24
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
September 30, 1997
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
__________ to __________
Commission File Number 1-6247
ALZA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0142070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 Page Mill Road
P.O. Box 10950
Palo Alto, California 94303-0802
(Address of principal executive offices)
Registrant's telephone number, including area code (650) 494-5000
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 ( )
Number of shares outstanding of each of the registrant's classes
of common stock as of October 24, 1997:
Common Stock, $.01 par value - 85,393,375 shares
<PAGE>
ALZA CORPORATION
FORM 10-Q for the Quarter Ended
September 30, 1997
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of Income 3
Condensed Consolidated Balance Sheet 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibits
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALZA CORPORATION
Condensed Consolidated Statement of Income (unaudited)
(In millions, except per share amounts)
Quarter Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
_________________________________________________________________
Revenues:
Royalties, fees and other $ 41.9 $ 39.5 $ 131.8 $ 126.1
Research and development 36.1 29.4 106.0 94.8
Net sales 36.5 29.5 100.4 83.8
_________________________________________________________________
Total revenues 114.5 98.4 338.2 304.7
Expenses:
Research and development 41.9 31.7 116.5 101.2
Costs of products shipped 22.0 21.4 64.9 67.0
Selling, general and
administrative 11.0 11.6 35.1 33.7
Acquisition of in-process
research and development 87.0 - 87.0 -
Contribution to Crescendo
Pharmaceuticals Corporation 247.0 - 247.0 -
Asset write-down 11.5 - 11.5 -
_________________________________________________________________
Total expenses 420.4 64.7 562.0 201.9
_________________________________________________________________
Operating income (loss) (305.9) 33.7 (223.8) 102.8
Interest expense 13.8 12.9 41.3 30.3
Distribution to debenture
holders 8.0 - 8.0 -
Interest and other income (17.8) (16.5) (48.3) (35.0)
_________________________________________________________________
Net interest and other
expense (income) 4.0 (3.6) 1.0 (4.7)
_________________________________________________________________
Income (loss) before
income taxes (309.9) 37.3 (224.8) 107.5
Provision for income taxes 16.6 14.2 49.0 40.9
_________________________________________________________________
Net income (loss) $(326.5) $ 23.1 $ (273.8) $ 66.6
=================================================================
Earnings (loss) per share $ (3.83) $ 0.27 $ (3.22) $ 0.78
=================================================================
Weighted average common and
common equivalent shares 85.2 97.3 85.0 93.1
=================================================================
See accompanying notes.
<PAGE>
ALZA Corporation
Condensed Consolidated Balance Sheet (unaudited)
(In millions)
September 30, December 31,
1997 1996
_________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 116.7 $ 187.7
Short-term investments 75.3 199.3
Receivables, net 108.1 116.6
Inventories, at cost:
Raw materials 18.3 17.7
Work in process 11.8 18.0
Finished goods 9.0 3.5
_________________________________________________________________
Total inventories 39.1 39.2
Prepaid expenses and other
current assets 22.4 19.2
_________________________________________________________________
Total current assets 361.6 562.0
Property, plant and equipment 373.6 408.1
Less accumulated depreciation
and amortization (71.6) (100.3)
_________________________________________________________________
Net property, plant and equipment 302.0 307.8
Investments in long-term securities 460.1 612.8
Other assets 233.5 131.1
_________________________________________________________________
Total assets $ 1,357.2 $ 1,613.7
=================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37.8 $ 28.7
Accrued liabilities 46.7 37.2
Other current liabilities 1.9 1.3
_________________________________________________________________
Total current liabilities 86.4 67.2
5% convertible subordinated debentures 500.0 500.0
5 1/4% zero coupon convertible
subordinated debentures 397.4 382.3
Other long-term liabilities 84.5 67.5
Stockholders' equity:
Common stock and additional
paid-in capital 379.3 363.0
Net unrealized losses on available-
for-sale securities, net of tax effect (1.3) (0.1)
Retained earnings (deficit) (89.1) 233.8
_________________________________________________________________
Total stockholders' equity 288.9 596.7
_________________________________________________________________
Total liabilities and
stockholders' equity $ 1,357.2 $ 1,613.7
=================================================================
See accompanying notes.
<PAGE>
ALZA CORPORATION
Condensed Consolidated Statement of Cash Flows (unaudited)
(In millions)
Nine Months Ended
September 30,
1997 1996
_________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(273.8) $ 66.6
Non-cash adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 24.6 15.8
Interest on 5 1/4% zero coupon convertible
subordinated debentures 15.2 14.4
Increase (decrease) in current assets 6.4 (20.2)
Decrease (increase) in current liabilities 18.3 (2.2)
Asset write-down 11.5 -
Other 12.3 5.6
_________________________________________________________________
Net cash (used in) provided by
operating activities (185.5) 80.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of available-for-sale
securities 596.5 426.1
Purchases of available-for-sale securities (322.0) (736.5)
Product acquisition payments (60.0) -
Capital expenditures (23.6) (32.1)
Purchase of Therapeutic Discovery
Corporation's deferred tax asset (23.0) -
Other investing activities (26.2) (20.9)
_________________________________________________________________
Net cash provided by (used in)
investing activities 141.7 (363.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock 16.3 47.2
Issuance of long-term debt 6.5 -
Distribution of Crescendo
Pharmaceuticals Corporation shares
to stockholders (49.1) -
Principal payments on long-term debt (0.9) (0.9)
Net proceeds from 5% convertible
subordinated debentures - 488.8
_________________________________________________________________
Net cash (used in) provided by
financing activities (27.2) 535.1
_________________________________________________________________
Net (decrease)increase in cash and
cash equivalents (71.0) 251.7
Cash and cash equivalents at
beginning of period 187.7 88.0
_________________________________________________________________
Cash and cash equivalents at end of period $ 116.7 $ 339.7
=================================================================
See accompanying notes.
<PAGE>
ALZA CORPORATION
Notes to Consolidated Financial Statements (unaudited)
1. Basis of Presentation
The information at September 30, 1997 and for the quarters
and nine months ended September 30, 1997 and 1996 is unaudited,
and includes all adjustments (consisting only of normal recurring
adjustments) that the management of ALZA Corporation ("ALZA")
believes necessary for fair presentation of the results for the
periods presented. Interim results are not necessarily
indicative of results for the full year. The condensed
consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and
accompanying notes for the year ended December 31, 1996 included
in ALZA's 1996 Annual Report to Stockholders.
Beginning with the quarter ended March 31, 1997, ALZA changed
the presentation of its consolidated statement of income and
consolidated balance sheet. In the consolidated statement of
income, royalties, fees and other revenue now include items
related to operations that were previously reflected in interest
and other income. Interest expense and income are now shown
separately after operating income. On the consolidated balance
sheet, ALZA has reclassified securities which have maturities of
one year or more as investments in long-term securities; these
securities were previously treated as current assets. Prior year
amounts have been changed to conform with the current year
presentation.
