Investors;
(b) By either Company or any of the Investors if the Closing does not
occur on or before March 20, 1995.
8. Miscellaneous.
8.1. Certain Defined Term. As used in this Agreement, the term "Person"
shall mean an individual, corporation, trust, partnership, joint venture,
unincorporated organization, government agency or any agency or political
subdivision thereof, or other entity.
8.2. Survival of Covenants; Assignability of Rights. All covenants,
agreements, representations and warranties of the Company made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished to the Investors in connection herewith shall be deemed material
and to have been relied upon by the Investors, and shall survive the Closing
hereunder and shall bind the Company and its successors and assigns, whether so
expressed or not, and, except as provided otherwise in this Agreement, all such
covenants, agreements, representations and warranties shall inure to the benefit
of each of the Investor's successors and assigns and to transferees of the
Shares and Warrants, whether so expressed or not.
8.3. Incorporation by Reference. All exhibits and schedules appended to
this Agreement are herein incorporated by reference and made a part hereof.
8.4. Parties in Interest. All covenants, agreements, representations,
warranties and undertakings in this Agreement
<PAGE> 16
made by and on behalf of any of the parties hereto shall bind and inure to the
benefit of the respective successors and assigns of the parties hereto whether
so expressed or not.
8.5. Amendments and Waivers. Except as set forth in this Agreement, changes
in or additions to this Agreement may be made, or compliance with any term,
covenant, agreement, condition or provision set forth herein may be omitted or
waived (either generally or in a particular instance and either retroactively or
prospectively), upon the written consent of the Company and each of the
Investors.
8.6. Governing Law. This Agreement shall be deemed a contract made under
the laws of The Commonwealth of Massachusetts and, together with the rights of
obligations of the parties hereunder, shall be construed under and governed by
the internal laws of such Commonwealth.
8.7. Notices. All notices, requests, consents and demands shall be in
writing and shall be personally delivered, mailed, postage prepaid, telecopied
or telegraphed, to the Company at:
Genome Therapeutics Corp.
100 Beaver Street
Waltham, MA 02154
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attn: David C. Chapin, Esq.
or to the Investors at the addresses set forth below each Investor's name on
Schedule I with a copy to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attn: David R. Sawyier, Esq.
<PAGE> 17
or such other address as may be furnished in writing to the other parties
hereto. All such notices, requests, demands and other communication shall, when
mailed (registered or certified mail, return receipt requested, postage
prepaid), personally delivered, or telegraphed, be effective three business days
after deposit in the mails, when personally delivered, or when delivered to the
telegraph company, respectively, addressed as aforesaid, unless otherwise
provided herein and, when telecopied, shall be effective upon actual receipt.
8.8. Effect of Headings. The section and paragraph headings herein are for
convenience only and shall not affect the construction hereof.
8.9. Entire Agreement. This Agreement and the Exhibits and Schedules
hereto, together with any other agreement referred to herein (the "Additional
Agreements"), constitute the entire agreement among the Company and the
Investors with respect to the subject matter hereof. This Agreement and such
Additional Agreements supersede all prior agreements between the parties with
respect to the shares purchased hereunder and the subject matter hereof.
8.10 Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
8.11 Counterparts. This Agreement may be executed in counterparts, all of
which together shall constitute one and the same instrument.
8.12 Expenses. Each of the parties hereto shall bear and pay its own
expenses incurred in connection with the negotiation, preparation and execution
of, and the consummation of the transactions contemplated by this Agreement;
provided, however, that the Company will reimburse the Investors for not more
than $15,000 of the Investor's documented fees and expenses incurred in
connection with the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
GENOME THERAPEUTICS CORP.
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<PAGE> 18
By
---------------------------------
Title:
BIOTECHNOLOGY VALUE FUND, L.P.
By: BVF Partners, L.P.,
its general partner
By: BVF Inc.,
its general partner
By:
--------------------------------
Mark N. Lambert, President
INVESTMENT 10 L.L.C.
By: Grosvenor Multi-Strategy
Fund, L.P., Member
By: Grosvenor Capital Management,
L.P., its general partner
By: Grosvenor Capital Management,
Inc., its general partner
By:
--------------------------------
Michael Sacks, Vice President
BIOTECH 1 INVESTMENT L.L.C.
By:
--------------------------------
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<PAGE> 19
Michael Sacks, Manager
BIOTECH 2 INVESTMENT L.L.C.
By:
--------------------------------
Michael Sacks, as Custodian
for Matthew Sacks, Manager
FOUR PARTNERS
By
---------------------------------
Thomas J. Tisch, as Trustee
for The Thomas J. Tisch
1991 Trust, General Partner
-----------------------------------
JULIAN C. BAKER
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<PAGE> 20
Schedule I
List of Investors
<TABLE>
<CAPTION>
PURCHASER AMOUNT STOCK WARRANTS
<S> <C> <C> <C>
Biotechnology Value Fund, L.P $ 635,425.00 261,490 313,788
One Sansome Street
San Francisco, CA
Investment 10 L.L.C $ 272,325.00 112,070 134,484
333 W. Wacker Dr. #1600
Chicago, IL 60606
Biotech 1 Investment L.L.C $ 859,187.24 373,560 0
333 W. Wacker Dr. #1600
Chicago, IL 60606
Biotech 2 Investment L.L.C $ 48,562.76 0 448,272
333 W. Wacker Dr. #1600
Chicago, IL 60606
Four Partners $ 225,000.00 92,590 111,108
667 Madison Ave
New York, NY
Julian Baker $ 25,000.00 10,290 12,348
667 Madison Ave
New York, NY
------------- ------- ---------
TOTAL: $2,065,500.00 850,000 1,020,000
</TABLE>
<PAGE> 1
EXHIBIT 10.26
GENOME THERAPEUTICS CORP.
REGISTRATION RIGHTS AGREEMENT
This AGREEMENT (the "Agreement") is made as of March 20, 1995 by and among
Genome Therapeutics Corp., a Massachusetts corporation (the "Company") and the
persons whose names are set forth on Schedule I hereto (the "Investors").
WHEREAS, the Investors have purchased, and the Company has issued and sold
to the Investors, (i) 850,000 shares (the "Shares") of the Company's Common
Stock, $.10 par value (the "Common Stock"), (ii) warrants to purchase 1,020,000
shares of Common Stock; such warrants ("Warrants") entitle their holder to
purchase one share (subject to adjustment) of Common Stock for the price of
$2.43 upon exercise of each such Warrant;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Registration Rights.
1.1. Definitions.
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "1933 Act"),
and the automatic effectiveness or the declaration or ordering of
effectiveness of such registration statement;
(b) "Registrable Securities" means (i) the Common Stock issued or
issuable upon conversion or exercise of the Warrants, whether or not such
other shares of Common Stock are owned by the Investors, (ii) the Shares
and all Common Stock now or hereafter owned by the Investors which are
acquired otherwise than upon conversion or exercise of Warrants so long as
such shares or other shares of Common Stock are held by the Investors, and
(iii) any shares of Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, option, right, or
<PAGE> 2
other security which is issued as) a stock dividend, stock split or other
distribution with respect to, or in exchange for or in replacement of, the
shares described in (i) and (ii) above; provided, however, that shares of
Common Stock shall only be treated as Registrable Securities if and so long
as they have not been (x) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, or
(y) sold in a transaction exempt from the registration and prospectus
delivery requirements of the 1933 Act under Section 4(1) thereof so that
all transfer restrictions and restrictive legends with respect to such
Common Stock are removed upon the consummation of such sale.
(c) The number of shares of Registrable Securities outstanding at any
time shall be determined by adding the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which upon issuance
would be, Registrable Securities;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.12 hereof;
(e) The terms "Form S-1," "Form S-3," "Form S-4" and "Form S-8" mean
such respective forms under the 1933 Act as in effect on the date hereof or
any successor registration forms to Form S-1, Form S-3, Form S-4 and Form
S-8, respectively, under the 1933 Act subsequently adopted by the
Securities and Exchange Commission ("SEC").
1.2. Request for Registration.
(a) If the Company shall receive a written request from the Holder or
Holders of at least thirty percent (30%) of all Registrable Securities then
outstanding that the Company effect the registration under the 1933 Act
(including, if available, a registration pursuant to Rule 415 or a
successor rule or regulation under the 1933 Act) of all or any portion of
shares of Registrable Securities held by such requesting Holder or Holders,
then the Company shall, within five days of the receipt thereof, give
written
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<PAGE> 3
notice of such request to all Holders and shall, subject to the limitations
of this Section 1.2, use its best efforts to effect such a registration as
soon as practicable and in any event to file within 90 days of the receipt
of such request a registration statement under the 1933 Act covering all
the Registrable Securities which the Holders shall in writing request
(given within 20 days of receipt of the notice given by the Company
pursuant to this Section 1.2(a)) to be included in such registration and to
use its best efforts to have such registration statement become effective.
(b) If the requesting Holder or Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as part of their request
made pursuant to this Section 1.2 and the Company shall include such
information in the written notice referred to in subsection 1.2(a). In such
event, the right of any Holder to include its Registrable Securities in
such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. The Holders of a
majority of the shares of Registrable Securities to be sold in such
offering shall select an underwriter or underwriters, subject to the
approval of the Company, which approval shall not be unreasonably withheld.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company as provided in subsection
1.4(d)) enter into an underwriting agreement in customary form with the
selected underwriter or underwriters. The Company shall be entitled to
include in any Registration Statement referred to in this Section 1.2, for
sale in accordance with the method of disposition specified by the
requesting Holders, shares of Common Stock to be sold by the Company for
its own account, except as and to the extent that, in the opinion of the
managing underwriter, if any, such inclusion would adversely affect the
marketing, including, without limitation, the price or timing of the sale,
of the Registrable Securities to be sold. Notwithstanding any other
provision of this Section 1.2, if, in the case of a registration requested
pursuant to Section 1.2(a), the underwriter advises the Holders of
Registrable Securities to
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<PAGE> 4
be sold in the offering and the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
number of Registrable Securities that may be included in the underwriting
shall be allocated pro rata among all Holders thereof desiring to
participate in such underwriting (according to the number of Registrable
Securities requested to be included in such registration) except that, if
the maximum number of Registrable Securities which such underwriter advises
the Holders and the Company is limited to less than 80% of all Registrable
Securities requested to be registered, the Holders desiring to participate
in such underwriting may elect to abandon such registration and withdraw
such request. Except for registration statements on Form S-4, S-8 or any
successor thereto, the Company will not file with the SEC any other
registration statement with respect to its Common Stock or securities
convertible into or exchangeable for Common Stock, whether for its own
account or that of other stockholders, for 180 days from the date of
commencement of distribution of Registrable Securities pursuant to the
Registration Statement. No Registrable Securities requested by a Holder to
be included in a registration pursuant to Section 1.2(a) shall be excluded
from the underwriting unless all securities other than Registrable
Securities (including any proposed to be included by the Company) are first
excluded.
(c) The Company is obligated to effect only two registrations
pursuant to Section 1.2(a); provided, however, that no registration of
Registrable Securities which shall not have become and remained effective
in accordance with Section 1.4 hereof shall be deemed to be a registration
for any purpose of this sentence; provided further, however, that if a
registration is withdrawn on the instructions of the Holders of a majority
of the Registrable Securities in such registration, if such Registrable
Securities are more than 80% of all Registrable Securities outstanding, it
shall be deemed a registration for purposes of this sentence unless and
until the Company is reimbursed in full for all of its expenses incurred in
connection with such registration.
-4-
<PAGE> 5
(d) Notwithstanding the foregoing, (i) the Company shall not be
obligated to effect the filing of a registration statement pursuant to this
Section 1.2 during the 180 days following the effective date of a
registration statement pertaining to the underwritten public offering of
equity securities for the account of the Company, or (ii) the Company shall
be entitled to postpone for up to 180 days the filing of any registration
statement otherwise required to be prepared and filed pursuant to this
Section 1.2, if the Board determines, in its good faith reasonable judgment
(with the concurrence of the managing underwriter, if any), that such
registration of Registrable Securities contemplated thereby would
materially interfere with, or require premature disclosure of, any
financing (including an underwritten public offering of equity securities
or securities convertible into equity securities), acquisition or
reorganization involving the Company or any of its wholly owned
subsidiaries and the Company promptly gives the Holders requesting such
registration notice of such determination; provided, however, that the
Company may not utilize the right set forth in subsection (d)(ii) more than
once in any twenty-four period.
1.3. Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its equity
securities (or, in the case of a registration pursuant to Rule 415 under the
1933 Act, any securities) under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration on Form
S-8 or any successor form relating solely to the sale of securities to
participants in a Company stock plan, or a registration on Form S-4 or any
successor form), the Company shall, at such time, promptly give each Holder
written notice of such registration. Upon the written request of any Holder
given within 20 days after mailing of such notice by the Company the Company any
shall, subject to the provisions of Section 1.8, use its best efforts to cause a
registration statement covering all of the Registrable Securities that each such
Holder has requested to be registered to become effective under the 1933 Act.
The Company shall be under no obligation to complete any offering of its
securities it proposes to make and shall incur no liability to any Holder for
its failure to do so.
-5-
<PAGE> 6
1.4. Obligations of the Company. Whenever required under this Section 1 to
use its best efforts to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible: prepare and file
with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for up to 180 days, or, in the case of a registration statement filed
pursuant to Rule 415, or a successor rule or regulation, under the 1933 Act, up
to two years, or until the Holders have informed the Company in writing that the
distribution of their securities has been completed; and shall:
(a) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement, and use its best efforts to cause each such
amendment to become effective, as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement;
(b) Furnish to the Holders such reasonable number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(c) Use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Holders provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdiction;
(d) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing
-6-
<PAGE> 7
underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such
an agreement, including furnishing any opinion of counsel concerning such
Holder as is reasonably requested by the managing underwriter;
(e) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under
the 1933 Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and promptly file such amendments and supplements which may be
required pursuant to subparagraph (a) of this Section 1.4 on account of
such event and use its best efforts to cause each such amendment and
supplement to become effective;
(f) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are
not being sold through underwriters on the date that the registration
statement with respect to such securities becomes effective, (i) an opinion
or opinions, dated such date, of the counsel representing the Company for
the purposes of such registration, in form and substance as is customarily
given by company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated
such date, from the independent certified public accountant of the Company,
in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities;
-7-
<PAGE> 8
(g) Apply for listing and use its best efforts to list the
Registrable Securities being registered on any national securities exchange
on which a class of the Company's equity securities is listed or, if the
Company does not have a class of equity securities listed on a national
securities exchange, apply for qualification and use its best efforts to
qualify the Registrable Securities being registered for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc.; and
(h) Without in any way limiting the types of registrations to which
this Section 1 shall apply, in the event that the Company shall effect a
"shelf registration" under Rule 415 promulgated under the 1933 Act, the
Company shall take all necessary action, including, without limitation, the
filing of post-effective amendments, to permit the Holders to include their
Registrable Securities in such registration in accordance with the terms of
this Section 1.