2. Purchase of Therapeutic Discovery Corporation Shares
On September 29, 1997, ALZA purchased all of the Class A
Common Stock of Therapeutic Discovery Corporation ("TDC") for
$100 million in cash. This acquisition was recorded using the
purchase method of accounting and, accordingly, the purchase
price has been allocated to assets acquired based upon their fair
market value on the acquisition date. The purchase resulted in a
charge of $77 million to acquisition of in-process research and
development on ALZA's Statement of Income, and the remaining $23
million of the purchase price was allocated to a deferred tax
asset arising from TDC's net operating loss carryforward and
capitalized research and development.
3. Agreement with Alkermes, Inc.
Effective September 30, 1997, ALZA entered into a clinical
development and option agreement with Alkermes, Inc. ("Alkermes")
relating to RMP-7, a compound for facilitating chemotherapy drug
delivery to the brain. Under the terms of the agreement, ALZA
paid Alkermes $10 million, which was charged to acquisition of in-
process research and development on ALZA's Statement of Income.
Under the agreement, Alkermes will conduct additional clinical
activities related to the product, and ALZA has the option to
acquire exclusive worldwide commercialization rights to RMP-7.
<PAGE>
ALZA CORPORATION
Notes to Consolidated Financial Statements (unaudited)
4. Crescendo Pharmaceuticals Corporation
Crescendo Pharmaceuticals Corporation ("Crescendo") was
formed by ALZA for the purpose of selecting and developing human
pharmaceutical products, and commercializing such products most
likely through licensing to ALZA. On September 29, 1997, ALZA
contributed $300 million in cash to Crescendo. On September 30,
1997, all of the outstanding shares of Crescendo Class A Common
Stock (the "Crescendo Shares") were distributed to the holders of
ALZA common stock and ALZA's outstanding convertible subordinated
debentures. Holders of record on September 18, 1997 received one
Crescendo Share for every 20 shares of ALZA common stock owned on
that date, a total of 4,268,760 Crescendo Shares; one Crescendo
Share for every 36 shares of ALZA common stock into which the
holder's 5% convertible subordinated debentures ("5% Debentures")
were convertible, a total of 363,700 Crescendo Shares; and one
Crescendo Share for every 37 shares of ALZA stock into which the
holder's 5 1/4% zero coupon convertible subordinated debentures
("5 1/4% Debentures") were convertible, a total of 333,010
Crescendo Shares. In each case, cash was distributed in lieu of
fractional shares. ALZA recorded a charge of $247 million,
including expenses of $4 million, interest expense of $8 million
related to the distribution to debenture holders and a dividend
of $49 million for the distribution of Crescendo Shares to ALZA
common stockholders.
In connection with the contribution to Crescendo and the
distribution of Crescendo Shares, ALZA and Crescendo entered into
a number of agreements, including the Development Agreement and
Technology License Agreement, discussed below. The agreements
between ALZA and Crescendo are more fully described in the
Crescendo Registration Statement on Form S-1 (Registration No.
333-31281) filed with the Securities and Exchange Commission on
September 5, 1997, and will be described in the ALZA Form 10-K
for the year ended December 31, 1997.
Crescendo and ALZA have entered into a Development Agreement
for the selection and development of human pharmaceutical
products. The development agreement provides, among other things,
that Crescendo will fund the development of seven products (the
"Initial Products") (OROS-Registered Trademark- oxybutynin, DUROS-
Trademark- leuprolide, OROS-Registered Trademark-
methylphenidate, IUTS progesterone, D-TRANS-Trademark-
testosterone matrix, E-TRANS-Trademark- LHRH and E-TRANS-
Trademark- insulin) from August 25, 1997, the date on which TDC
ceased funding such products, through October 31, 1997. ALZA
recorded revenues of $8.1 million in the third quarter of 1997 as
reimbursement from Crescendo for the development costs of the
Initial Products through September 30, 1997. Continuation of
development of the Initial Products after October 31, 1997 is
subject to ALZA proposing and Crescendo's Board of Directors
accepting work plans and cost estimates for the products.
<PAGE>
ALZA CORPORATION
Notes to Consolidated Financial Statements (unaudited)
4. Crescendo Pharmaceuticals Corporation (continued)
ALZA and Crescendo have entered into a Technology License
Agreement pursuant to which ALZA has granted to Crescendo a
worldwide license to use ALZA technology solely to select and
develop Crescendo products, to conduct related activities, and to
commercialize such products. In exchange for the license to use
existing ALZA technology relating to the Initial Products,
Crescendo will pay a technology fee to ALZA, payable monthly over
a period of three years, in the amount of $1 million per month
for the 12 months following the distribution of Crescendo Shares,
$667,000 per month for the following 12 months and $333,000 per
month for the following 12 months. The technology fee will no
longer be payable at such time as fewer than two of the Initial
Products are being developed by Crescendo and/or have been
licensed by ALZA pursuant to the license option described below.
ALZA recorded a technology fee from Crescendo of $1 million for
the quarter ended September 30, 1997.
ALZA has an option to acquire an exclusive, royalty-bearing
license to each product developed by Crescendo under the
Development Agreement. The option is exercisable on a product by
product, country by country basis. Also, under Crescendo's
Restated Certificate of Incorporation ALZA has the right to
purchase all (but not less than all) of the Crescendo Shares.
5. Asset Write-down
During the third quarter of 1997, ALZA wrote down
approximately $11.5 million of fixed assets, $8.1 million of
which related to excess, under-utilized, or otherwise impaired
manufacturing equipment. Lower than expected production
requirements under a supply agreement with G.D. Searle & Co.
("Searle") for Covera-HS-Trademark- (verapamil) contributed to
under-utilization of the manufacturing equipment. Such equipment
was written-down to its fair market value, which was determined
based upon estimates of current market prices. ALZA has not yet
determined the ultimate disposition of these assets. The
remaining $3.4 million of the write-down is related primarily to
obsolete and idle assets that have no fair market value.
<PAGE>
ALZA CORPORATION
Notes to Consolidated Financial Statements (unaudited)
6. Earnings (Loss) Per Share
For the quarter and nine months ended September 30, 1997, the
earnings (loss) per share calculation is based upon weighted
average shares of ALZA common stock outstanding during each
period. The effect of stock options and the 5 1/4% Debentures
were excluded from the calculation for both periods, as their
inclusion would have had an anti-dilutive effect. Earnings per
share for the quarter and nine months ended September 30, 1996 is
based on weighted average shares of ALZA common stock outstanding
during each period, plus dilutive warrants and options. The 5
1/4% Debentures are considered to be common stock equivalents,
and shares issuable upon an assumed conversion of the 5 1/4%
Debentures were dilutive for the quarter and nine months ended
September 30, 1996, respectively. The 5% Debentures are not
considered common stock equivalents and were not included in the
fully diluted earnings per share calculation for the periods
presented as their inclusion would have had an anti-dilutive
effect. Fully diluted earnings per share are not shown on the
Condensed Consolidated Statement of Income since dilution is less
than 3% for each period presented.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share ("SFAS 128"), which
is required to be adopted on December 31, 1997. At that time,
ALZA will be required to change the method currently used to
compute earnings per share and to restate all prior periods.