1.5. Obligations of Holders.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 in respect of the
Registrable Securities of any selling Holder that such selling Holders
shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them, and the intended method of disposition
of such securities as shall be required to effect the registration of their
Registrable Securities.
(b) The Holders of Registrable Securities included in any registration
statement filed pursuant to this Section 1 will not (until further notice)
effect sales thereof after receipt of telegraphic or written notice from
the Company to suspend sales pursuant to such registration statement to
permit the Company to correct or update such registration statement or
prospectus, but the obligations of the Company with respect to maintaining
any registration statement current and effective shall be extended by a
period of days equal to the period such suspension is in effect.
-8-
<PAGE> 9
(c) At the end of any period during which the Company is obligated to keep
any registration statement filed pursuant to this Section 1 current and
effective pursuant to this Agreement, the Holders of Registrable Securities
included in such registration statement shall discontinue sales of Registrable
Securities pursuant to the registration statement upon receipt of written
notice from the Company of its intention to remove from registration the
Registrable Securities covered by such registration statement that remain
unsold, and such Holders shall notify the Company of the number of Registrable
Securities that remain unsold promptly after receipt of such notice from the
Company.
1.6. Expenses of Demand Registration. All expenses other than underwriting
discounts and commissions relating to Registrable Securities incurred in
connection with each registration, filing or qualification pursuant to Section
1.2(a), including all registration, filing and qualification fees, printing and
accounting fees, and fees and disbursements of counsel for the Company and one
counsel for the Holders participating in such registration shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2(a) if
the registration request is subsequently withdrawn at any time at the request of
the Holders of a majority of the Registrable Securities to be registered (in
which case all participating Holders shall bear such expenses), unless (a) such
registration request is withdrawn by Holders because the maximum number of
Registrable Securities is limited by the underwriters to less than 80% of all
Registrable Securities requested to be registered as permitted by Section
1.2(b), or (b) the Holders of a majority of the Registrable Securities agree to
forfeit their right to one demand registration pursuant to Section 1.2(a);
provided further, however, that if at the time of such withdrawal, the Holders
have learned of a material adverse change in the condition (financial or other),
business, properties, or prospects of the Company from that known to the Holders
of a majority of the Registrable Securities then outstanding at the time of
their request that makes the proposed offering unreasonable in the good faith
judgment of the Holders of a majority of the Registrable Securities then the
Holders shall not be required to pay any of such expenses and the right to one
demand registration pursuant to Section 1.2(a) shall not be
-9-
<PAGE> 10
forfeited. Underwriting discounts and commissions relating to Registrable
Securities will be borne and paid ratably by the Holders of such Registrable
Securities.
1.7. Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.3 for each Holder (which right may be assigned as provided in Section 1.13),
including, without limitation, all registration, filing and qualification fees,
printing and accounting fees, fees and disbursements of counsel for the Company
and one counsel for the Holders participating in such registration. Underwriting
discounts and commissions relating to Registrable Securities will be borne and
paid ratably by the Holders of such Registrable Securities.
1.8. Underwriting Requirements. In connection with any offering involving
an underwriting of securities being issued by the Company, the Company shall not
be required under Section 1.3 to include any of the Holders' Registrable
Securities in such underwriting unless such Holder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it. If the managing underwriter for the offering shall advise the Company in
writing that the total amount of securities, including Registrable Securities,
requested by shareholders to be included in such offering exceeds the amount of
securities to be sold other than by the Company that can be successfully
offered, then the Company shall be required to include in the offering only that
number of such securities, including Registrable Securities, which the managing
underwriter believes will not jeopardize the success of the offering. The
securities to be excluded shall be as follows: all securities other than those
to be included by the Company for its own account and other than those which the
Holders seek to include in the offering shall be excluded from the offering to
the extent limitation on the amount of securities included in the underwriting
is required. If further limitation on the amount of securities to be included in
the underwriting is required, then the number of Registrable Securities held by
Holders that may be included in the underwriting shall be reduced pro rata among
the selling Holders in accordance with the number of Registrable
-10-
<PAGE> 11
Securities requested to be included in registration by such Holders.
1.9. Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) The Company will indemnify and hold harmless each Holder, the
officers, directors, partners, agents and employees of each Holder, any
underwriter (as defined in the 1933 Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the 1933 Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they
were made, not misleading, or (iii) any violation or alleged violation by
the Company of the 1933 Act, the 1934 Act, any state securities law or any
rule or regulation promulgated under the 1933 Act, the 1934 Act or any
state securities law in connection with any matter relating to such
registration statement. The Company will reimburse each such Holder,
officer, director, partner, agent, employee, underwriter or controlling
person for any legal or other expenses reasonably incurred, and as
incurred, by them in connection with investigating or defending any such
loss, claim, damage, liability, or action. The indemnity agreement
contained in this subsection 1.9(a) shall not apply to amounts paid in
settlement of any loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent
shall not be
-11-
<PAGE> 12
unreasonably withheld), nor shall the Company be liable to a Holder in any
such case for any such loss, claim, damage, liability, or action (i) to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder,
underwriter or controlling person or (ii) in the case of a sale directly by
a Holder of Registrable Securities (including a sale of such Registrable
Securities through any underwriter retained by such Holder to engage in a
distribution solely on behalf of such Holder), such untrue statement or
alleged untrue statement or omission or alleged omission was contained
either (i) in a document distributed by such Holder that was not authorized
by the Company or (ii) in a preliminary prospectus and corrected in a final
or amended prospectus, if such Holder failed to deliver a copy of the final
or amended prospectus at or prior to the confirmation of the sale of the
Registrable Securities to the person asserting any such loss, claim, damage
or liability in any case where such delivery is required by the Securities
Act; provided, however, that this indemnity shall not be deemed to relieve
any underwriter of any of its due diligence obligations.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement, that the Company
shall have received an undertaking from the prospective selling Holder that
such selling Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning
of the 1933 Act, each agent and any underwriter for the Company, and any
other Holder selling securities in such registration statement or any of
its directors, officers, partners, agents or employees or any person who
controls such Holder or underwriter, against any losses, claims, damages,
or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, agent, or underwriter or controlling
person, or other such Holder or director, officer or controlling person may
become subject, under the 1933 Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities
-12-
<PAGE> 13
(or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with
such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred, and as incurred, by the Company or any such
director, officer, controlling person, agent or underwriter or controlling
person, other Holder, officer, director, partner, agent, employee, or
controlling person in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
liability of any Holder hereunder shall be limited to the amount of net
proceeds (after deduction of all underwriters' discounts and commissions
and all other expenses paid by such Holder in connection with the
registration in question) received by such Holder, in the offering giving
rise to the Violation; and provided further that the indemnity agreement
contained in this subsection 1.9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld nor, in the case of a sale directly by
the Company of its securities (including a sale of such securities through
any underwriter retained by the Company to engage in a distribution solely
on behalf of the Company), shall the Holder be liable to the Company in any
case in which such untrue statement or alleged untrue statement or omission
or alleged omission was contained in a preliminary prospectus and corrected
in a final or amended prospectus, and the Company failed to deliver a copy
of the final or amended prospectus at or prior to the confirmation of the
sale of the securities to the person asserting any such loss, claim, damage
or liability in any case where such delivery is required by the 1933 Act.
(c) Promptly after receipt by an indemnified party under this Section
1.9 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to
be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the
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<PAGE> 14
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume and
control the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that if the Indemnifying Party elects to assume
and control the defense thereof, such Indemnifying Party shall be deemed to
have assumed all liability with respect to such action and accepted all
liability with respect to such claim thereunder; provided, further, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests, as
reasonably determined by either party, between such indemnified party and
any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial to its ability
to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 1.9 to the extent of
such prejudice, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is
unavailable to a party that would have been an indemnified party under such
Section in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
party that would have been an indemnifying party thereunder shall, in lieu
of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in
-14-
<PAGE> 15
respect thereof) in such proportion as is appropriate to reflect the
relative fault of such indemnifying party on the one hand and such
indemnified party on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof). The relative fault shall be
determined by reference to, among other things, whether the Violation
relates to information supplied by such indemnifying party or such
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such Violation. The
parties agree that it would not be just and equitable if contribution
pursuant to this Section 1.9(e) were determined by pro rata allocation or
by any other method of allocation which does not take account of the
equitable considerations referred to in the preceding sentence. The amount
paid or payable by a contributing party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 1.9(d) shall include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The liability of any
Holder of Registrable Securities in respect of any contribution obligation
of such Holder (after deduction of all underwriters' discounts and
commissions and all other expenses paid by such Holder in connection with
the registration in question) arising under this Section 1.9(e) shall not
in any event exceed an amount equal to the net proceeds to such Holder from
the disposition of the Registrable Securities disposed of by such Holder
pursuant to such registration.
1.10. Reports Under 1934 Act.
(a) Resales Under Rule 144; Form S-3 Registration. With a view to
making available to the Holders the benefits of Rule 144 promulgated under
the 1933 Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public
without registration, and with a view to making it possible for Holders to
register the Registrable Securities pursuant to a registration on Form S-3,
the Company agrees to:
-15-
<PAGE> 16
(i) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144;
(ii) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under the 1933
Act and the 1934 Act; and
(iii) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement
by the Company as to its compliance with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, or as to its qualification as
a registrant whose securities may be resold pursuant to Form S-3, (ii)
a copy of the most recent annual, quarterly and current reports of the
Company and such other reports and documents so filed by the Company,
and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits
the selling of any Registrable Securities without registration or
pursuant to such form.
1.11. Lock-up Agreements. If requested by the Company and the managing
underwriter, the Holders agree to enter into lock-up agreements pursuant to
which they will not, for a specified period not to exceed 180 days following the
effective date of a registration statement, offer, sell or otherwise dispose of
the Registrable Securities, except the Registrable Securities sold pursuant to
such registration statement, without the prior consent of the Company and the
underwriter, provided that each officer and director of the Company enter such
lock-up agreements for the same period and on the same terms.
1.12. Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 1 may be assigned by
any Holder to a permitted transferee, and by such transferee to a subsequent
permitted transferee, but only if such rights are transferred (i) to an
affiliate, partner or stockholder of such Holder or transferee or (ii) in
connection with the sale or other transfer of Registrable Securities. Any
transferee to whom rights under this Agreement are transferred shall (a) as a
condition to such transfer, deliver to the Company a written instrument by which
such transferee agrees to be bound by the obligations imposed upon Holders under
this Agreement to the same extent as if she, he or it were a Holder under this
Agreement
-16-
<PAGE> 17
and (b) be deemed to be a Holder hereunder.
2. Miscellaneous.
2.1. Legend. Each certificate representing Registrable Securities shall
state therein:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF
A REGISTRATION RIGHTS AGREEMENT DATED AS OF MARCH 20, 1995 BY AND AMONG THE
CORPORATION AND THE INVESTORS NAMED THEREIN, A COPY OF WHICH IS ON FILE AT
THE OFFICES OF THE CORPORATION.
2.2. Notices. All notices, requests, consents and demands shall be in
writing and shall be personally delivered, mailed, postage prepaid, telecopied
or telegraphed, to the Company at:
Genome Therapeutics Corp.
100 Beaver Street
Waltham, MA 02154
Attn: Mr. Fenel M. Eloi
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110-2624
Attn: David C. Chapin, Esq.
If to the Investors, at the addresses set forth below their names on Schedule I
hereto with a copy to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attn: David R. Sawyier, Esq.
-17-
<PAGE> 18
or such other address as may be furnished in writing to the other parties
hereto. All such notices, requests, demands and other communications shall, when
mailed (registered mail, return receipt requested, postage prepaid), personally
delivered, or telegraphed, be effective four days after deposit in the mails,
when personally delivered, or when delivered to the telegraph company,
respectively, addressed as aforesaid, unless otherwise provided herein and, when
telecopied, shall be effective upon actual receipt.
2.3. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the matters contemplated herein. This Agreement
supersedes any and all prior understandings or agreements as to the subject
matter of this Agreement.
2.4. Amendments, Waivers and Consents. Any provision in this Agreement to
the contrary notwithstanding, changes in or additions to this Agreement may be
made, and compliance with any covenant or provision herein set forth may be
omitted or waived, if the Company (i) shall obtain consent thereto in writing
from persons holding or having the right to acquire in the aggregate a majority
of the Registrable Securities then outstanding and (ii) shall, in each such
case, deliver copies of such consent in writing to any holders who did not
execute the same. Notwithstanding the foregoing, any amendment to this Agreement
which materially adversely affects the rights or substantially increases the
obligations of any Holder of Registrable Securities and which does not also
affect all other holders either to the same degree or in proportion to the
amount of Registrable Securities held by each of them shall require the consent
of such adversely affected Holder.
2.5. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the personal representatives, successors and permitted
assigns of the respective parties hereto. The Company shall not have the right
to assign its obligations hereunder or any interest herein without obtaining the
prior written consent of the Holders of a majority of the Registrable Securities
then outstanding, provided in accordance with Section 2.4, other than in
connection with the merger of the Company with or into another entity or the
sale of all or substantially all of the Company's assets.
-18-
<PAGE> 19
2.6. General. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement. In this Agreement the singular includes the plural, the plural,
the singular, the masculine gender includes the neuter, masculine and feminine
genders. This Agreement shall be governed by and construed under the internal
laws of The Commonwealth of Massachusetts.
2.7. Severability. If any provisions of this Agreement shall be found by
any court of competent jurisdiction to be invalid or unenforceable, the parties
hereby waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
2.8. Counterparts. This Agreement may be executed in counterparts, all of
which together shall constitute one and the same instrument.
2.9. Limitations on Subsequent Registration Rights. From and after the date
of this Agreement, the Company shall not, without the prior written consent of
the Holders of at least a majority of the then outstanding Registrable
Securities enter into any agreement with any holder or prospective holder of any
securities of the Company which would: (i) allow such holder or prospective
holder to include such securities in any registration filed under Section 1.2(a)
hereof if such inclusion would adversely affect the rights of any Holder of
Registrable Securities hereunder; or (ii) permit such holder or prospective
holder pursuant to Section 1.3 to "piggyback" on a senior basis on a
registration statement filed with respect to the Company's securities.
2.10. Remedies. Each Holder of Registrable Securities, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the
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<PAGE> 20
defense in any action for specific performance that a remedy of law would be
adequate.
-20-
<PAGE> 21
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
a duly authorized officer, and the Investors have duly executed this Agreement
(or has caused it to be executed by a duly authorized officer, partner, trustee
or agent, as the case may be), as of the date first above recited.
GENOME THERAPEUTICS CORP.
By:
---------------------------------------------
Robert J. Hennessey,
President and Chief Executive Officer
BIOTECHNOLOGY VALUE FUND, L.P.
By: BVF Partners, L.P., its general partner
By: BVF Inc., its general partners
By:
---------------------------------------------
Mark N. Lampert, President
INVESTMENT 10 L.L.C.
By: Grosvenor Multi-Strategy Fund, L.P., Member
By: Grosvenor Capital Management, L.P., its
general partner
By: Grosvenor Capital Management, Inc., its
general partner
By:
---------------------------------------------
Michael Sacks, Vice President
<PAGE> 22
BIOTECH 1 INVESTMENT L.L.C.
By:
---------------------------------------------
Michael Sacks, Manager
BIOTECH 2 INVESTMENT L.L.C.
By:
---------------------------------------------
Michael Sacks, as Custodian for Matthew
Sacks, Manager
FOUR PARTNERS
By:
---------------------------------------------
Thomas J. Tisc, as Trustee for The Thomas J.
Tisch 1991 Trust, General Partner
------------------------------------------------
Julian C. Baker
<PAGE> 23
Schedule I
List of Investors
<TABLE>
<CAPTION>
PURCHASER AMOUNT STOCK WARRANTS
<S> <C> <C> <C>
Biotechnology Value Fund, L.P $ 635,425.00 261,490 313,788
One Sansome Street
San Francisco, CA
Investment 10 L.L.C $ 272,325.00 112,070 134,484
333 W. Wacker Dr. #1600
Chicago, IL 60606
Biotech 1 Investment L.L.C $ 859,187.24 373,560 0
333 W. Wacker Dr. #1600
Chicago, IL 60606
Biotech 2 Investment L.L.C $ 48,562.76 0 448,272
333 W. Wacker Dr. #1600
Chicago, IL 60606
Four Partners $ 225,000.00 92,590 111,108
667 Madison Ave
New York, NY
Julian Baker $ 25,000.00 10,290 12,348
667 Madison Ave
New York, NY
------------- ------- ---------
TOTAL: $2,065,500.00 850,000 1,020,000
</TABLE>
<PAGE> 1
EXHIBIT 10.27
Form of Stock Purchase Warrant
This Warrant and any shares acquired upon the exercise of this Warrant have
not been registered under the Securities Act of 1933, as amended, and may
not be transferred, sold, offered for sale, hypothecated or otherwise
disposed of (i) in the absence of a registration statement in effect with
respect to the securities under such Act, or (ii) an opinion of counsel
satisfactory to the Company that such registration is not required or (iii)
pursuant to an exemption from registration under said Act.
This Warrant and any shares acquired upon the exercise of this warrant are
subject to the provisions of a Registration Rights Agreement dated as of
March 20, 1995 by and among the Company and the investors named therein, a
copy of which is on file at the offices of the Company.
GENOME THERAPEUTICS CORP.
Common Stock Purchase Warrant
No. W-___ March 20, 1995
GENOME THERAPEUTICS CORP., a Massachusetts corporation (the "Company"), for
value received, hereby certifies that __________________________________________
the "Investor") or registered and permitted assigns, is entitled to purchase
from the Company ______________ duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock, $.10 par value per share (the "Common
Stock"), of the Company at the purchase price per share of $2.43 (the "Initial
Warrant Price"), at any time or from time to time prior to 5:00 P.M., New York
City time, on
<PAGE> 2
March 20, 2000 (the "Expiration Date"), all subject to the terms, conditions and
adjustments set forth below in this Warrant.
This Common Stock Purchase Warrant is issued pursuant to the Stock and
Warrant Purchase Agreement dated as of March 20, 1995 between the Company and
the Investor.
Certain capitalized terms used in this Warrant are defined in Section 10
hereof.
1. EXERCISE OR CONVERSION OF WARRANT.
1.1. Manner of Exercise or Conversion; Payment.
1.1.1. Exercise. This Warrant may be exercised by the holder
hereof, in whole or in part, during normal business hours on any business
day on or prior to the Expiration Date, by surrender of this Warrant to the
Company at its office maintained pursuant to Section 9.2(a) hereof,
accompanied by an exercise notice in substantially the form attached to
this Warrant (or a reasonable facsimile thereof) duly executed by such
holder and accompanied by payment, in cash or by check payable to the order
of the Company, in the amount obtained by multiplying (a) the number of
shares of Common Stock designated in such subscription by (b) the Warrant
Price (as defined in Section 2.1 hereof), and such holder shall thereupon
be entitled to receive the number of shares of Common Stock determined as
provided in Section 2 hereof.
1.1.2. Conversion. This Warrant may be converted by the holder
hereof, in whole or in part, into shares of Common Stock, during normal
business hours on any business day on or prior to the Expiration Date, by
surrender of this Warrant to the Company at its office maintained pursuant
to Section 9.2(a) hereof, accompanied by a conversion notice in
substantially the form attached to this Warrant (or a reasonable facsimile
thereof) duly executed by such holder, and such holder shall thereupon be
entitled to receive the same number of shares of Common Stock that such
holder would receive if the Warrant were being exercised pursuant to
Section 1.1.1 for the number of shares designated in the
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<PAGE> 3
conversion notice minus a number of shares equal to (x) the Warrant Price
multiplied by (y) the number of shares designated in the conversion notice
divided by (z) the Current Market Price.
For all purposes of this Warrant (other than this Section 1.1), any
reference herein to the exercise of this Warrant shall be deemed to include
a reference to the conversion of this Warrant into Common Stock in
accordance with the terms of this Section 1.1.2.
1.2. When Exercise Effective. Each exercise of this Warrant shall be deemed
to have been effected immediately prior to the close of business on the business
day on which this Warrant shall have been surrendered to the Company as provided
in Section 1.1 hereof, and at such time the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such exercise as provided in Section 1.3 hereof shall be deemed to
have become the holder or holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable after each
exercise of this Warrant, in whole or in part, and in any event within five
business days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof or, subject to Section 7 hereof, as such holder
(upon payment by such holder of any applicable transfer taxes) may direct:
(a) a certificate or certificates for the number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock to
which such holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in
an amount equal to the same fraction of the Market Price per share on the
business day next preceding the date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or Warrants
of like tenor, dated the date hereof and calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock equal
(without giving
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<PAGE> 4
effect to any adjustment thereof) to the number of such shares called for
on the face of this Warrant minus the number of such shares designated by
the holder upon such exercise as provided in Section 1.1 hereof.
2. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE.
2.1. General; Number of Shares; Warrant Price. The number of shares of
Common Stock which the holder of this Warrant shall be entitled to receive upon
each exercise hereof shall be determined by multiplying the number of shares of
Common Stock which would otherwise (but for the provisions of this Section 2) be
issuable upon such exercise, as designated by the holder hereof pursuant to
Section 1.1 hereof, by the fraction of which (a) the numerator is the Initial
Warrant Price and (b) the denominator is the Warrant Price in effect on the date
of such exercise. The "Warrant Price" shall initially be the Initial Warrant
Price, shall be adjusted and readjusted from time to time as provided in this
Section 2 and, as so adjusted or readjusted, shall remain in effect until a
further adjustment or readjustment thereof is required by this Section 2.
2.2. Adjustment of Warrant Price. Except as provided in Section 2.6, in
case the Company at any time or from time to time after the date hereof shall
issue or sell Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 2.3 or 2.4 hereof) without
consideration or for a consideration (determined pursuant to Section 2.5 hereof)
per share less than the lesser of (i) the Warrant Price in effect immediately
prior to such issue or sale or (ii) the Current Market Price, then, and in each
such case, subject to Section 2.8 hereof, such Warrant Price shall be reduced,
concurrently with such issue or sale, to a price (calculated to the nearest .001
of a cent) determined by multiplying such Warrant Price by a fraction:
(a) the numerator of which shall be (i) the number of shares of
Common Stock outstanding immediately prior to such issue or sale plus (ii)
the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such Additional Shares of
Common Stock so issued or sold would purchase at such Warrant Price
-4-
<PAGE> 5
or Current Market Price, as the case may be; and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale.
2.3. Treatment of Options and Convertible Securities. Except as provided in
Section 2.6, in case the Company at any time or from time to time after the date
hereof shall issue, sell, grant or assume, or shall fix a record date for the
determination of holders of any class of securities entitled to receive any
Options or Convertible Securities, then, and in each such case, the maximum
number of Additional Shares of Common Stock (as determined in accordance with
the instrument(s) and other documents relating thereto) at any time issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue, sale, grant or assumption or, in case such a record date shall have
been fixed, as of the close of business on such record date (or, if the Common
Stock trades on an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading); provided, however, that such Additional Shares of Common
Stock shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 2.5 hereof) of such shares would be less than
the lesser of (i) the Warrant Price then in effect or (ii) the Current Market
Price on the date of and immediately prior to such issue, sale, grant or
assumption or immediately prior to the close of business on such record date
(or, if the Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), as the case may be; and provided,
further, that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(a) no further adjustment of the Warrant Price shall be made upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consequent issue or sale of Convertible Securities or
shares of Common Stock;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for
-5-
<PAGE> 6
any increase in the consideration payable to the Company, or decrease in
the number of Additional Shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof (by change of rate or otherwise),
the Warrant Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall, upon
any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options, or the rights
of conversion or exchange under such Convertible Securities, which are
outstanding at such time;
(c) upon the expiration (or purchase by the Company and cancellation
or retirement) of any such Options which shall not have been exercised, or
the expiration of any rights of conversion or exchange under any such
Convertible Securities which (or purchase by the Company and cancellation
or retirement of any such Convertible Securities the rights of conversion
or exchange under which) shall not have been exercised, the Warrant Price
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon (and effective as of)
such expiration (or such cancellation or retirement, as the case may be),
be recomputed as if:
(i) in the case of Options or Convertible Securities, the only
Additional Shares of Common Stock issued or sold were the Additional
Shares of Common Stock, if any, actually issued or sold upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Company for (A) the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the Company
upon such exercise, or for (B) the issue or sale of all such
Convertible Securities which were actually converted or exchanged,
plus the additional
-6-
<PAGE> 7
consideration, if any, actually received by the Company upon such
conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue, sale,
grant or assumption of such Options, and the consideration received by
the Company for the Additional Shares of Common Stock deemed to have
then been issued was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to have been
received by the Company (pursuant to Section 2.5 hereof) upon the
issue or sale of such Convertible Securities with respect to which
such Options were actually exercised; and
(d) no readjustment pursuant to clause (b) or (c) above (either
individually or cumulatively together with all prior readjustments as made
in respect of such Options or Convertible Securities) shall have the effect
of increasing the Warrant Price to a price higher than the Warrant Price
that would have been in effect if such Options or Convertible Securities
had never been issued, and in any event no such readjustment shall have the
effect of increasing the Warrant Price to an amount greater than the
Initial Warrant Price.
If the consideration provided for in any Option or the additional consideration,
if any, payable upon the conversion or exchange of any Convertible Security
shall be reduced, or the rate at which any Option is exercisable or any
Convertible Security is convertible into or exchangeable for shares of Common
Stock shall be increased, at any time under or by reason of provisions with
respect thereto designed to protect against dilution, by agreement of the
parties or otherwise, then, effective concurrently with each such change, the
Warrant Price then in effect shall first be adjusted to eliminate the effects
(if any) of the issuance (or deemed issuance) of such Option or Convertible
Security on the Warrant Price and then readjusted as if such Option or
Convertible Security had been issued on the date of such change with the terms
in effect after such change, but only
-7-
<PAGE> 8
if as a result of such adjustment the Warrant Price then in effect hereunder is
thereby reduced.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the Company
at any time or from time to time after the date hereof shall declare or pay any
dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this Section 2:
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of such
consideration:
(i) insofar as it consists of cash, be computed at the amount of
cash paid for such Additional Shares of Common Stock, without
deduction for any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts allowed
to underwriters, dealers or others performing similar services in
connection with such issue or sale;
(ii) insofar as it consists of property (including securities)
other than cash actually received by the Company, be computed at the
fair value thereof at the time of such issue or sale, as determined in
good faith by the Board of Directors of the Company;
(iii) insofar as it consists neither of cash nor of other
property, be computed as having no value; and
-8-
<PAGE> 9
(iv) in case Additional Shares of Common Stock are issued or sold
together with other stock or securities or other assets of the Company
for a consideration which covers both, be the portion of such
consideration so received, computed as provided in clauses (i), (ii)
and (iii) above, allocable to such Additional Shares of Common Stock,
all as determined in good faith by the Board of Directors of the
Company;
Whenever the Board of Directors of the Company shall be required to make a
determination in good faith of any allocation or the fair value of any item
under this Section 2.5(a), such determination may be challenged in good faith by
the holder of any Warrant, and any dispute shall be resolved by an investment
banking or appraisal firm of recognized national standing selected by the
Company and acceptable to the holders of Warrants representing a majority of the
number of shares of Common Stock issuable upon all such Warrants. The decision
of such investment banking or appraisal firm shall be binding on the Company and
all holders of Warrants. The fees and expenses of such investment bank or
appraisal firm shall be borne one-half by the Company and one-half by the
holders of the Warrants challenging such good faith determination.
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.3 hereof shall be deemed to have been issued for a
consideration per share determined by dividing:
(i) the total amount of cash and other property, if any,
received and receivable by the Company as direct consideration for the
issue, sale, grant or assumption of the Options or Convertible
Securities in question, plus the minimum aggregate amount of
additional consideration (as determined in accordance with the
instrument(s) and other documents relating thereto) payable to the
Company upon the exercise in full of such Options or the conversion or
exchange of such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible
Securities, in each case computing such consideration as provided in
the
-9-
<PAGE> 10
foregoing clause (a),
by
(ii) the maximum number of shares of Common Stock (as determined
in accordance with the instrument(s) and other documents relating
thereto) issuable upon the exercise of such Options or the conversion
or exchange of such Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.4 hereof shall be deemed to have been issued for no
consideration.