Under the new requirements for calculating basic earnings per
share, which replaces primary earnings per share, the dilutive
effect of stock options and other common stock equivalents will
be excluded. Diluted earnings per share, which replaces fully
diluted earnings per share, will include the dilutive effect of
stock options, other common stock equivalents and convertible
securities. Basic earnings (loss) per share is expected to be the
same as the reported primary earnings (loss) per share for the
quarter and nine months ended September 30, 1997, and for the
third quarter of 1996. Basic earnings per share is expected to
be $0.01 higher for the nine months ended September 30, 1996.
Diluted earnings (loss) per share is not expected to be
materially different from fully diluted earnings (loss) per share
for the quarter and nine months ended September 30, 1996 and
1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Notice Concerning Forward-Looking Statements
Some of the statements made in this Form 10-Q are forward-
looking in nature, including but not limited to ALZA's product
development activities and plans, plans concerning the
commercialization of products, statements concerning potential
product sales, future costs of products shipped (and gross
margins), and associated marketing and selling expenses and other
statements that are not historical facts. The occurrence of the
events described, and the achievement of the intended results,
are subject to the future occurrence of many events, some or all
of which are not predictable or within ALZA's control; therefore,
actual results may differ materially from those anticipated in
any forward-looking statements. Many risks and uncertainties are
inherent in the pharmaceutical industry; others are more specific
to ALZA's business. Many of the significant risks related to
ALZA's business are described in ALZA's Annual Report on Form 10-
K, including risks associated with technology and product
development, clinical development, regulatory clearance to market
products and medical acceptance of products, changes in the
health care marketplace, patent and intellectual property
matters, regulatory and manufacturing issues, licensing or
acquiring products from third parties, commercializing
pharmaceutical products and competition.
Third Quarter 1997 Events
During the third quarter of 1997, ALZA exercised its option to
purchase all of the outstanding Class A Common Stock of TDC,
contributed $300 million to Crescendo and distributed the
Crescendo Shares. These transactions, and their impact on ALZA's
financial statements, are discussed below, and in Notes 2 and 4
of the Notes to Financial Statements.
In July 1997, ALZA acquired exclusive rights to Mycelex-
Registered Trademark- (clotrimazole) Troche in the United States
from Bayer Corporation ("Bayer"). Under the terms of the
agreement with Bayer, ALZA made a $50 million upfront payment to
Bayer and will make an additional payment if net sales of the
product during a certain period are above a specified level.
Bayer will manufacture Mycelex-Registered Trademark- Troche for
ALZA, and ALZA will make payments to Bayer based on net sales of
the product.
Effective September 30, 1997, ALZA entered into a clinical
development and option agreement with Alkermes relating to
RMP-7, a compound intended to facilitate the delivery of
chemotherapeutic agents to the brain. Under the terms of the
agreement, ALZA paid Alkermes $10 million, which was charged to
acquisition of in-process research and development on ALZA's
Statement of Income. Under the agreement, Alkermes will conduct
additional clinical activities related to the product, and ALZA
has the option to acquire exclusive worldwide commercialization
rights to RMP-7.
<PAGE>
During the third quarter of 1997, ALZA wrote down
approximately $11.5 million of excess or under-utilized
manufacturing equipment and obsolete and idle assets. Lower than
expected production requirements under a supply agreement with
Searle for Covera-HS-Trademark- contributed to the under-
utilization of manufacturing assets.
RESULTS OF OPERATIONS
ALZA's net loss was $326.5 million, or $3.83 per share, for
the quarter ended September 30, 1997, reflecting non-recurring
charges of $353.5 million, or $4.14 per share. Excluding the non-
recurring items, net income was $27.0 million, or $0.31 per
share, for the third quarter of 1997, compared to net income of
$23.1 million, or $0.27 per share, for the third quarter of 1996.
The net loss for the nine months ended September 30, 1997 was
$273.8 million, or $3.22 per share (net income of $79.8 million,
or $0.91 per share, excluding non-recurring items), compared to
net income of $66.6 million, or $0.78 per share ($64.4 million,
or $0.76 per share, excluding non-recurring items), for the nine
months ended September 30, 1996.
ALZA's net income currently results primarily from royalties
and fees from client companies. Royalties and fees, which are
generally derived from sales by client companies of products
developed jointly with ALZA, vary from quarter to quarter as a
result of changing levels of product sales by client companies
and, occasionally, the receipt by ALZA of certain one-time fees.
Because ALZA's clients generally take responsibility for
obtaining necessary regulatory approvals and make all marketing
and commercialization decisions regarding such products, most of
the variables that affect ALZA's royalties and fees are not
directly within ALZA's control.
During the next several years, ALZA intends to become less
dependent on royalties and fees by continuing to expand ALZA's
sales and marketing activities and by directly marketing and
selling more products; however, there can be no assurance that
ALZA will be successful in undertaking this expansion, or that
any expanded sales and marketing activities will be successful,
due to factors such as the risks associated with developing,
clinically testing and obtaining regulatory clearance of products
for ALZA marketing, the difficulties and costs associated with
acquiring from third parties products for ALZA to market, the
length of the regulatory approval process, the uncertainties
surrounding the acceptance of new products by the intended
markets, the marketing of competitive products, risks relating to
patents and proprietary rights and the current health care cost
containment environment. ALZA expects that, in the near term,
net income will continue to result primarily from royalties on
sales by clients of currently marketed products.
Royalties, Fees and Other Revenue
Royalties, fees and other revenue were $41.9 million for the
quarter and $131.8 million for the nine months ended September
30, 1997, compared to $39.5 million and $126.1 million,
respectively, for the corresponding periods in 1996. Excluding
non-recurring items, royalties, fees and other revenue for the
nine months ended September 30, 1996 were $115.6 million. The
1996 non-recurring items consisted
<PAGE>
primarily of a benefit from the reversal of a reserve for
royalties on sales of Procardia XL-Registered Trademark- and a
benefit in connection with the settlement of litigation related
to patent disputes concerning transdermal nicotine patches, which
were partially offset by a charge related to an advance payment
to the limited partners of the ALZA OROS-Registered Trademark-
Products Limited Partnership in connection with the purchase by
ALZA of their interests in the partnership.
Excluding the 1996 non-recurring items, royalties, fees, and
other income increased 6% for the third quarter and 14% for the
nine months ended September 30, 1997 compared to the
corresponding periods in 1996, primarily resulting from increased
royalties due to higher sales of Glucotrol XL-Registered
Trademark- by Pfizer Inc. ("Pfizer"), Duragesic-Registered
Trademark- by Janssen Pharmaceutica, Inc. ("Janssen") and Covera-
HS-Trademark- by Searle, which were partially offset by decreased
royalties on sales of Transderm-Nitro-Registered Trademark- by
Novartis Pharmaceuticals Corporation, Procardia XL-Registered
Trademark- by Pfizer and NicoDerm-Registered Trademark- CQ-
Trademark- by SmithKline Beecham ("SmithKline"). While sales of
NicoDerm-Registered Trademark- CQ-Trademark- increased during the
quarter, royalties declined as a result of a reduction in royalty
rates under ALZA's agreement covering the product, which provides
for a reduction in royalty rates above a specified sales level
each year. Royalties, fees and other revenue for the third
quarter of 1997 included a technology fee of $1 million from
Crescendo, discussed below. Royalties, fees and other revenue
for the nine months ended September 30, 1997 also included
upfront payments from Knoll Pharmaceutical Company in connection
with an agreement for continued development and worldwide
commercialization of the OROS-Registered Trademark- hydromorphone
product, from SmithKline in connection with the agreement for the
commercialization of the Nicoderm-Registered Trademark-
transdermal nicotine product in China and Japan, and from Pfizer
for the rights to commercialize the OROS-Registered Trademark-
pseudoephedrine product outside the U.S.
Sales of Procardia XL-Registered Trademark-, as reported by
Pfizer, decreased 11% and 16% for the quarter and nine months
ended September 30, 1997, respectively, compared to the same
periods in 1996. Royalties from Procardia XL-Registered
Trademark- accounted for approximately 35% and 30% of ALZA's
royalties, fees and other revenue for the quarter and nine months
ended September 30, 1997, respectively. In June 1997, Mylan
Laboratories Inc. ("Mylan") filed an Abbreviated New Drug
Application ("ANDA") with the FDA requesting clearance to market
a controlled-release nifedipine tablet as a generic alternative
to Procardia XL-Registered Trademark-. On July 8, 1997, Pfizer
filed a suit in federal court in Washington D.C. seeking to
prevent the review of the ANDA and to require Mylan to submit an
ANDA suitability petition. Additionally, Pfizer has filed a suit
against Mylan in federal court in Pennsylvania for infringement
of a patent licensed to Pfizer by a third party relating to
nifedipine. Under applicable law, Pfizer's suit may have the
effect of delaying FDA clearance of Mylan's ANDA. However, it is
not possible to predict the outcome of such litigation, nor is it
possible to predict the impact Mylan's product, if cleared for
marketing, may ultimately have on sales of Procardia XL-
Registered Trademark- and the resulting royalties to ALZA.
<PAGE>
Research and Development
Research and development revenue was $36.1 million and
$106.0 million for the quarter and nine months ended
September 30, 1997, compared to $29.4 million and $94.8 million,
respectively, for the corresponding periods in 1996. Research
and development revenue from TDC was $18.5 million for the
quarter and $67.8 million for the nine months ended September 30,
1997, and $22.4 million and $73.9 million, respectively, for the
corresponding periods in 1996. Crescendo commenced operations in
the third quarter of 1997, and revenues from Crescendo for the
quarter and nine months ended September 30, 1997 were $8.1
million. Research and development revenue from other clients
increased in the quarter and nine months ended September 30, 1997
compared to the same periods in 1996, reflecting an increase in
product development activities under agreements with client
companies. Included in research and development revenue for the
nine months ended September 30, 1996 were $2.1 million of non-
recurring charges related to a credit to TDC and to certain
uncollectible receivables.
Research and development expenses were $41.9 million for the
quarter and $116.5 million for the nine months ended September
30, 1997, compared to $31.7 million and $101.2 million for the
corresponding periods in 1996, reflecting the increased activity
for client companies, including TDC and Crescendo.
Therapeutic Discovery Corporation
On September 29, 1997, ALZA purchased all of the outstanding
shares of TDC Class A Common Stock for $100 million in cash. The
purchase resulted in a charge of $77 million to acquisition of in-
process research and development on ALZA's Statement of Income,
and the remaining $23 million of the purchase price was allocated
to a deferred tax asset arising from TDC's net operating loss
carryforward and capitalized research and development.
Crescendo Pharmaceuticals Corporation
On September 29, 1997, ALZA contributed $300 million in cash
to Crescendo. On September 30, 1997, shares Crescendo Shares
were distributed to holders of ALZA common stock and ALZA's
outstanding convertible subordinated debentures. ALZA recorded a
charge of $247 million, including expenses of $4 million,
interest expense of $8 million related to the distribution to
debenture holders and a dividend of $49 million to ALZA common
stockholders for the distribution of Crescendo Shares.
Under the Development Agreement between ALZA and Crescendo,
Crescendo will fund the development of human pharmaceutical
products proposed by ALZA and accepted by Crescendo. The Initial
Products (OROS-Registered Trademark- oxybutynin, DUROS-Trademark-
leuprolide, OROS-Registered Trademark- methylphenidate, IUTS
progesterone, D-TRANS-Trademark- testosterone matrix, E-TRANS-
Trademark- LHRH and E-TRANS-Trademark- insulin) from August 25,
1997, the date on which TDC ceased funding such products, through
October 31, 1997. ALZA recorded revenues of $8.1 million in the
third quarter of 1997 as reimbursement for the development costs
of the Initial Products through September 30, 1997.
<PAGE>
Continuation of development of the products after October 31,
1997, is subject to ALZA proposing and Crescendo's Board of
Directors accepting work plans and cost estimates for the
products (see Subsequent Events).
Under the Technology License Agreement between ALZA and
Crescendo, ALZA has granted to Crescendo a worldwide license to
use ALZA technology solely to select and develop Crescendo
products, and to conduct related activities, and to commercialize
such products. In exchange for the license to use existing ALZA
technology relating to the Initial Products, Crescendo will pay a
technology fee to ALZA, payable monthly over a period of three
years in the amount of
$1 million per month for the 12 months following the distribution
of Crescendo Shares, $667,000 per month for the following 12
months and $333,000 per month for the following 12 months. The
technology fee will no longer be payable at such time as fewer
than two of the Initial Products are being developed by Crescendo
and/or have been licensed by ALZA pursuant to the option, granted
to it by Crescendo, to license any or all Crescendo products.
ALZA recorded a technology fee from Crescendo of $1 million for
the quarter ended September 30, 1997.
ALZA has an option to acquire an exclusive, royalty-bearing
license to each product developed by Crescendo under the
Development Agreement. The option is exercisable on a product by
product, country by country basis. Also, under Crescendo's
Restated Certificate of Incorporation ALZA also has the right to
purchase all (but not less than all) of the Crescendo Shares.
Net Sales
Net sales were $36.5 million for the quarter and
$100.4 million for the nine months ended September 30, 1997, an
increase of 24% and 20%, respectively, compared to the
corresponding periods in 1996. The increases were due primarily
to sales of Mycelex-Registered Trademark- Troche, the U.S. rights
to which were acquired in July 1997, and higher sales of Ethyol-
Registered Trademark- compared with the same periods last year.
Net sales of Ethyol-Registered Trademark- for the quarter and the
nine months ended September 30, 1997 were $5.7 million and
$14.4 million, respectively, compared to $2.1 million and
$5.3 million for the same periods in 1996. Ethyol-Registered
Trademark- was launched in April 1996. Net sales of Mycelex-
Registered Trademark- Troche were $5.2 million for the third
quarter and the nine months ended September 30, 1997. Sales of
ALZA-marketed products increased to 39% and 29% of total net
sales for the quarter and nine months ended September 30, 1997,
respectively, from 19% in each of the corresponding periods in
1996. Net sales to client companies declined 5% for the third
quarter of 1997 compared with the third quarter of 1996, and
increased 4% for the nine months ended September 30, 1997
compared with the same period in 1996.