2.6. Company Benefit Plans. No adjustment in the Warrant Price shall be
made pursuant to this Section 2 in connection with the issuance or sale of
Additional Shares of Common Stock, Options or Convertible Securities to
employees or directors of, or consultants to, the Company or any of its
subsidiaries in connection with their employment or their provision of services
to the Company or any of its Subsidiaries; provided that: (i) such Additional
Shares of Common Stock, Options or Convertible Securities are issued pursuant to
stock based incentive plans or agreements approved by the Board of Directors and
shareholders of the Company and (ii) immediately following the issuance of any
such Additional Shares of Common Stock, Options and Convertible Securities the
sum of (A) the total number of Additional Shares of Common Stock issued pursuant
to this Section 2.6 or to which this Section 2.6 would have applied if this
Warrant had been outstanding at the time of issuance thereof (including any
shares of Common Stock issued upon exercise of any Options or Convertible
Securities issued pursuant to this Section 2.6 or to which this Section 2.6
would have applied if this Warrant has been outstanding at the time of issuance
of such Options or Convertible Securities) and (B) the maximum number of shares
of Common Stock issuable upon exercise of any Options or Convertible Securities
issued pursuant to this Section 2.6 or to which this Section 2.6 would have
applied if this Warrant had been outstanding at the time of issuance of such
Options and Convertible Securities that are still outstanding at the time of
determination will not exceed 4,000,000 shares (subject to adjustment for any
stock dividend, stock split, reverse split or similar combination or subdivision
of the Common Stock subsequent
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<PAGE> 11
to March 15, 1995).
2.7. Adjustments for Combinations, etc. In case the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2.8. Minimum Adjustment of Warrant Price. If the amount of any adjustment of
the Warrant Price required pursuant to this Section 2 would be less than
one-tenth (1/10) of one percent (1%) of the Warrant Price in effect at the time
such adjustment is otherwise so required to be made, such amount shall be
carried forward and adjustment with respect thereto made at the time of and
together with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate at least one tenth
(1/10) of one percent (1%) of such Warrant Price.
2.9. Shares Deemed Outstanding. For all purposes of the computations to be
made pursuant to this Section 2, (i) there shall be deemed to be outstanding all
shares of Common Stock issuable pursuant to the exercise of Options and
conversion of Convertible Securities outstanding upon the Closing (including
without limitation this Warrant, or any Options or Convertible Securities
outstanding after the Closing and referred to in Section 2.6), but only to the
extent that the exercise price of such Options or the conversion price of such
Convertible Securities is less than or equal to the Market Price then in effect,
(ii) immediately after any Additional Shares of Common Stock are deemed to have
been issued pursuant to Section 2.3 or 2.4 hereof, such Additional Shares shall
be deemed to be outstanding if the result of such deemed issuance was a
reduction in the Warrant Price then in effect (provided that if such reduction
is subsequently reversed pursuant to Section 2.3(b) or (c), such Additional
Shares of Common Stock shall thereafter no longer be deemed to be outstanding
under this clause (ii)), (iii) treasury shares shall not be deemed to be
outstanding and (iv) no adjustment shall be made in the Warrant Price upon the
issuance of shares of Common Stock pursuant to Options and Convertible
Securities so deemed to be outstanding, but this
-11-
<PAGE> 12
Section 2.9 shall not prevent other adjustments in the Warrant Price arising by
virtue of such outstanding Options or Convertible Securities pursuant to the
provisions of Section 2.3 hereof; provided, however, that, for purposes of
calculating adjustments to the Warrant Price, there shall be deemed to be
outstanding (subject to the limitations set forth in clauses (i) and (ii) above)
immediately after giving effect to any issuance of shares of Common Stock,
Options or Convertible Securities all shares of Common Stock issuable upon the
exercise of Options and conversion of Convertible Securities then outstanding
(including without limitation the Warrants) after giving effect to antidilution
provisions contained in all such outstanding Options and Convertible Securities
which cause an adjustment in the number of shares of Common Stock so issuable,
either by virtue of such issuance of shares of Common Stock, Options or
Convertible Securities or by virtue of the operation of such antidilution
provisions.
2.10. Other Dilutive Events. In case any event shall occur as to which the
other provisions of this Section 2 are not strictly applicable but as to which
the failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof (including, without limitation, the issuance of securities
other than Common Stock which have the right to participate in distributions to
the holders of Common Stock, or the granting of "phantom stock" rights or "stock
appreciation rights"), then, in each such case, the holders of Warrants
representing a majority of the number of shares of Common Stock issuable upon
exercise of all such Warrants may appoint an independent investment bank or firm
of independent public accountants reasonably acceptable to the Company, which
shall give their opinion as to the adjustment, if any, on a basis consistent
with the essential intent and principles established herein, necessary to
preserve the purchase rights represented by the Warrants. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the holder of this
Warrant and shall make the adjustments described therein. The fees and expenses
of such investment bank or independent public accountants shall be borne
one-half by the Company and one-half by the holders of the Warrants requesting
such opinion.
3. CONSOLIDATION, MERGER, ETC. In case the Company after the
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<PAGE> 13
date hereof (a) shall consolidate with or merge into any other Person and shall
not be the continuing or surviving corporation of such consolidation or merger,
or (b) shall permit any other Person to consolidate with or merge into the
Company and the Company shall be the continuing or surviving Person but, in
connection with such consolidation or merger, the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock (other than a capital
reorganization or reclassification to the extent that such capital
reorganization or reclassification results in the adjustment in the Warrant
Price as provided in Section 2.2 hereof), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the holder of this Warrant,
upon the exercise hereof at any time at or prior to the consummation of such
transaction, shall be entitled to receive (at the aggregate Warrant Price in
effect at the time of such consummation, for all Common Stock issuable upon such
exercise immediately prior to such consummation in each case after giving effect
to the resulting adjustment under Section 2 above), in lieu of the Common Stock
issuable upon such exercise, the greatest amount of securities, cash or other
property to which such holder would actually have been entitled as a stockholder
of record of the Company with respect to such transaction.
4. NO IMPAIRMENT. The Company will not, by amendment of its articles of
organization or through any consolidation, merger, reorganization, transfer of
assets, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms 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 action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
dilution or other impairment.
5. REPORT AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in
the Warrant Price and/or in the shares of Common Stock issuable upon the
exercise of this Warrant, the Company at its expense will promptly compute such
adjustment or readjustment
-13-
<PAGE> 14
in accordance with the terms of this Warrant and prepare a report setting forth
such adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
by the Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock outstanding
or deemed to be outstanding, and (c) the Warrant Price in effect immediately
prior to such issue or sale and as adjusted and readjusted (if required by
Section 2 hereof) on account thereof. The Company will forthwith mail a copy of
each such report to the holder of this Warrant and will, upon the written
request at any time of any holder of this Warrant, furnish to such holder a like
report setting forth the Warrant Price at the time in effect and showing in
reasonable detail how it was calculated. The Company will also keep copies of
all such reports at its office maintained pursuant to Section 9.2(a) hereof and
will cause the same to be available for inspection at such office during normal
business hours by any holder of this Warrant or any prospective purchaser of a
Warrant designated by the holder thereof.
6. NOTICES OF CORPORATE ACTION. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer of all or
substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record
-14-
<PAGE> 15
is to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right and (ii) the date
or expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, the time, if any such time is to be fixed, as of
which the holders of record of Common Stock shall be entitled to exchange their
shares of Common Stock for the securities or other property deliverable upon
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up and a description in reasonable
detail of the transaction. Such notice shall be mailed to the extent practicable
at least 15 days prior to the date therein specified.
7. RESTRICTIONS ON TRANSFER.
7.1. Restrictive Legends. Except as otherwise permitted by this Section 7,
each certificate for Common Stock issued upon the exercise of any Warrant, each
certificate issued upon the direct or indirect transfer of any such Common
Stock, each Warrant issued upon direct or indirect transfer or in substitution
for any Warrant pursuant to Section 9 hereof shall be transferable only upon
satisfaction of the conditions specified in this Section 7 and shall be stamped
or otherwise imprinted with legends in substantially the form appearing at the
beginning of this Warrant.
7.2. Notice of Proposed Transfer; Opinion of Counsel. Prior to any transfer
of any Restricted Securities, the holder thereof will give written notice to the
Company of such holder's intention to effect such transfer and to comply in all
other respects with this Section 7.2. Each such notice shall describe the manner
and relevant circumstances of the proposed transfer. If in the opinion of
counsel for the holder, which opinion is reasonably acceptable to the Company
and its counsel, the proposed transfer may be effected without registration of
such Restricted Securities under the Securities Act, such holder shall thereupon
be entitled to transfer such Restricted Securities in accordance with the terms
of the notice delivered by such holder to the Company.
7.3. Termination of Restrictions. Except as set forth in
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<PAGE> 16
the proviso to this sentence, the restrictions imposed by this Section 7 upon
the transferability of Restricted Securities shall cease and terminate as to any
particular Restricted Securities (a) when such Restricted Securities shall have
been effectively registered under the Securities Act, or (b) when, in the
opinion of counsel for the holder thereof, which opinion is reasonably
acceptable to the Company and its counsel, such restrictions are no longer
required in order to insure compliance with the Securities Act. Whenever any
restrictions on transferability imposed by this Section 7 shall cease and
terminate as to any Restricted Securities, the holder thereof shall be entitled
to receive from the Company, without expense (other than applicable transfer
taxes, if any), new securities of like tenor not bearing the applicable legend
or legends required by Section 7.1 hereof.
8. RESERVATION OF STOCK, ETC. The Company will at all times reserve and keep
available, solely for issuance and delivery upon exercise of this Warrant, the
number of shares of Common Stock from time to time issuable upon exercise of
this Warrant. All shares of Common Stock issuable upon exercise of this Warrant
shall be duly authorized and, when issued upon such exercise, shall be validly
issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof. At any such time as the Common
Stock is listed on any national securities exchange or NASDAQ, the Company will,
at its expense, obtain promptly and maintain the approval for listing on each
such exchange or NASDAQ, upon official notice of issuance, the shares of Common
Stock issuable upon exercise of this Warrant and maintain the listing of such
shares after their issuance.
9. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS.
9.1. Ownership of Warrants. The Company may treat the person in whose name
this Warrant is registered on the register kept at the office of the Company
maintained pursuant to Section 9.2(a) hereof as the owner and holder thereof for
all purposes, notwithstanding any notice to the contrary.
9.2. Office; Transfer and Exchange of Warrants.
(a) The Company will maintain an office (which may be an agency
maintained at a bank) at 100 Beaver Street, Waltham, MA 02154 where notices,
presentations and demands
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<PAGE> 17
in respect of this Warrant may be made upon it. Such office shall be
maintained at until such time as the Company shall notify the holder of this
Warrant of any change of location of such office.
(b) The Company shall cause to be kept at its office maintained
pursuant to Section 9.2(a) hereof a register for the registration and
transfer of this Warrant. The name and address of the holder of this
Warrant, the transfers thereof and the names and addresses of transferees of
this Warrant shall be registered in such register.
(c) Upon the surrender of this Warrant, properly endorsed, for
registration of transfer or for exchange at the office of the Company
maintained pursuant to Section 9.2(a) hereof, the Company at its expense
will (subject to compliance with Section 7 hereof, if applicable) execute
and deliver to or upon the order of the holder thereof a new Warrant or
Warrants of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling
in the aggregate on the face or faces thereof for the number of shares of
Common Stock called for on the face or faces of the Warrant so surrendered.
9.3. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of this Warrant for
cancellation at the office of the Company maintained pursuant to Section 9.2(a)
hereof, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor and dated the date hereof.
9.4. Division or Combination. This Warrant may be divided or combined with
other Warrants upon presentation hereof at the office of the Company maintained
pursuant to Section 9.2(a) hereof, together with a written notice specifying the
names and denominations in which new Warrants are to be issued, signed by the
holder hereof or its agent or attorney. Subject to compliance with the
provisions of this Warrant as to any transfer
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<PAGE> 18
which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.
10. DIVIDENDS. In the event that the Company at any time or from time to time
after March 20, 1995 shall declare, order, pay or make a dividend or
distribution in respect of its Common Stock, whether payable in cash, evidences
of indebtedness or other securities or property (other than a stock dividend
subject to the provisions of Section 2.4 above), then upon any exercise of this
Warrant the Company shall pay to the holder hereof the amount of cash, and shall
deliver to the holder hereof in kind the evidences of indebtedness, securities
or other property, that would have been payable or deliverable with respect to
each share of Common Stock being purchased upon such exercise (including, in the
event of a conversion of this Warrant pursuant to Section 1.1.2 above, any
shares of Common Stock being subtracted from the number of shares that would
otherwise be issuable upon exercise hereof) if such shares of Common Stock had
been outstanding as of the record date for such dividend or distribution. In
connection with the delivery to the holder hereof of any such evidences of
indebtedness, securities or other property, the Company shall also pay or
deliver to such holder any interest, dividends or other payments that the holder
of this Warrant would have received had such holder continuously held such
evidences of indebtedness, securities or other property from the date of the
related dividend payment or distribution until the date of exercise of this
Warrant.
11. DEFINITIONS. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury shares)
of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4 hereof,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than the shares of
Common Stock issued upon the exercise of this Warrant.
Closing: The time of the closing of the purchase by the Investor of this
Warrant and 850,000 shares of the Common Stock
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<PAGE> 19
of the Company as provided in that certain Stock and Warrant Purchase Agreement
dated as of March 20, 1995 between the Company and the Investor.
Common Stock: As defined in the introduction to this Warrant, such term
includes any stock into which such Common Stock shall have been changed or any
stock resulting from any reclassification of such Common Stock. Common Stock
will include any stock and other securities of the Company or any other Person
which the holder of this Warrant at any time shall be entitled to receive, or
shall have received, upon the exercise of this Warrant, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock pursuant to
Section 3 hereof or otherwise.
Company: Genome Therapeutics Corp., a Massachusetts corporation.
Convertible Securities: Any evidences of indebtedness, shares of stock
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily Market
Price during the period of the most recent 30 trading days, ending on such date,
except that if no class of the Common Stock is then listed or admitted to
trading on any national securities exchange or quoted in the over-the-counter
market, the Current Market Price shall be the Market Price on such date.
Expiration Date: As defined in the introduction to this Warrant.
Investors: Those persons identified as investors on Schedule I hereto.
Market Price: On any date specified herein, the amount per share of Common
Stock equal to (a) the last sale price of Common Stock, regular way, on such
date or, if no such sale takes place on such date, the average of the closing
bid and asked prices thereof on such date, in each case as officially reported
on the
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<PAGE> 20
principal national securities exchange on which Common Stock is then listed or
admitted to trading, or (b) if Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security by the NASD, the last trading price of Common Stock on
such date, or (c) if there shall have been no trading on such date or if Common
Stock is not so designated, the average of the closing bid and asked prices of
Common Stock on such date as shown by the NASD automated quotation system, or
(d) if Common Stock is not then listed or admitted to trading on any national
exchange or quoted in the over-the-counter market, the fair value thereof
determined in good faith by the Board of Directors of the Company as of the date
as of which the determination is to be made; provided that such determination of
fair value may be challenged in good faith by the holder of any Warrant, and any
dispute shall be resolved by an investment banking or appraisal firm of
recognized national standing selected by the Company and acceptable to the
holders of Warrants representing a majority of the number of shares of Common
Stock issuable upon all such Warrants. The decision of such investment banking
or appraisal firm shall be binding on the Company and all holders of Warrants.