The timing and quantities of orders for products marketed by
client companies are not within ALZA's control. Net sales to
client companies, therefore, can be expected to fluctuate from
period to period, sometimes significantly, depending on the
volume, mix and timing of orders of products shipped to client
companies, and in some quarters, due to the shipment of launch
quantities of products to the clients. The timing and quantities
of orders for ALZA-marketed
<PAGE>
products may vary from quarter to quarter due to factors such as
demand for the products, ordering patterns of wholesalers,
introduction and sales of competing products.
Costs of products shipped increased to $22.0 million for the
quarter and $64.9 million for the nine months ended September 30,
1997, compared to $21.4 million and $67.0 million, respectively,
for the corresponding 1996 periods, reflecting the increase in
net sales. Costs of products shipped for the nine months ended
September 30, 1996 includes a $2.4 million non-recurring charge
related primarily to costs associated with a limited recall of
two lots of the Duragesic-Registered Trademark- product.
ALZA's gross margin (net sales less costs of products
shipped) as a percent of net sales increased to 40% for the
quarter and 35% for the nine months ended September 30, 1997,
compared to 27% and 23% for the quarter and nine months ended
September 30, 1996, respectively, excluding the non-recurring
charge described above. The increase was largely due to
increased sales of ALZA-marketed products and higher margins on
products shipped to client companies. ALZA expects its gross
margin on net sales to increase from historical rates over the
longer term, although quarter-to-quarter fluctuations, even
significant ones, can be expected to continue to occur for the
reasons discussed above. A trend of higher than historical gross
margins may ultimately be achieved through a proportionate
increase in the sales of ALZA-marketed products in relation to
sales of client-marketed products, increased utilization of
capacity, and greater operating efficiencies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
$11.0 million and $35.1 million for the third quarter and nine
months ended September 30, 1997, compared with $11.6 million and
$33.7 million for the corresponding periods in 1996. The decline
in selling, general and administrative expenses in the third
quarter of 1997 compared with the third quarter of 1996 was due
primarily to the higher cash surrender value of life insurance
policies, which reduced expenses, partially offset by higher
sales and marketing expenses resulting from the expansion of
ALZA's sales force in support of Ethyol-Registered Trademark- and
Mycelex-Registered Trademark- Troche. Sales and marketing
expenses are expected to increase, primarily due to growth in the
sales force resulting from the acquisition of new products and
the amortization of acquisition fees for those products.
Interest Expense and Income
Interest expense increased to $13.8 million for the quarter
and $41.3 million for the nine months ended September 30, 1997,
compared to $12.9 million and $30.3 million, respectively, for
the corresponding periods in 1996. The increase in the third
quarter of 1997 compared to the third quarter of 1996 was due
primarily to lower amounts of capitalized interest and higher
interest on the 5 1/4% Debentures in the 1997 quarter. The
interest expense associated with
<PAGE>
ALZA's 5% Debentures, which were issued in April 1996, also
contributed to the increase in interest expense for the nine
months ended September 30, 1997 compared with the same period in
1996.
Interest and other income increased to $17.8 million for the
quarter and $48.3 million for the nine months ended September 30,
1997, compared to $16.5 million and $35.0 million, respectively,
for the corresponding periods in 1996, primarily due to higher
average invested cash balances following ALZA's issuance of $500
million of 5% Debentures. Gains realized on sales of securities
were also included in interest and other income for the quarter
and nine month periods of 1997 and 1996. Interest and other
income is expected to be lower in future quarters as a result of
the reduction of cash and investment balances, as described under
Liquidity and Capital Resources below.
Effective Tax Rate
ALZA's 1997 effective combined federal and state income tax
rate is estimated to be 38% on income before the non-recurring
items. The non-recurring items recognized during the third
quarter of 1997 are generally not deductible for income tax
purposes. The effective tax rate for the year ended 1996 was
38%.
Subsequent Events
On October 20,1997, ALZA acquired the rights in the United
States to the Ditropan-Registered Trademark- (oxybutynin
chloride) product and trademark from Hoechst Marion Roussel, Inc.
("HMRI"). Under the terms of the agreement, ALZA made an upfront
payment to HMRI and will make additional payments if specified
sales levels of Ditropan-Registered Trademark- are achieved.
HMRI will manufacture and package the product for ALZA. ALZA
will have the right to market other products in the United States
under the Ditropan-Registered Trademark- tradename.
On October 21, 1997, the Board of Directors of Crescendo
approved, based upon ALZA's recommendation, work plans for the
continued development of six of the Initial Products. On ALZA's
recommendation, Crescendo determined not to fund additional
development of the
D-TRANS-Trademark- testosterone matrix product at this time.
On October 23, 1997, ALZA acquired the exclusive rights in
the United States and Canada to Elmiron-Registered Trademark-
(pentosan polysulfate sodium) and three additional urology
products, BiCitra-Registered Trademark-(sodium citrate and citric
acid), PolyCitra-Registered Trademark-(potassium citrate) and
Neutra-Phos-Registered Trademark-(potassium and sodium
phosphate), from Baker Norton Pharmaceuticals, Inc., and its
parent, IVAX Corporation (together, "IVAX"). Under the terms of
the agreement, ALZA paid a $75 million upfront fee to IVAX and
will pay additional fees if specified Elmiron-Registered
Trademark- sales levels are achieved during the next five years.
IVAX will manufacture and package the products for ALZA and will
receive payments from ALZA based on sales of the products. As
part of the product acquisition, ALZA hired the U.S. sales
representatives of IVAX, and effectively doubled the size of its
sales force.
<PAGE>
ALZA has entered into an agreement with the developers Peery
and Arrillaga to form a limited liability company for the
development of a 13-acre parcel in Mountain View, California.
ALZA's initial investment in the partnership is $36 million,
which will be paid in November 1997. These funds will be applied
to the construction of buildings, which the limited liability
company will lease to ALZA. ALZA has also entered into a lease
of an adjacent seven acre parcel on which it plans to construct a
pilot plant, laboratories and other technical facilities. The
lease includes an option for ALZA to purchase the property and
for Peery and Arrillaga to sell the property to ALZA. On October
28, 1997, the Mountain View City Council approved construction
plans for the site.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter of 1997, ALZA paid $100 million in
cash for the purchase of all of the shares of TDC Class A Common
Stock, and contributed $300 million in cash to Crescendo, the
Class A Common Stock of which was distributed to ALZA security
holders. Also during the quarter, ALZA paid Bayer a $50 million
upfront fee for the United States rights to Mycelex-Registered
Trademark- Troche and made a $10 million payment to U.S.
Bioscience, Inc. related to Ethyol-Registered Trademark-, in
accordance with an agreement between the companies covering that
product. In October 1997, ALZA made an upfront payment of $75
million to IVAX for the United States and Canadian rights to
Elmiron-Registered Trademark- and three additional urology
products, and paid $10 million to Alkermes under the agreement
related to RMP-7. Cash was provided for these transactions from
the sales and maturities of short- and long-term investments, as
well as from cash and cash equivalents.
ALZA's capital spending for the nine months ended September
30, 1997 was $23.6 million for additions to property, plant and
equipment to support its expanding research, development and
manufacturing activities, compared to capital spending of $32.1
million in the same period of 1996. While ALZA believes its
current facilities and equipment are sufficient to meet its
current operating requirements, ALZA is expanding its facilities
and equipment to support its medium-term and long-term
requirements.
ALZA believes that its existing cash and investment balances
are adequate to fund its cash needs for 1997 and beyond. In
addition, should the need arise, ALZA believes it would be able
to borrow additional funds or otherwise raise additional capital.
ALZA may consider using its capital to make strategic investments
or to acquire or license technology or products. ALZA may also
enter into strategic alliances with third parties which could
provide additional funding for research and product development
and support for product marketing and sales.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Product liability suits have been filed against ALZA from
time to time relating to products manufactured or marketed by
ALZA, including several suits against ALZA and Janssen relating
to the Duragesic-Registered Trademark- product, which is
manufactured by ALZA and marketed by Janssen. Janssen is
managing the defense of these suits in consultation with ALZA
under an agreement between the parties. In the ordinary course
of business, ALZA is also a defendant in suits brought by
individuals relating to their employment with ALZA or the
termination of such employment.
Historically, the cost of resolution of liability (including
product liability) claims has not been significant, and ALZA does
not believe that the resolution of any asserted claims pending
against it, including the suits mentioned above, or of any
unasserted claims of which it is aware, would have a material
adverse impact on the operations or financial position of ALZA.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Restated Certificate of Incorporation of Crescendo, as
corrected
10.2 Technology License Agreement between ALZA and Crescendo
10.3 Development Agreement between ALZA and Crescendo
10.4 License Option Agreement between ALZA and Crescendo
10.5 Amended and Restated Stock Plan
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter
On October 6, 1997, ALZA filed a Form 8-K to report the
special distribution of shares of Crescendo Pharmaceuticals
Corporation on September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ALZA CORPORATION
Date: November 6, 1997 By: /s/ E. Mario
Dr. Ernest Mario
Chief Executive Officer
Date: November 6, 1997 By: /s/ Bruce C. Cozadd
Bruce C. Cozadd
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 10.1
RESTATED CERTIFICATE OF INCORPORATION OF
CRESCENDO PHARMACEUTICALS CORPORATION
(Originally incorporated under the same name on June 26, 1997)
FIRST: Name. The name of this corporation is
Crescendo Pharmaceuticals Corporation (the "corporation").
SECOND: Registered Office; Registered Agent. The
address of the registered office of this corporation in the
State of Delaware is 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of the
registered agent of this corporation at such address is
Corporation Service Company.
THIRD: Purpose. The purpose of this corporation is to
engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: Authorized Capital Stock.
(A) This corporation is authorized to issue two
classes of shares, which shall be known as Class A Common
Stock ("Class A Common Stock") and Class B Common Stock
("Class B Common Stock"). The total number of shares of
stock of all classes that this corporation is authorized to
issue is 6,001,000. The total number of shares of Class A
Common Stock which this corporation is authorized to issue
is 6,000,000. The total number of shares of Class B Common
Stock which this corporation is authorized to issue is
1,000. Each share of Class A Common Stock shall have a par
value of $0.01, and each share of Class B Common Stock shall
have a par value of $1.00.
Effective immediately upon the filing of this Restated
Certificate of Incorporation, each share of Common Stock,
par value $1.00 per share, of this corporation outstanding
immediately prior to such filing shall be converted into and
reclassified as ten shares of Class B Common Stock.
(B) The powers, designations, preferences, and
relative, participating, optional or other special rights
granted to, and the qualifications, limitations and
restrictions imposed upon, the Class A Common Stock and
Class B Common Stock and the respective holders thereof are
as follows:
(1) Redemption. The shares of Class A Common
Stock are redeemable and may be redeemed as provided in (but
only as provided in) Article FIFTH, Section (F).
(2) Dividends. The holders of shares of Class A
Common Stock and Class B Common Stock shall be entitled to
receive per share and without preference such dividends as
may be declared by the Board of Directors from time to time
out of funds legally available therefor. No dividend may be
declared on the Class A Common Stock unless the same per
share dividend is declared on the Class B Common Stock, and
no dividend may be declared on the Class B Common Stock
unless the same per share dividend is declared on the Class
A Common Stock. Dividends may not be declared, nor may
shares of Class A Common Stock or Class B Common Stock be
repurchased, or redeemed (other than pursuant to Section (F)
of Article FIFTH), if, after payment of such dividend, or
after effecting such repurchase or redemption, the amount of
this corporation's cash, cash equivalents, short-term and
long-term investments would be less than the amount of
Available Funds remaining after expenditures pursuant to the
Development Agreement, as of the date of such dividend,
repurchase or redemption.
(3) Liquidation. In the event of voluntary or
involuntary liquidation of this corporation, the holders of
the Class A Common Stock and Class B Common Stock of the
corporation shall be entitled to receive, on a pro rata per
share basis and without preference, all of the remaining
assets of this corporation available for distribution to its
stockholders.
(4) Voting Rights. Except as otherwise required
by law or provided herein, the holders of Class A Common
Stock and Class B Common Stock shall vote together as a
single class. Each holder of Class A Common Stock and Class
B Common Stock shall have one vote for each share standing
in his or her name on all matters submitted to a vote of
holders of the common shares. At any meeting of the
stockholders of this corporation, the determination of a
quorum shall be based upon the presence of shares of Class A
Common Stock and Class B Common Stock representing a
majority of the voting power of all of the shares of Class A
Common Stock and Class B Common Stock. This corporation
shall not, without the affirmative vote of the holders of a
majority of the issued and outstanding shares of Class B
Common Stock, voting separately and as a class, (a) alter or
change the powers, designations, preferences and relative,
participating, optional or other special rights granted to,
or the qualifications, limitations and restrictions imposed
upon, the Class A Common Stock or the Class B Common Stock,
(b) alter or change this Article FOURTH or any of Articles
FIFTH, SIXTH or SEVENTH of this Restated Certificate of
Incorporation, or otherwise make any amendment to this
Restated Certificate of Incorporation that would alter the
rights of the holders of the Class B Common Stock, (c)
authorize the creation or issuance of any additional class
or series of stock, (d) undertake the voluntary dissolution,
liquidation or winding up of this corporation, (e) merge or
consolidate this corporation with or into any other
corporation or entity, (f) sell, lease, exchange, transfer
or otherwise dispose of any substantial asset of this
corporation or (g) alter the bylaws of this corporation in a
manner described in the last sentence of Article EIGHTH.
Furthermore, from and after the Purchase Option Exercise
Date, as defined in Article FIFTH, (i) the Board of
Directors of this corporation shall cease to be classified
and the holders of the Class B Common Stock shall be
entitled to remove directors with or without cause; (ii) the
number of directors of this corporation shall be increased
to a number equal to (a) two times the maximum number of
directors then authorized pursuant to Article SEVENTH,
Section (A) (counting for this purpose both directors in
office and vacant directorships), plus (b) one; and (iii)
the holders of the Class B Common Stock shall
have the sole right to elect the directors of this
corporation, including directors to fill the new
directorships created pursuant to clause (ii). No new
directorships created as a result of the increase in the
size of the Board of Directors pursuant to the preceding
sentence shall be filled other than by the holders of the
Class B Common Stock. From and after the Purchase Option
Exercise Date all directors shall be elected to one year
terms; provided, however, that the term of any director then
in office shall not be reduced.