The fees and expenses of such investment bank or appraisal firm shall be borne
one-half by the Company and one-half by the holders of the Warrants challenging
such good faith determination.
NASD: The National Association of Securities Dealers, Inc.
Options: Rights, options or warrants to subscribe for, purchase or otherwise
acquire either Additional Shares of Common Stock or Convertible Securities.
Person: A corporation, an association, a partnership, an organization, a
business, an individual, a government or political subdivision thereof or a
governmental agency.
Restricted Securities: All of the following: (a) any Warrant bearing the
applicable restricted securities legend referred to in Section 7.1 hereof, (b)
any shares of Common Stock which have been issued upon the exercise of any
Warrant and which are evidenced by a certificate or certificates bearing the
applicable restricted securities legend referred to in such Section, (c) unless
the context otherwise requires, any shares of
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<PAGE> 21
Common Stock which are at the time issuable upon the exercise of any Warrant and
which, when so issued, will be evidenced by a certificate or certificates
bearing the applicable restricted securities legend referred to in such Section.
Securities Act: The Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations thereunder of the Securities and
Exchange Commission or any successor federal agency, all as the same shall be in
effect at the time.
Warrant Price: As defined in Section 2.1 hereof.
Warrants: This Warrant and any warrant of like tenor issued pursuant to the
Purchase Agreement, upon partial exercise of any such Warrant in accordance with
Section 1.3 hereof, upon transfer or exchange of any such Warrant in accordance
with Section 9.2 hereof or upon replacement of any such Warrant in accordance
with Section 9.3 hereof.
12. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
13. NOTICES. Any notice or other communication in connection with this Warrant
shall be deemed to be delivered if in writing (or in the form of a telex or
telecopy) addressed as hereinafter provided and if either (x) actually delivered
at said address (evidenced in the case of a telex by receipt of the correct
answerback) or (y) in the case of a letter, three business days shall have
elapsed after the same shall have been deposited in the United States mails,
postage prepaid and registered or certified: (a) if to any holder of this
Warrant, at the registered address of such holder as set forth in the register
kept at the office of the Company maintained pursuant to Section 9.2(a) hereof;
or (b) if to the Company, to the attention of its President at its office
maintained pursuant to Section 9.2(a) hereof; provided, however, that the
exercise of this Warrant shall be effective in the manner provided in
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<PAGE> 22
Section 1 hereof.
[Remainder of page intentionally left blank].
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<PAGE> 23
14. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of The Commonwealth of Massachusetts. The section
headings in this Warrant are for purposes of convenience only and shall not
constitute a part hereof.
IN WITNESS WHEREOF, GENOME THERAPEUTICS CORP. has caused this Common Stock
Purchase Warrant to be signed by its duly authorized officer under its corporate
seal.
GENOME THERAPEUTICS CORP.
By:
--------------------------------------
Title:
<PAGE> 24
Schedule I
List of Investors
<TABLE>
<CAPTION>
PURCHASER WARRANTS
<S> <C>
Biotechnology Value Fund, L.P 313,788
One Sansome Street
San Francisco, CA
Investment 10 L.L.C 134,484
333 W. Wacker Dr. #1600
Chicago, IL 60606
Biotech 1 Investment L.L.C 0
333 W. Wacker Dr. #1600
Chicago, IL 60606
Biotech 2 Investment L.L.C 448,272
333 W. Wacker Dr. #1600
Chicago, IL 60606
Four Partners 111,108
667 Madison Ave
New York, NY
Julian Baker 12,348
667 Madison Ave
New York, NY
---------
TOTAL: 1,020,000
</TABLE>
<PAGE> 25
FORM OF EXERCISE NOTICE
[To be executed only upon exercise of Warrant]
To GENOME THERAPEUTICS CORP.
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, __________(1) shares of
the Common Stock covered by the within Warrant and herewith makes payment in
full therefor of $_____ per share or $_______ in the aggregate, and requests
that the certificates for such shares be issued in the name of, and delivered to
, whose address is
Dated:
-----------------------------------------
(Name)
-----------------------------------------
(Title)
-----------------------------------------
(Corporation)
-----------------------------------------
(Street Address)
- --------------
(1) Insert here the number of shares called for on the face of this
Warrant (or, in the case of a partial exercise, the portion thereof as to which
this Warrant is being exercised), in either case without making any adjustment
in the number of shares (or securities, cash or property) to be delivered upon
exercise pursuant to the adjustment provisions of this Warrant. In the case of a
partial exercise, a new Warrant or Warrants will be issued and delivered,
representing the unexercised portion of the Warrant, to the holder surrendering
the Warrant.
<PAGE> 26
-----------------------------------------
(City) (State) (Zip Code)
<PAGE> 27
FORM OF CONVERSION NOTICE
[To be executed only upon conversion of Warrant]
To GENOME THERAPEUTICS CORP.
The undersigned registered holder of the within Warrant hereby irrevocably
converts such Warrant with respect to __________(1) shares of the Common Stock
covered by the within Warrant which such holder would be entitled to receive
upon the exercise hereof, and requests that the certificates for such shares be
issued in the name of, and delivered to , whose address is
Dated:
-----------------------------------------
(Name)
-----------------------------------------
(Title)
-----------------------------------------
(Corporation)
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
- --------------
(1) Insert here the number of shares called for on the face of this
Warrant (or, in the case of a partial conversion, the portion thereof as to
which this Warrant is being converted), in either case without making any
adjustment in the number of shares (or securities, cash or other property) to be
delivered upon conversion pursuant to the adjustment provisions of this Warrant.
In the case of a partial conversion, a new Warrant or Warrants will be issued
and delivered, representing the unconverted portion of the Warrant, to the
holder surrendering the Warrant.
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FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto the right represented by such Warrant
to purchase __________(1) shares of Common Stock of GENOME THERAPEUTICS CORP. to
which such Warrant relates, and appoints Attorney to make such transfer on the
books of GENOME THERAPEUTICS CORP. maintained for such purpose, with full power
of substitution in the premises.
Dated:
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
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(Name)
- -------------------------- -----------------------------------------
(Title)
-----------------------------------------
(Corporation)
- --------------
(1) Insert here the number of shares called for on the face of this
Warrant (or, in the case of a partial assignment, the portion thereof as to
which this Warrant is being assigned), in either case without making any
adjustment in the number of shares (or securities, cash or other property) to be
delivered upon assignment pursuant to the adjustment provisions of this Warrant.
In the case of a partial assignment, a new Warrant or Warrants will be issued
and delivered, representing the unassigned portion of the Warrant, to the holder
surrendering the Warrant.
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EXHIBIT 10.28
AGREEMENT
Agreement dated as of August 31, 1995 by and between
ASTRA HASSLE AB, Karragatan 5, S-431 83 Molndal, Sweden (hereinafter
referred to as "ASTRA")
and
GENOME THERAPEUTICS CORPORATION, 100 Beaver Street, Waltham, MA 02154 USA
(hereinafter referred to as "GTC").
1. BACKGROUND
1.1 ASTRA is the inventor of, and possesses, patents and other
rights referable to a pharmaceutical speciality with the non
proprietary name OMEPRAZOLE for the treatment of acid related
diseases, such as ulcer. Observations have been made that
there is a connection between ulcer disease and Helicobacter
Spp. ASTRA is engaged in research seeking development of
eradication therapies for Helicobacter spp and is in
possession of certain genomic sequence information related to
Helicobacter SPP.
1.2 GTC is involved in Helicobacter spp research, and has
developed a Helicobacter Data Base and GTC Helicobacter
Technology (as those terms are defined below).
1.3 ASTRA and GTC desire to enter into a collaboration based on
the Helicobacter Data Base of GTC and on GTC Helicobacter
Technology to develop a pharmaceutical product and/or Vaccine
and/or diagnostic product effective against gastrointestinal
infection or any other disease caused by Helicobacter spp. For
the purpose of this collaboration ASTRA and GTC have jointly
agreed upon a research plan, attached hereto as Exhibit 1.
2. DEFINITIONS
2.1 The terms "ASTRA" and "GTC" as used in this Agreement shall
include any corporation or other entity worldwide directly or
indirectly controlled by, controlling, or under common control
with, ASTRA and GTC, respectively, and for such purpose
control shall mean the direct or indirect ownership of at
least fifty percent (50%) of the voting interest in such
corporation or other entity or the power to direct the
management of such corporation or other entity.
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2.2 The term "CPI" as used in this Agreement shall mean the
Consumer Price Index for all Urban Consumers (1982-1984=100)
issued by the Bureau of Labor Statistics of the United States
Department of Labor or its successor index.
2.3 The term "Effective Date" as used in this Agreement shall mean
the date first above written.
2.4 The term "GTC Helicobacter Technology" as used in this
Agreement shall have the meaning set forth in Article 5.
2.5 The term "Helicobacter Data Base" as used in this Agreement
shall mean GTC's Helicobacter Spp DNA sequence data base and
any and all electronic and hard copy data related thereto.
2.6 The terms "Pharmaceutical Product", "Vaccine Product" and
"Diagnostic Product", as used in this Agreement shall have the
meanings set forth in Article 4.5.
2.7 The term "Product" as used in this Agreement shall mean
collectively Pharmaceutical Product, Vaccine Product and
Diagnostic Product or any one or more of them and
Pharmaceutical Product, Vaccine Product and Diagnostic Product
shall each be a "Product Category".
2.8 The term "Research Collaboration" as used in this Agreement
shall mean the collaboration to be performed under the
Research Plan.
2.9 The term "Research Plan" as used in this Agreement shall mean
the research plan attached hereto as Exhibit 1, hereto, as
subsequently amended, improved or modified from time to time.
2.10 The term * as used in this Agreement
shall have the meaning set forth in Article 6.
2.11 The term "Resulting Technology" as used in this Agreement
shall have the meaning set forth in Article 6.
2.12 The term "Software Technology" as used in this Agreement shall
have the meaning set forth in Article 7.
2.13 The term "Vaccine" as used in this Agreement shall mean an
infectious agent or component(s) thereof administered to a
human being or other mammals in order to elicit a protective
or therapeutic specific immune response against an infectious
agent; such agent or component(s) does also include synthetic
or recombinantly produced antigens or epitopes or genetic
material encoding corresponding antigens or epitopes.
2.14 The grant of a license on an exclusive basis means that the
licensor may not use or exploit the licensed technology itself
nor grant a third party such rights.
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3. RESEARCH COLLABORATION
3.1 GTC undertakes to use all reasonable efforts to perform the
tasks assigned to it according to the Research Plan.
3.2 For the purpose of the Research Collaboration , the parties
shall establish:
a A JOINT MANAGEMENT COMMITTEE responsible for the
management and coordination of the Research
Collaboration consisting of two representatives of
senior management from each party. The chairman will be
designated by ASTRA from among the four representatives.
Decisions will be taken by majority vote except that in
the case of a deadlock the Chairman shall cast the
deciding vote. Material changes in the Research Plan
shall be subject to the approval of the Joint Management
Committee. In the event the Joint Management Committee
shall approve a change of direction and/or scope of the
Research Collaboration and such change would in the
absence of additional funding have an adverse economic
impact upon GTC, the parties agree to negotiate in good
faith an increase in the funding to be provided
hereunder by ASTRA so as to avoid such adverse economic
impact upon GTC and GTC shall not be required to incur
any additional expense until such agreement is in place.
b A JOINT RESEARCH COMMITTEE responsible for the day to
day activities consisting of three representatives from
each party with the possibility to call in additional
members on an ad hoc basis. In case it is not possible
to reach consensus, the issue will be decided by the
Joint Management Committee.
3.3 During the term of this Agreement, GTC shall not, *
, without ASTRA's prior written
consent given at its own discretion. However, GTC may search
and otherwise access all its databases including Helicobacter
spp and utilize information with respect thereto in its other
research programs provided (i) GTC *
and (ii) *
.
3.4 ASTRA has disclosed to GTC prior to the execution of this
Agreement certain ongoing research collaborations with third
parties involving Helicobacter spp. ASTRA may enter into
further collaborations related to Helicobacter spp with other
parties and GTC is prepared to collaborate with such parties,
reasonably acceptable to GTC, on behalf of ASTRA.
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4. REMUNERATION
4.1 As the entire consideration of all services rendered and
rights granted under this Agreement, ASTRA shall pay to GTC
the compensation specified in this Article 4.
4.2 a) A non-refundable license fee of * to be paid
upon the Effective Date of this Agreement in same day
federal funds *
payable to GTC
hereunder.
b) A non-accountable non-refundable allowance of *
in reimbursement of capital and other
expenditures incurred, or to be incurred, by GTC in
connection with the Research Collaboration payable upon
the Effective Date of this Agreement in same day federal
funds.
c) A research incentive fee of * to be paid
within thirty (30) days after GTC shall have notified
ASTRA that scientists of GTC engaged in the Research
Collaboration have devoted not less than * man-years to
such research but in no event earlier than *
.
4.3 a) Research support of * per man-year in
reimbursement of scientists of GTC actually engaged in
the Research Collaboration payable in advance of each
quarter to which the same is attributable based upon
reasonable estimates (but after giving effect to any
debit or credit balance at the end of the prior period).