(5) Conversion. The Class B Common Stock shall
automatically convert into fully paid and nonassessable
shares of Class A Common Stock of this corporation at 12:01
a.m. New York time on the day immediately following the
expiration of the Purchase Option without exercise granted
in Article FIFTH. The Class B Common Stock shall convert
into Class A Common Stock at the rate of one share of Class
A Common Stock for each share of Class B Common Stock.
FIFTH: Purchase Option.
(A) Definitions. For purposes of this Restated
Certificate of Incorporation, the following terms shall have
the following definitions:
(1) ALZA means ALZA Corporation and its
successors, or assigns of the Purchase Option.
(2) ALZA Common Stock means the Common Stock of
ALZA or, if such Common Stock is converted into or exchanged
for another class or series of stock of ALZA or any other
corporation, such other class or series of stock.
(3) Available Funds means, as of any date of
determination, $300 million (contributed by ALZA on or about
September 30, 1997), plus any investment income earned
thereon, less (i) this corporation's reasonable ongoing
administrative expenses, (ii) the Technology Fee and (iii)
reserves of up to $2 million as determined in good faith by
the Board of Directors.
(4) Crescendo Product means an Identified
Product, or another human pharmaceutical product which has
been recommended by ALZA and accepted by the Board of
Directors of this corporation for development as such under
the Development Agreement.
(5) Developed Technology means any technology
generated or otherwise obtained pursuant to the Development
Agreement.
(6) Developed Technology Product means any
product other than a Crescendo Product (i) covered, at the
time of sale in a country, by one or more unexpired patents
issued in such country that are included in Developed
Technology and (ii) with respect to which ALZA receives any
consideration.
(7) Developed Technology Royalties means the
payments made by ALZA to this corporation with respect to
sales of Developed Technology Products.
(8) Development Agreement means the Development
Agreement between ALZA and this corporation, dated as of
September 5, 1997, as such agreement may be amended or
modified from time to time by amendments approved by ALZA
and the Board of Directors of this corporation.
(9) Fair Market Value means, with reference to
ALZA Common Stock, (a) if ALZA Common Stock is listed on the
New York Stock Exchange or any other securities exchange
reporting closing sales prices (including without limitation
the Nasdaq National Market), the average of the closing
sales price of ALZA Common Stock on such exchange (which
shall be the New York Stock Exchange or, if ALZA Common
Stock is not then traded on such exchange, on the principal
exchange on which ALZA Common Stock is then traded), for the
twenty trading days ending with the trading day that is two
trading days prior to the date of determination, (b) if ALZA
Common Stock is not listed on any securities exchange
described in clause (a) but is quoted on Nasdaq or another
quotation system providing bid prices, the average (over the
twenty day period described in clause (a)) of the bid prices
for each day in such period on Nasdaq (or, if ALZA Common
Stock is not then quoted on Nasdaq, the largest quotation
system on which ALZA Common Stock is then quoted), and (c)
if ALZA Common Stock is not listed on any exchange or quoted
on any quotation system, the value thereof as determined in
good faith by ALZA's board of directors.
(10) Final Purchase Option Exercise Price means
the Purchase Option Exercise Price minus (a) the amount by
which this corporation's Liabilities existing at the
Purchase Option Exercise Date (other than liabilities under
the Development Agreement, Services Agreement and Technology
License Agreement) exceed the aggregate of this
corporation's then existing cash, cash equivalents and short
term and long-term investments (but excluding from such
cash, cash equivalents and short-term and long-term
investments the amount of Available Funds determined as of
the Purchase Option Exercise Date which had not, as of such
date, been paid by this corporation in accordance with the
Development Agreement) and minus (b), if the Purchase Option
Exercise Price was determined based upon the provisions of
clause (c) of Section (A)(19) of this Article FIFTH, any
additional amounts not already included in the calculation
set forth in Article FIFTH, Section (A)(18) that are paid by
(or due from) this corporation under the Development
Agreement from the date of the last report of such
expenditures provided by this corporation to ALZA in a
Status Statement through the Purchase Option Exercise Date
pursuant to the Development Agreement.
(11) Identified Products means the following
products: OROSr oxybutynin, DUROST leuprolide, OROSr
methylphenidate, IUTS progesterone, D-TRANST testosterone
matrix, E-TRANST LHRH and E-TRANST (skin interface
technology) insulin.
(12) Liabilities means, with respect to this
corporation, (a) all liabilities required to be reflected or
reserved against in this corporation's financial statements
under generally accepted accounting principles consistently
applied ("GAAP"), (b) any guaranty of any indebtedness of
another person and (c) any reimbursement or similar
obligation with respect to any letter of credit issued for
the account of this corporation or as to which this
corporation is otherwise liable. Liabilities of the type
described in (b) and (c) shall be valued at the full amount
of the potential liability of the corporation thereon.
(13) License Agreement means any License Agreement
between ALZA and this corporation entered into upon the
exercise by ALZA of the license option granted to it
pursuant to the License Option Agreement, as any such
agreement may be amended or modified from time to time by
amendments approved by ALZA and the Board of Directors of
this corporation.
(14) License Option Agreement means the License
Option Agreement between ALZA and this corporation dated as
of September 5, 1997, as such agreement may be amended or
modified from time to time by amendments approved by ALZA
and the Board of Directors of this corporation.
(15) Licensed Product means a Crescendo Product as
to which the license option under the License Option
Agreement has been exercised by ALZA.
(16) Product Payments means payments made by ALZA
to this corporation under a License Agreement with respect
to Licensed Products.
(17) Purchase Option Exercise Date means the date
upon which ALZA notifies this corporation in writing of its
exercise of the Purchase Option as provided in Section (C)
of this Article FIFTH.
(18) Purchase Option Exercise Price means the
greatest of the following:
(a) (i) 25 times the actual worldwide
Product Payments, Developed Technology Royalties and
Technical Evaluation Product Payments made by or due from
ALZA to this corporation with respect to all Licensed
Products, Developed Technology Products and Technical
Evaluation Products (and, in addition, such Product
Payments, Developed Technology Royalties and Technical
Evaluation Product Payments as would have been made by or
due from ALZA to this corporation if ALZA had not previously
exercised its payment buy-out option with respect to any
such Licensed Product, Developed Technology Product or
Technical Evaluation Product) for the four calendar quarters
immediately preceding the quarter in which the Purchase
Option is exercised (provided, however, that for any
Licensed Product, Developed Technology Product or Technical
Evaluation Product which has not been commercially sold
during each of the four calendar quarters immediately
preceding the quarter in which the Purchase Option is
exercised, the portion of the Purchase Option Exercise Price
for such Licensed Product, Developed Technology Product or
Technical Evaluation Product will be 100 times the average
of the quarterly Product Payments, Developed Technology
Royalties or Technical Evaluation Product Payments made by
or due from ALZA to this corporation for each of such
calendar quarters during which such product was commercially
sold) less (ii) any amounts previously paid to exercise any
payment buy-out option for any Licensed Product, Developed
Technology Product or Technical Evaluation Product pursuant
to a License Agreement or the Development Agreement.