Within thirty (30) days following the end of each
quarter, GTC shall provide ASTRA with a written
statement specifying the scientists performing Research
Collaboration and the time devoted thereto by each of
them during the preceding quarter and a calculation of
the amount due for such quarter and the debit or credit
balance at the end of such quarter. GTC will provide,
and ASTRA will support, a minimum of * scientist man-
years for the first twelve (12) month period following
the Effective Date, a minimum of * scientist man-years
for the ensuing twelve (12) month period and a minimum
of * scientist man-years for the subsequent six (6)
month period. The number of scientist man-years in
excess of the minimum shall be subject to the approval
of ASTRA. The scientific man-years for any period
specified above or subsequently agreed upon, if any,
shall be spread during the period in such manner as may
be reasonably required by the normal course of the
Research Collaboration. It is the expectation of the
parties that approximately * of the scientist
man-years for any such period shall be in relation to
* .
b) ASTRA shall reimburse GTC for each scientist engaged in
the Research Collaboration terminated by GTC for
customary out of pocket severance expense for a period
not exceeding six (6) months incurred by GTC as a result
of any reduction requested by ASTRA in
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the number of man-years required under this Agreement
provided that ASTRA's responsibility for severance for
each twelve (12) month period following the Effective
Date shall not exceed a number of scientists equal to
the aggregate decrease in the number of scientist
man-years for such year and further provided that ASTRA
shall have no responsibility for the first three
scientists terminated during such year. In order to
avoid scientist being terminated by GTC as aforesaid GTC
shall use all reasonable efforts to find other tasks for
scientists detached from the Research Collaboration.
c) In order to make possible the control of the
calculations and payments provided for in this 4.3, the
records of the scientist performing Research
Collaboration are open to inspection within two (2)
years after the end of each calendar year by an
independent certified public accountant engaged and paid
by ASTRA and to whom GTC shall have no reasonable
objection. Such accountant shall either confirm the
accuracy of the statement by GTC or provide the
necessary correction thereto but he shall not otherwise
disclose any records or other information. In the event
that any such inspection shows an over- reporting and
overpayment GTC shall repay any additional sum that
would not have been payable had GTC reported correctly,
plus interest at the rate of 1.5% per month and, if such
overpayment is in excess of five percent (5%) for any
twelve (12) month period, GTC shall pay the cost of such
examination as well.
4.4 MILESTONE PAYMENTS if and when the following events occur
payable within thirty (30) days after occurrence of the
respective event. However in relation to items a) (i)-(ii)
below ASTRA shall pay the respective amount thirty (30) days
following the receipt by ASTRA of a written statement from GTC
confirming the occurrence of the event, supported by adequate
documents reflecting the results of such events in reasonable
detail.
<TABLE>
<CAPTION>
a) Pharmaceutical Vaccine
Product Product
<S> <C> <C>
*
</TABLE>
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<TABLE>
<S> <C> <C>
*
b) Diagnostic Product
*
</TABLE>
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<TABLE>
<S> <C> <C>
*
</TABLE>
For the purpose of 4.4 b) *
.
4.5 (a) "PHARMACEUTICAL PRODUCT" shall mean only such
pharmaceutical product (whether related to Helicobacter
Spp or not) as (i) *
described under Article 4.4 a) (i) above or
(ii) satisfies the definition set forth in (d) below.
(b) "VACCINE PRODUCT" shall mean only such Vaccine (whether
related to Helicobacter Spp or not) as (i) *
under Article 4.4 a) (ii)
above or (ii) satisfies the definition set forth in (d)
below. "Therapeutic Vaccine Product" shall mean a
Vaccine Product documented for therapeutic use.
"Prophylactic Vaccine Product" shall mean a Vaccine
Product documented for prophylactic use.
(c) "DIAGNOSTIC PRODUCT" shall mean only such diagnostic
product (whether related to Helicobacter Spp or not) as
(i) * specified in Article
4.4 b) (i)-(iii) or (ii) satisfies the definition set
forth in (d) below.
(d) In addition to the above items (a) - (c) the terms
Pharmaceutical Product, Vaccine Product and Diagnostic
Product shall comprise any product (whether related to
Helicobacter Spp or not) (i) protected by the claims of
(x) a valid product patent of GTC *
where such patent has
been licensed to ASTRA under this Agreement on an
exclusive basis or (y) other patent of GTC covering any
technology licensed to ASTRA under this Agreement *
or (ii) containing
* in the case of a Pharmaceutical
Product or * in the case of a Vaccine Product or
Diagnostic Product *
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*
The milestone payments set forth in 4.4 a) (i) through (v)
shall be payable only once in each Product Category. The
milestone payments set forth in 4.4 b) (i) through (iii),
shall be payable * . All other milestone payments shall
be payable *
A Product shall be different from another Product if
its mechanism of action is different and/or it is covered by a
different product patent.
4.6 (a) ASTRA shall pay to GTC a royalty on Net Sales of:
(i) each Pharmaceutical Product and each Therapeutic
Vaccine Product sold in the amount of * for
cumulative Net Sales of less than *
and * of cumulative
Net Sales of * or
more, and *
(ii) each Diagnostic Product and Prophylactic Vaccine
Product sold in the amount of * for cumulative
Net Sales of less than *
and * of
cumulative Net Sales of *
* or more.
The above Net Sales amounts shall be cumulative so long
as a royalty is payable hereunder with respect to each
Product. Commencing on the first anniversary of the
Effective Date the above amounts of *
and *
and all amounts payable to GTC
hereunder after the first anniversary of the Effective
Date shall be adjusted annually by multiplying such
amounts by the fraction CPI current / CPI 1995 where CPI
current equals the CPI most recently published prior to
anniversary of the Effective Date in the applicable
year, and CPI 1995 equals the CPI for the month in which
the Effective Date shall occur.
(b) In the event that ASTRA is (i) paying a royalty to a
third party with respect to the sale of a Product *
(ii) *
then Net
Sales of such Product for the purpose of computing
royalties shall be reduced by * provided
that reduction of Net Sales because of payment of a
royalty shall not result in a reduction of the royalty
otherwise payable
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to GTC in an amount in excess of the royalty to the
third party and further provided that any such reduction
shall continue only so long as such royalty is being
paid.
(c) In the event ASTRA should grant a sublicense for a
Product to a third party, ASTRA shall pay to GTC *
(i) * of payments from such sublicensee
(net of withholding taxes to the extent ASTRA receives
no credit therefor) in the nature of license fees,
milestone payments, royalties or otherwise in
consideration of the sublicense which can be in cash as
well as property (tangible or intangible) and/or
services to the extent it represents the excess over the
then fair market value of the property (tangible or
intangible) and/or services exchanged therefore.
In the event that ASTRA is (x) paying a royalty
to a third party with respect to the sale of a
Product * (y)
* then the
payment to GTC under (i) shall be *
of the payment from such sublicense;
provided that reduction of the amount payable to
GTC because of payment of a royalty shall not
exceed the royalty actually paid to the third
party and further provided that any such
reduction shall continue only so long as such
royalty is being paid.
*
(ii) the royalty amount that would have been
payable hereunder on the Net Sales of such
sublicensee if its sales of the Product had been
sold by ASTRA.
For the purpose of (ii) the Net Sales of a
licensee shall be cumulative with the Net Sales
of ASTRA for the same Product and the royalty
reduction provisions of 4.6(b) shall apply.
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Payment to GTC shall be made within forty-five (45) days
after receipt by ASTRA of the payment from the
sublicensee to which the same is attributable and
adjustments, if necessary, shall be made when the Net
Sales of the sublicensee have been determined. ASTRA
shall furnish GTC with a complete and accurate copy of
each sublicense-contract regarding technology licensed
hereunder by GTC to ASTRA not less than ten (10) days
after the execution thereof. With respect to each such
sublicense, ASTRA shall furnish to GTC the same reports
that ASTRA receives from such sublicensee regarding any
payment from such sublicensee to ASTRA with respect to
which GTC is entitled to a payment from ASTRA hereunder.
GTC agrees to keep each sublicense-contract and the
related reports confidential and use the same only for
the purpose of verifying the accuracy of payments made
by ASTRA to GTC hereunder. If a sublicensee is
compensating ASTRA in other than cash then the payment
to GTC shall be based upon the then fair market value
thereof.
(d) The term "Net Sales" as used herein shall mean the
actual gross selling prices charged by ASTRA for the
Products in bona fide sales to third parties as per
invoices covering the sales of such Products less only
the deductions taken by ASTRA to determine its net sales
for purposes of the Group Consolidated Statement of
Earnings of Astra AB disseminated to its shareholders
and the public generally.
(e) ASTRA shall for each calendar quarter following the
launch of a Product, no later than sixty (60) days
following each quarter prepare and mail a statement
showing the total Net Sales in respect of which
royalties according to this Article 4. are payable.
Payments of such royalties shall be effected
simultaneously with mailing the statement.
Such statements shall contain at least the following
information: (i) the number of packages of each Product
sold by ASTRA in each country; (ii) the Net Sales and
(iii) the amount of royalty due. Such statement shall be
certified as by an officer of ASTRA. If no royalties are
due to GTC for any reporting period, the written report
shall so state.
(f) Upon GTC's request ASTRA shall for each Product furnish
GTC with a supplement to the statement required in (e)
above with respect to the U.S. and one other country to
be specified by GTC in its notice of request to ASTRA
setting forth each category (eg. freight, insurance,
etc.) of the deductions taken by ASTRA from the actual
gross selling prices charged by ASTRA for the Products
to determine Net Sales to the extent consistent with the
then existing bookkeeping for such country and stating
the total amount of deductions for each such category.
GTC may only make such request once in any twelve month
period. Specification by GTC of a particular country in
one twelve month period shall not preclude the
specification of the same or a different country in
another twelve month period.
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(g) ASTRA's obligation to pay royalty and other
remunerations set out above in this Article 4.6 shall
for each country and each separate Product remain in
force for so long as ASTRA is the holder of a valid
product patent protecting the respective Product or in
case of a Product not protected by a valid product
patent of ASTRA until * following the commercial
launch of the Product in each country.
(h) All payments due hereunder shall be payable in United
States dollars. Conversion of foreign currency to U.S.
dollars shall be made at the conversion rate existing in
the United States (as reported by the Wall Street
Journal) on the last working day of each royalty period.
Such payments shall be without deduction of exchange,
collection or other charges except charges of receiving
bank *
Late payments shall be subject to an
interest charge of one and one half percent (1.5%) per
month.
(i) If transfer to U.S. dollars is subject to administrative
authorization, ASTRA undertakes to file the transfer
application with the competent authorities supported by
all requisite documentation, and to apply its reasonable
efforts to obtain such authorization and effect the
remittance within the period laid down above. ASTRA
further agrees to effect the transfer within thirty (30)
days following the date on which authorization shall
have been granted, provided that ASTRA shall not be
obligated to pay before the date stipulated above.
(j) If for any reason beyond the control of ASTRA the
transfer of payments under this Section 4 are not
effected within the period hereinabove provided or
within such further period of time that GTC may allow,
ASTRA shall settle such payments as soon as the
impediment has ceased to exist.
(k) In order to make possible the control of the
calculations and payments provided for in this 4.6, the
records of sales of Products entitling GTC to royalty
and other payments under this 4.6 are open to inspection
within two (2) years after the end of each calendar
year by an independent certified public accountant
engaged and paid by GTC and to whom ASTRA shall have no
reasonable objection. Such accountant shall either
confirm the accuracy of the statement by ASTRA or
provide the necessary correction thereto but he shall
not otherwise disclose any records or other information.
In the event that any such inspection shows an
under-reporting and underpayment ASTRA shall pay any
additional sum that would have been payable to GTC had
ASTRA reported correctly, plus interest at the rate of
1.5% per month and, if such underpayment is in excess of
five percent (5%) for any twelve (12) month period,
ASTRA shall pay the cost of such examination as well
4.7 ASTRA shall pay to GTC within thirty (30) days following the
* and each subsequent anniversary of the Effective Date
the sum of * as LICENSE MAINTENANCE FEE for the year
of the term of this Agreement except that no such payment shall
be required for any such year in which (a)
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a milestone payment of at least * is also payable (if
a lesser or no milestone is payable, ASTRA may satisfy this
condition by paying the difference) or (b) ASTRA is supporting
at least * man-years at GTC engaged in the research
under this Agreement. In case termination of this Agreement
shall become effective on a date not being the anniversary of
the Effective Date the above sum of * shall be
pro-rated.
4.8 Except as otherwise specifically provided herein, ASTRA shall
not be obligated to pay any remuneration to, or to absorb any
cost or expenses of, GTC.
5. GTC HELICOBACTER TECHNOLOGY
5.1 GTC hereby grants to ASTRA, and ASTRA accepts, subject to the
terms and conditions hereof, under GTC's patents and other
intellectual property rights from time to time an exclusive
worldwide perpetual, sublicensable license to use and exploit
GTC's existing and future (to the extent not included in the
Resulting Technology with respect to which ASTRA will *
) Helicobacter spp inventions (patentable or
not), products, formulae, processes, techniques, discoveries,
improvement, information, data and knowledge, as amended,
improved or modified from time to time (herein collectively
referred to as "GTC Helicobacter Technology") to develop,
research, manufacture, use, sell and distribute pharmaceutical
products, Vaccines and diagnostic products (whether related to
Helicobacter Spp or not) including, without limitation,
Pharmaceutical Products, Vaccine Products and Diagnostic
Products. The term GTC Helicobacter Technology shall include,
but not be limited to, the Helicobacter Data Base and the
elements described in Exhibit 2 hereto.
6. RESULTING TECHNOLOGY
6.1 * any and all
inventions (patentable or not), products, formulae; processes,
techniques, discoveries, improvements, information, data and
knowledge and any other results conceived, developed or
generated under the Research Collaboration, as exemplified in
Exhibit 3 hereto, (whether related to Helicobacter Spp or not),
and all intellectual property and other rights related thereto
hereinafter collectively referred to as "Resulting Technology".
Although * is "whether related to Helicobacter Spp
or not", the parties acknowledge that GTC's obligations with
respect to the Research Collaboration are limited to *
Helicobacter Spp. Without affecting * to the
Resulting Technology the inventorship of all inventions
included in Resulting Technology shall be determined in
accordance with the patent laws of the United States. *
GTC shall be the owner of * and ASTRA shall
have under GTC's patents and other intellectual property rights
from time to time a non-exclusive * license
(but without the right to grant sublicenses *
) to use and exploit the *
conceived, developed or generated by GTC as a result of the
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research to be performed under this Agreement to develop,
research, manufacture, use, sell and distribute pharmaceutical
products, Vaccines and diagnostic products (whether related to
Helicobacter Spp or not) including, without limitation,
Pharmaceutical Products, Vaccine Products and Diagnostic
Products. *
7. ACCESS TO RESULTING TECHNOLOGY AND GTC HELICOBACTER TECHNOLOGY
7.1 Software and components thereof, either existing or developed,
needed to pursue searches in the Helicobacter Data Base and to
process, interpret or analyze the data therefrom including
reconstruction of gene components is herein collectively
referred to as "Software Technology". Software Technology does
not include any software used in the creation of, as opposed to
access to or analysis, processing and interpretation of the
Helicobacter Data Base. To the extent Software Technology is
proprietary to GTC, ASTRA shall have a non-exclusive,
perpetual, worldwide license (but without the right to grant
sublicenses * ) to use the same
for access to, and analysis, processing and interpretion of,
the Helicobacter Data Base and for no other purpose. The
Software Technology which is not proprietary to GTC and the
Software Technology which is in the public domain is listed in
Exhibit 5 hereto. GTC has *
ASTRA shall
obtain licenses to Software Technology which is not proprietary
to GTC at no expense to GTC.
7.2 Promptly following the Effective Date, GTC shall deliver to
ASTRA electronic and hard copies of the annotated Helicobacter
Data Base as well as an outline of the methodologies and
procedures used to obtain data and for sequence analysis.
Current updates will be furnished to ASTRA periodically not
less than on a monthly basis provided there is information that
requires updating.
7.3 ASTRA will also have direct access to raw sequence data via GTC
and to other work resulting from the collaboration under this
Agreement including, but not limited to, targeted sequencing
data, comparative sequence data, gene mapping data,
representational difference analysis data, structural modelling
data, gene expression and protein expression data, gene
mutation data, molecular genetic methodologies and
technologies, protein purification procedures, and biochemical
and screening assay methodologies.
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7.4 Upon request and from time to time, ASTRA will also have access
to the * conceived, developed or generated
by GTC as a result of the research to be performed under this
Agreement, the GTC Helicobacter Technology and the Resulting
Technology, including, without limitation, (i) samples of all
plasmids/E. coli strains carrying these plasmids which have
been sequenced and used to construct the Helicobacter Data
Base, (ii) provisions of strain which has been sequenced, and
access to other Helicobacter strains in GTC collection and
(iii) all gene libraries, mutants and vectors constructed,
genes subcloned, amplified PCR products, proteins purified
under work described in Exhibit 1 "Research Plan" or other work
resulting from the collaboration.
7.5 To the extent practicable, ASTRA's access as contemplated by
this Article 7 will at all times be via computer network with
24 hours accessibility except for downtime required to maintain
or otherwise service the database. Except for access via
computer network, ASTRA's access will be during normal business
hours and upon reasonable notice granting ASTRA treatment and
priority not less favorable than granted to GTC's other
collaborators.
8. INTELLECTUAL PROPERTY RIGHTS
8.1 Each party agrees to use all reasonable efforts to see to it
that all its employees and other persons engaged by it, are
committed in such a way that the rights to the GTC Helicobacter
Technology, * Software Technology, to the
extent proprietary to GTC, and the Resulting Technology are
secured to the effect described in Articles 5.1 and 6.1.
8.2 The procurement, maintenance, defense and actions for
infringement of patents and other intellectual property rights
related to Resulting Technology and (for so long as ASTRA's
license according to Article 5 is on an exclusive basis) GTC
Helicobacter Technology, excluding * (the
"IP-Rights") are the concern of ASTRA. ASTRA shall handle such
matters at its own cost and discretion subject to Articles 8.3
- 8.4:
8.3 GTC shall at ASTRA's expense cooperate fully in the
preparation, filing, prosecution, maintenance, defense and
actions for infringement of the IP-Rights, executing all
papers and instruments and taking other reasonable measures or
requiring members of GTC to execute such papers and instruments
or to take other reasonable measures so as to enable ASTRA to
accomplish the foregoing, Article 8.2, in its own name in any
country. Each party shall provide to the other prompt notice as
to all substantial matters which come to its attention and
which relates to the preparation, filing, prosecution
maintenance, defense or infringement of the IP-Rights.
8.4 If ASTRA or its sublicensee elects to commence an action for
infringement and GTC is a legally indispensable party to such
action, GTC shall have the right to assign to ASTRA all of
GTC's right, title and interest in each patent which is the
subject of such action. In the event that GTC makes such an
assignment, such assignment shall be irrevocable, and such
action by
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ASTRA on that patent or patents shall thereafter be brought or
continued without GTC as a party. Notwithstanding any such
assignment to ASTRA by GTC and regardless of whether GTC is or
is not an indispensable party, GTC shall cooperate fully with
ASTRA in connection with any such action. In the event that
any patent is assigned to ASTRA by GTC, pursuant to this
paragraph, such assignment shall require ASTRA to continue to
meet its obligations under this Agreement as if the assigned
patent or patent application were still licensed to ASTRA.
8.5 No settlement, or consent judgment of any suit to which GTC is
a party may be entered into without the consent of GTC, which
consent shall not be unreasonably withheld. No consent shall
be required if the relief against GTC is solely monetary and
ASTRA agrees to hold GTC harmless therefrom.
8.6 Recoveries or reimbursements from actions for infringement as
contemplated by this Article 8 shall first be applied to
reimburse ASTRA and GTC for litigation costs. Recoveries or
reimbursements representing lost sales or profits of a Product
shall be shared by ASTRA * and GTC * . Any remaining
recoveries or reimbursements representing infringement of GTC
Helicobacter Technology shall be shared by ASTRA * and GTC
* . Any remaining recoveries or reimbursements representing
infringement of Resulting Technology shall be retained by
ASTRA.
8.7 In the event that a declaratory judgment action alleging
invalidity of any of the GTC Helicobacter Technology shall be
brought against ASTRA or GTC, GTC at its sole option, shall
have the right to intervene at its own expense subject to
ASTRA's right to control the process.
8.8 ASTRA may, at its own discretion, renounce its claims to
certain rights included in the IP-Rights, whereupon ASTRA
shall have no responsibilities or liabilities in relation to
such IP-Rights. ASTRA shall promptly notify GTC of any such
renouncement and GTC shall have the option of acquiring such
IP-Rights without paying any compensation to ASTRA.
9 CONFIDENTIALITY
9.1 Each party hereby agrees and undertakes to hold and maintain
in strict confidence and not disclose to any third party for
any reason any information of a confidential nature about the
other party's or its collaborators research, development, use
manufacture, sale or distribution of products which a party
may learn in connection with the activities contemplated by
this Agreement and not to use such information for other
purposes than performing the Research Collaboration and
pursuing to the terms and conditions of this Agreement.
Furthermore, ASTRA agrees and undertakes (except with regard
to bona fide collaborators bound by obligations of
confidentiality similar to those contained herein) to hold and
maintain in strict confidence and not disclose to any third
party for any reason any information about * .
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The restrictions of confidentiality and use set forth above in
this Article 9.1 shall not apply to information:
a) which at the time of disclosure is in the public
domain;
b) which after disclosure becomes part of the public
domain by publication or otherwise except by breach of
the undertakings hereunder by the receiving party;
c) which the receiving party can establish by competent
proof was in its possession at the time of disclosure
and was not acquired, directly or indirectly, from the
disclosing party;
d) which the receiving party can establish by competent
proof was subsequently developed by the receiving party
without access to information of the disclosing party;
or
e) which the receiving party can establish by competent
proof was lawfully received from a third party without
restriction on confidentiality.
9.2 * GTC agrees and undertakes to
*
pursuing to the terms and
conditions of this Agreement.
9.3 It is understood that ASTRA shall *
if
and when GTC should terminate this Agreement pursuant to
Article 10.2, 10.3 or 10.7 then ASTRA shall *
in accordance with the
rules set out in Article 9.1.
9.4 In order to secure the obligations set forth in Article 9 the
parties agree to exercise every reasonable precaution to
prevent and restrain the unauthorized disclosure and use of
information subject to confidentiality, including restricting
access to such information to such of its employees as are
bound to keep such information confidential and need to have
such access for the purpose of this Agreement.
9.5 The undertakings set forth in this Article 9 shall be valid
during the term of this Agreement and * years
thereafter.
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10. TERM
10.1 (a) This Agreement shall become effective as of the date
first above written and shall, remain in force until
terminated as herein provided. This Agreement shall
terminate automatically when ASTRA cease to be under an
obligation to effect the royalty payments specified in
Article 4.6.
(b) The Research Collaboration shall become effective as of
the date first above written and shall remain in force
for a period of * years, provided that ASTRA
shall have the right to terminate the Research
Collaboration by * prior written notice to
GTC given at any time after the * anniversary of
the date hereof. Termination of the Research
Collaboration contemplated by this Agreement shall have
no effect on the term of this Agreement.
10.2 In the event ASTRA fails to make payments due hereunder, GTC
shall have the right to terminate this Agreement upon sixty
(60) days written notice specifying such failure and its claim
of right to terminate, unless ASTRA makes such payments plus
interest within the sixty (60) days notice period. If
payments are not so made GTC may immediately terminate this
Agreement.
10.3 In the event that either party shall be in default in the
performance of any of its material obligations under this
Agreement (other than as provided in 10.2 above which shall
take precedence over any other default), and if the default
has not been remedied within ninety (90) days after the date
of notice in writing specifying such default and its claim of
right to terminate, the other may terminate this Agreement by
written notice in addition to any other remedies available to
it by law or equity.
10.4 Notwithstanding Articles 10.2 and 10.3 a party shall not have
the right to terminate this Agreement in the event the other
party has initiated a procedure pursuant to Article 12 to
resolve the dispute for which termination is being sought.
10.5 (a) In the event ASTRA any time following the *
anniversary of the Effective Date upon request by GTC
is unable to reasonably demonstrate that it or its
collaborators are [actively] engaged in research,
development or commercialization of the GTC Helicobacter
Technology or the Resulting Technology, GTC may
terminate this Agreement by written notice with the
consequences elaborated under Article 11.1 . In making
this determination there shall be taken into account the
normal course of such programs conducted with sound and
reasonable business practices and judgment which have
had commercial success.
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(b) Notwithstanding, the diligence required by 10.5 (a)
shall not apply for any year of the term of this
Agreement in which a milestone payment of at least
* is also payable (if a lesser or no milestone is
payable, ASTRA may satisfy this condition by paying the
difference or all, as the case may be) or ASTRA is
supporting at least * man-years at GTC engaged
in the research under this Agreement.
(c) In the event ASTRA any time following the *
anniversary of the Effective Date upon request by GTC
is unable to reasonably demonstrate that it or its
collaborators are actively engaged in research,
development or commercialization of the GTC
Helicobacter Technology or the Resulting Technology in
Pharmaceutical Products or Vaccine Products, GTC may
terminate this Agreement by written notice, with the
consequences elaborated under Article 11.1. In making
this determination there shall be taken into account
the normal course of such programs conducted with sound
and reasonable business practices and judgment which
have had commercial success.
(d) In the event ASTRA any time following the *
anniversary of the Effective Date upon request by GTC
is unable to reasonably demonstrate that it or its
collaborators are actively engaged in research,
development or commercialization of the GTC
Helicobacter Technology or the Resulting Technology in
Diagnostic Products, GTC may convert the licenses
granted to ASTRA under this Agreement into
non-exclusive licenses with respect to diagnostic
products by written notice, with the consequences
elaborated under Article 11.2. In making this
determination there shall be taken into account the
normal course of such programs conducted with sound and
reasonable business practices and judgment which have
had commercial success.
(e) Notwithstanding, the diligence required by Article 10.5
(c) shall not apply for any year of the term of this
Agreement in which milestone payments of at least
* are also payable (if a lesser or no
milestone is payable, ASTRA may satisfy this condition
by paying the difference or all, as the case may be).
(f) Notwithstanding, the diligence required by 10.5 (d)
shall not apply for any year of the term of this
Agreement in which a milestone payment of at least
* is also payable (if a lesser or no
milestone is payable, ASTRA may satisfy this condition
by paying the difference or all, as the case may be) or
ASTRA is supporting at least * man-years at GTC
engaged in the research under this Agreement.
10.6 ASTRA may, at its own discretion, terminate this Agreement by
* prior written notice to GTC given at any time
after the sixth anniversary of the Effective Date.
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10.7 In the event that either party shall become insolvent, shall
make an assignment for the benefit of creditors, or shall have
a petition in bankruptcy filed for or against it, the other
shall have the right to terminate this entire Agreement
immediately upon giving such party written notice of such
termination.
11. CONSEQUENCES OF TERMINATION
11.1 In the event this Agreement is terminated pursuant to Article
10.1 (a), 10.5 (a) or (c) or 10.6
(a) ASTRA s exclusive license of the GTC Helicobacter
Technology contemplated by Article 5 will be converted
into a non-exclusive license all other term and
conditions remaining unchanged.
(b) With respect to IP-Rights included in the Resulting
Technology, (i) ownership of all patents invented
solely by GTC shall be assigned to GTC and GTC shall be
deemed to have granted ASTRA a non-exclusive license
thereto on the same terms and conditions as with regard
to the GTC Helicobacter Technology, and (ii) ownership
of all patents invented solely by ASTRA or jointly with
GTC shall * and, except for IP-Rights
representing ASTRA's proprietary interest in a Product,
*
. Invented solely by a party means not
invented jointly with the other party or a collaborator
of the other party.
(c) ASTRA's non-exclusive license of the *
conceived, developed or generated by GTC
as a result of the research to be performed under this
Agreement contemplated by Article 6 will remain
unchanged.
(d) ASTRA's non-exclusive license of the Software
Technology which is proprietary to GTC contemplated by
Article 7 will remain unchanged.
(e) Notwithstanding the above, in the event this Agreement
is terminated pursuant to Article 10.5 (c) and ASTRA or
its collaborators are engaged in research, development
or commercialization of the GTC Helicobacter Technology
or Resulting Technology in Diagnostic Product, ASTRA's
exclusive license of the GTC Helicobacter Technology,
* and Software Technology shall
remain unchanged as far as concerns diagnostic products
and IP-Rights included in the Resulting Technology
relating to diagnostic products shall remain with ASTRA
and being subject to no right of GTC.
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11.2 In the event GTC should convert ASTRA's exclusive license
under this Agreement with respect to diagnostic products into
a non-exclusive license pursuant to Article 10.5 (d) by reason
of ASTRA being unable to reasonably demonstrate that it or its
collaborators are actively engaged in research, development or
commercialization of the GTC Helicobacter Technology or the
Resulting Technology with respect to Diagnostic Products, then
this Agreement shall nevertheless remain in effect in
accordance with the terms hereof except that ASTRA shall no
longer have an exclusive license under the GTC Helicobacter
Technology, Software Technology which is proprietary to GTC or
the * conceived, developed or generated by
GTC as a result of the research to be performed under this
Agreement with respect to diagnostic products and *
under the Resulting Technology.
11.3 The * under 11.1 (b)(ii) and 11.2
above shall not apply to Resulting Technology arising out of
BONA FIDE collaborations by * with third parties if and to
the extent * by
undertakings to third parties resulting from such
collaboration and not primarily for the purpose of *
.
11.4 If this Agreement is terminated by GTC pursuant to Articles
10.2 , 10.3 or 10.7 and without limiting any remedies which
GTC may have at law or in equity by reason of such
termination:
(a) the license of the GTC Helicobacter Technology, the
* conceived, developed or generated
by GTC as a result of the research to be performed
under this Agreement and the Software Technology which
is proprietary to GTC will terminate and ASTRA will
have no license with respect thereto
(b) GTC will be the owner of all patents and IP-Rights
included in the Resulting Technology whether or not
invented by GTC and ASTRA will have no license with
respect thereto, and
(c) except for the technology covered by such patents and
IP-Rights with respect to which GTC will thereupon have
exclusive rights, *
.
11.5 In the event this Agreement is terminated by ASTRA pursuant to
Article 10.3 or 10.7 and without limiting any remedies which
ASTRA may have at law or in equity by reason of such
termination:
a) GTC shall be deemed to have assigned to ASTRA all its
rights, titles and interest in and to the GTC
Helicobacter Technology, and
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b) ASTRA will * the
Resulting Technology.
c) GTC shall be deemed to have granted to ASTRA in
perpetuity, a non-exclusive worldwide, sublicensable,
royalty free, license under the *
conceived, developed or generated by GTC as a result of
the research to be performed under this Agreement and
Software Technology proprietary to GTC.
11.6 Upon termination, each party undertakes to execute all
documents and to take all reasonable actions necessary or
advisable to carry out the foregoing and to procure its
employees and other persons engaged by it to do so.
11.7 The obligation of ASTRA to pay royalties and milestones
hereunder shall survive termination except for termination by
ASTRA pursuant to Articles 10.1, 10.3 and 10.7. Termination
shall not affect financial obligations hereunder accruing
prior thereto.
12. GOVERNING LAW AND ARBITRATION
12.1 This Agreement shall be governed and interpreted in accordance
with the law of the Commonwealth of Massachusetts applicable
to agreements executed and to be performed therein.
12.2 Subject to the limitation stated in the final sentence of this
section, any dispute, controversy or claim arising out of or
in connection with this Agreement, or the breach, termination
or invalidity thereof, shall be exclusively settled under the
then rules of Conciliation and Arbitration of the
International Chamber of Commerce by three arbitrators
appointed in accordance with the said Rules. The demand for
arbitration shall be filed within 180 days after the
controversy or claim has arisen. Such arbitration shall be
held in London, England. The award through arbitration shall
be final and binding. Each party may enter any such award in
a court having jurisdiction or may make application to such
court for judicial acceptance of the award and an order of
enforcement, as the case may be. Notwithstanding the
foregoing, either party may, without recourse to arbitration,
assert against the other party a third-party claim or
cross-claim in any action brought by a third party, to which
the subject matter of this Agreement may be relevant.
13 WARRANTIES AND REPRESENTATIONS
13.1 Each party hereby represents and warrants to the other as
follows:
(a) It is a corporation duly organized, validity existing
and is in good standing under the laws of the
jurisdiction of its incorporation, is qualified to do
business and is in good standing as a foreign
corporation in each jurisdiction in which the conduct
of its business or the ownership of its properties
requires such qualification and has all
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requisite power and authority, corporate or otherwise,
to conduct its business as now being conducted, to own,
lease and operate its properties and to execute,
deliver and perform this Agreement.
(b) The execution, delivery and performance by it of this
Agreement (including the grant of the rights and
licenses referable to GTC Helicobacter Technology and
* conceived, developed or generated
by GTC as a result of the research to be performed
under this Agreement and Software Technology which is
proprietary to GTC ) has been duly authorized by all
necessary corporate action and do not and will not
(i) require any consent or approval of its
stockholders,
(ii) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction,
decree, determination or award presently in
effect having applicability to it or any
provision of its charter or by-laws, or
(iii) result in a breach or constitute a default
under any agreement, mortgage, lease, license,
permit, patent or other instrument or obligation
to which it is a party or by which it or its
assets may be bound or affected.
(c) No authorization, consent, approval, license, exemption
of, or filing or registration with, any court or
governmental authority or regulatory body is required
for the due execution, delivery or performance by it of
this Agreement (including the grant of the rights and
licenses by GTC referable to GTC Helicobacter
Technology and * conceived,
developed or generated by GTC as a result of the
research to be performed under this Agreement and
Software Technology which is proprietary to GTC)
(d) This Agreement is a legal, valid and binding obligation
of such party, enforceable against it in accordance
with its terms and conditions. It is not under any
obligation to any person, contractual or otherwise,
that is conflicting or inconsistent in any respect with
the terms of this Agreement (including the grant of the
rights and licenses by GTC referable to GTC
Helicobacter Technology and * and
Software Technology which is proprietary to GTC) or
that would impede the diligent and complete fulfillment
of its obligations hereunder.
(e) It is not debarred or suspended from receiving
contracts from the United States, or Swedish government
or other governmental authority or agency.
(f) Each party has disclosed to the other in good faith any
and all material information relevant to the subject
matter of this Agreement to such party's ability to
observe and perform its obligations hereunder, *
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*
13.2 GTC represents and warrants to ASTRA that, to the best of the
information, knowledge and belief of GTC's officers:
(a) *
(b) GTC has the right to grant the license of GTC
Helicobacter Technology and, to the extent proprietary
to GTC, Software Technology,
(c) GTC has not granted any license or sublicense or other
rights to the GTC Helicobacter Technology *
(d) Without prejudice to the generality of the forgoing,
*
(e) *
GTC and, when ASTRA has *
ASTRA will, subject to the terms and conditions of
*
all rights conferred upon it under this Agreement
including but not limited to, *
GTC except as set forth in
*
above and except that GTC shall *
except to the extent that
*
, and *
(f) Subject only to ASTRA *
under this Agreement in
accordance with the terms and provisions set forth
herein excluding *
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*
to
ASTRA. GTC undertakes *
excluding any *
ASTRA. *
The foregoing representations in 13.2 shall not survive
termination of this Agreement if terminated by GTC
pursuant to 10.2, 10.3 and 10.7.
14. MISCELLANEOUS
14.1 The parties agree to comply with all applicable laws and
regulations. In particular, it is understood and acknowledged
that the transfer of certain commodities and technical data is
subject to United States laws and regulations controlling the
export of such commodities and technical data, including all
Export Administration Regulations of the United States
Department of Commerce. These laws and regulations, among
other things, prohibit or require a license for the export of
certain types of technical data to certain specified
countries. ASTRA hereby agrees and gives written assurance
that it will comply with all United States laws and
regulations controlling the export of commodities and
technical data, that it will be solely responsible for any
violation of such by ASTRA or sublicensees, and that it will
defend and hold GTC harmless in the event of any legal action
of any nature occasioned by such violation.
14.2 EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT GTC EXPRESSLY
DISCLAIMS ANY AND ALL IMPLIED OR EXPRESS WARRANTIES AND MAKES
NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE OF THE GTC HELICOBACTER TECHNOLOGY,
RESULTING TECHNOLOGY, * OR SOFTWARE
TECHNOLOGY.
14.3 GTC acknowledges that ASTRA, in addition to the Research
Collaboration, has, and will continue individually, and
together with third parties, the research, development,
manufacture, and sale of pharmaceutical products, vaccine
products, and diagnostic products against i.a.
gastrointestinal infection or other disease caused by
Helicobacter Spp which
(i) may *
(ii) may * and
(iii) for which *
pursuant to this Agreement.
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GTC further acknowledges and agrees that GTC will be entitled
to milestone payments and Net Sales royalty only with respect
to such Products as are defined as Pharmaceutical Products,
Vaccine Products and Diagnostic Products hereunder.
Neither party makes any representation or warranty to the
other as to whether or not a Product will be developed under
this Agreement.
14.4 (a) ASTRA shall indemnify, defend and hold harmless GTC and
its current or former directors, governing board
members, trustees, officers, faculty, medical and
professional staff, employees, students and agents and
their respective successors, heirs and assigns (the
"Indemnities"), against any liability, damage, loss or
expenses (including reasonable attorneys' fees and
expenses of litigation) incurred by or imposed upon the
Indemnities or any one of them in connection with any
claims, suits, actions, demands or judgments arising
out of any theory of product liability (including, but
not limited to actions in the form of tort, warranty,
or strict liability) concerning any product, process or
service made, used or sold pursuant to any right or
license granted under this Agreement provided, however
that the Indemnitee gives reasonable notice to ASTRA of
any such claim or action, tender the defense of such
claim or action to ASTRA and assists ASTRA, at ASTRA s
expense, in defending such claim or action and does not
compromise or settle such claim or action without ASTRA
s prior written consent, provided, however, that ASTRA
s indemnification of the Indemnitee hereunder shall not
extend to any cost, claim, suit, expense or damage
which arises or results from negligence or intentional
misconduct of the Indemnitee, or any third party for
whom GTC is responsible.
(b) ASTRA agrees, at its own expense, to provide attorneys
reasonably acceptable to GTC to defend against any
actions brought or filed against any party indemnified
hereunder with respect to the subject of indemnity
contained herein, whether or not such actions are
rightfully brought.
14.5 This Agreement is nonassignable and any purported assignment
hereof will be null and void without the prior written consent
of the other except that either party may assign this
Agreement to a transferee of all or substantially all of the
business to which this Agreement relates.
14.6 Written notices required to be given under this Agreement
shall be addressed as follows:
If to GTC:
GENOME THERAPEUTICS CORPORATION
100 Beaver Street
Waltham, MA 02154
Attention: Vice President, Business Development
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If to ASTRA:
ASTRA RESEARCH CENTER BOSTON INC
------------------------------
------------------------------
------------------------------
Attention: Hans G. Nilsson, Ph.D.
or such other address as either party may request in writing.
14.7 Should a court of competent jurisdiction later consider any
provision of this Agreement to be invalid, illegal, or
unenforceable, it shall be considered severed from this
Agreement. All other provisions, rights and obligations shall
continue without regard to the severed provision, provided
that the remaining provisions of this Agreement are in
accordance with the intention of the parties.
14.8 During the term of the research collaboration contemplated by
this Agreement and for a period of * thereafter
ASTRA HASSLE AB, including its Massachusetts research group,
and GTC will not, directly or indirectly solicit or encourage
any employee of the other party involved in the Research
Collaboration to leave the employment of the other party.
14.9 GTC acknowledges that it is GTC's responsibility to attract
and retain personnel qualified to perform its obligations
under this Agreement and that such obligation is an essential
part of this Agreement. In particular, during the term of the
Research Collaboration GTC will use all reasonable efforts to
*
14.10 All press or other announcements which may be made or sent out
by ASTRA or GTC in respect of this Agreement or the
collaboration contemplated thereby shall *
. Exempted from the above are
announcements which one party is required to make under the
rules of the relevant stock exchanges or applicable laws and
regulations in which case the one party shall consult with the
other party if time permits and reasonably observe the
comments of the other party given as soon as possible. The
obligation to consult shall not apply to disclosures in
respect of this Agreement or the collaboration contemplated
thereby required in reports required to be filed with
governmental authorities or submitted to shareholders provided
that such disclosure substantially is in relation to
information which have previously been announced after
consultation with the other party.
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14.11 Nothing in this Agreement is intended or shall be deemed to
constitute a partnership, agency, employer, employee or joint
venture relationship between the parties. Neither party shall
incur any debts or make any commitments for the other.
14.12 No right, express or implied, is granted by this Agreement to
use in any manner any trade name or trademark of GTC or ASTRA
in connection with the performance of this Agreement or the
exploitation of any license granted hereunder or otherwise;
each party may make any legally required reference to the
other in connection with such manufacture or sale of Product.
14.13 This Agreement, including the Exhibits attached hereto (which
shall form an integral part of this Agreement), constitutes
and contains the entire understanding and agreement of the
parties, and cancels and supersedes any and all prior
negotiations, correspondence and understandings and
agreements, whether verbal or written, between the parties
respecting the subject matter hereof. No waiver, modification
or amendment of any provision of this Agreement shall be
valid or effective unless made in writing and signed by a duly
authorized officer of each of the parties.
--------------------------------------
In witness whereof, the parties hereto have executed this Agreement in two (2)
copies on the date first above written.
ASTRA HASSLE AB GENOME THERAPEUTICS
CORPORATION
By: /s/ Hakan Mogren By: /s/ Robert J. Hennessey
----------------------- ---------------------------
Name: Hakan Mogren Name: Robert J. Hennessey
Title: Group Chief Title: Chairman,
Executive Officer Chief Executive Officer
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EXHIBIT 1
"RESEARCH PLAN"
I. DATABASE DEVELOPMENT AND ANNOTATION
*
II. IDENTIFICATION OF THERAPEUTIC AND VACCINE TARGETS
*
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*
<PAGE> 30
* Confidential Treatment Requested
*
<PAGE> 31
* Confidential Treatment Requested
*
III. ANALYSIS OF GENETIC DIVERSITY
*
<PAGE> 32
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*
IV. DEVELOPMENT OF BIOASSAYS
*
<PAGE> 33
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*
<PAGE> 34
* Confidential Treatment Requested
EXHIBIT 2
GTC Helicobacter Technology
*
<PAGE> 35
* Confidential Treatment Requested
*
<PAGE> 36
* Confidential Treatment Requested
*
<PAGE> 37
* Confidential Treatment Requested
*
<PAGE> 38
* Confidential Treatment Requested
EXHIBIT 3
Resulting Technology
Resulting Technology includes:
*
<PAGE> 39
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EXHIBIT 4
*
includes: *
1) *
2) *
<PAGE> 40
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EXHIBIT 5
Software Technology
NON-PROPRIETARY
*
*
*
*
PUBLIC DOMAIN:
* homology searching; part of
*
* database searching
* hypertext browser
* finding
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EXHIBIT 5 -cont-
Software Technology
Copies of Agreements
[ * ]
<PAGE> 42
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EXHIBIT 6
*
GTC Consultants
*
*
related to patent applications *
*
*
Third Party *
*
*
* Persons retained by *
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statements No. 2-77846, No. 2-81123, No. 2-95446, No. 33-12633, No.
33-27885, No. 33-45432, No. 0-10824 and No. 03-361191.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 4, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARRY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GENOME THERAPEUTICS CORPORATION FOR THE YEAR ENDED
AUGUST 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<EXCHANGE-RATE> 1
<CASH> 5,886
<SECURITIES> 2,341
<RECEIVABLES> 620
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,897
<PP&E> 4,172
<DEPRECIATION> 2,452
<TOTAL-ASSETS> 11,529
<CURRENT-LIABILITIES> 3,398
<BONDS> 0
<COMMON> 1,348
0
0
<OTHER-SE> 5,891
<TOTAL-LIABILITY-AND-EQUITY> 7,239
<SALES> 7,385
<TOTAL-REVENUES> 11,207
<CGS> 6,648
<TOTAL-COSTS> 6,648
<OTHER-EXPENSES> 3,974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 585
<EPS-PRIMARY> .05
<EPS-DILUTED> .04
</TABLE>