(b) the Fair Market Value of one million
shares of ALZA Common Stock (which number of shares shall be
proportionately adjusted for any stock dividend, splitup,
combination or reclassification of the ALZA Common Stock)
determined as of the Purchase Option Exercise Date;
(c) $325 million less the total amount paid
by or due from this corporation under the Development
Agreement as last reported by this corporation to ALZA in a
Status Statement through the Purchase Option Exercise Date;
and (d) $100 million.
(19) Purchase Option Expiration Time means 11:59
p.m. New York time on January 31, 2002; provided that such
date will be extended for successive six month periods if,
as of any July 31 or January 31 beginning with July 31,
2001, this corporation has not paid (or accrued expenses
for) at least 95% of all Available Funds pursuant to the
Development Agreement. Notwithstanding the foregoing
sentence, the Purchase Option Expiration Time will in no
event occur later than 11:59 p.m. New York time on the 60th
day after this corporation provides ALZA with a statement
that, as of the end of any calendar month, there are less
than $2.5 million of Available Funds remaining after
expenditures pursuant to the Development Agreement,
accompanied by a report of this corporation's independent
auditors stating that nothing has come to their attention
indicating that there are $2.5 million or more of Available
Funds remaining at that date.
(20) Services Agreement means the Services
Agreement between ALZA and this corporation, dated as of
September 5, 1997, as such agreement may be amended or
modified from time by amendments approved by ALZA and the
Board of Directors of this corporation.
(21) Status Statement means, as of any date, a
balance sheet prepared by the Company and delivered to ALZA
dated as of such date, together with (a) a statement and
brief description of all other liabilities of this
corporation constituting Total Liabilities as of such date
not reflected on such balance sheet, (b) a statement of the
amount of Available Funds remaining as of such date, and (c)
a statement of the total amounts paid by and due from this
corporation pursuant to the Development Agreement through
such date.
(22) Technical Evaluation means limited technical
evaluation involving a proprietary therapeutic agent of a
third party undertaken in order to determine the suitability
of such therapeutic agent in an ALZA drug delivery system or
to induce the third party to license the therapeutic agent
to ALZA or this corporation or otherwise collaborate with
ALZA and this corporation in the development of a product.
(23) Technical Evaluation Product means a product,
other than one which becomes a Crescendo Product, for which
this corporation funds a Technical Evaluation.
(24) Technical Evaluation Product Payments means
the payments made by ALZA to this corporation with respect
to sales of Technical Evaluation Products.
(25) Technology Fee means the payments to be made
over a maximum period of three years by this corporation to
ALZA in exchange for ALZA granting this corporation a
license to use certain technology relating to the Identified
Products.
(26) Technology License Agreement means the
Technology License Agreement between ALZA and this
corporation , dated as of September 5, 1997, as such
agreement may be amended or modified from time to time by
amendments approved by ALZA and the Board of Directors of
this corporation.
(27) Total Liabilities means (a) all Liabilities,
plus (b) any other debts, liabilities or obligations,
absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown,
whenever arising, including all costs and expenses relating
thereto, and including those debts, liabilities and
obligations arising under any law, rule or regulation, or
under any pending or threatened action, suit or proceeding,
or any order or consent decree of any governmental entity or
any award of any arbitrator of any kind, and those arising
under any contract, commitment or undertaking.
(B) Grant of Option. ALZA is hereby granted an
exclusive irrevocable purchase option to purchase all issued
and outstanding shares of Class A Common Stock of this
corporation for the Final Purchase Option Exercise Price
(the "Purchase Option"). The Purchase Option, if exercised,
must be exercised as to all, but not less than all, issued
and outstanding shares of Class A Common Stock and may be
exercised at any time at or
prior to the Purchase Option Expiration Time. ALZA shall
elect, at the time of exercise of the Purchase Option, to
pay all or any portion of the Final Purchase Option Exercise
Price in cash, ALZA Common Stock (valued at its Fair Market
Value determined as of the Purchase Option Exercise Date),
or any combination thereof. The Purchase Option, together
with the other rights of ALZA under this Article FIFTH and
Article SIXTH, may, at ALZA's option, be assigned or
otherwise transferred to any person or entity, including
this corporation.
(C) Manner of Exercise. The Purchase Option shall be
exercised, if at all, at or before the Purchase Option
Expiration Time by written notice (the "Exercise Notice")
from ALZA to this corporation stating that the Purchase
Option is being exercised and setting forth (1) the Purchase
Option Exercise Price; (2) the portion, if any, of the Final
Purchase Option Exercise Price to be paid in cash and the
portion, if any, of the Final Purchase Option Exercise Price
to be paid in ALZA Common Stock, and if any portion of the
Final Purchase Option Exercise Price is to be paid in ALZA
Common Stock, stating the Fair Market Value of such ALZA
Common Stock determined as of the Purchase Option Exercise
Date; and (3) a closing date (the "Closing Date") on which
all of the issued and outstanding shares of Class A Common
Stock will be purchased. The Purchase Option shall be
deemed to be exercised as of the date of mailing by first
class mail of the Exercise Notice to this corporation at its
principal offices.
(D) Closing.
(1) Closing Date; Cooperation. Except as set
forth below, the Closing Date shall be the date specified as
such in the Exercise Notice, which date specified shall be
no later than 60 days after the Purchase Option Exercise
Date. The Closing Date may be extended by ALZA if, in the
judgment of ALZA, an extension of the Closing Date is
necessary to obtain any governmental or third party consent
to the purchase of the Class A Common Stock, to permit any
necessary registration statement or similar filing to be
declared effective, or to permit the expiration prior to the
Closing Date of any statutory or regulatory waiting period.
ALZA may extend the Closing Date for the reasons set forth
in the preceding sentence by delivering written notice of
such extension to this corporation on or prior to the
previously specified Closing Date. This corporation shall
cooperate with ALZA to effect the closing of the Purchase
Option, including without limitation seeking any required
third-party or governmental consents, and filing any
applications, notifications, registration statements or the
like which may be necessary to effect the closing.
(2) Certain Restrictions Following Purchase
Option Exercise Date. From the Purchase Option Exercise
Date until the Closing Date, this corporation will not take
any of the following actions (or permit any such actions to
be taken on its behalf) e
xcept with the prior written consent of ALZA:
(a) borrow money, or mortgage, remortgage,
pledge, hypothecate or otherwise encumber any of its assets;
(b) sell, lease, lend, exchange or otherwise
dispose of any of its assets, other than sales of inventory
in the ordinary course of business;
(c) pay or declare any dividends or make any
distributions on or in respect of any shares of its capital
stock;
(d) default in its obligations under any
material contract, agreement, commitment or undertaking of
any kind or enter into any material contract, agreement,
purchase order or other commitment; or
(e) enter into any other transaction or
agreement or arrangement, or incur any liabilities, not in
the ordinary course of this corporation's business.
(3) Determination of Final Purchase Option
Exercise Price. Not later than 15 business days following
the Purchase Option Exercise Date, this corporation shall
deliver a final Status Statement to ALZA prepared as of the
Purchase Option Exercise Date. Following receipt of such
Status Statement and completion of any other investigation
as ALZA shall deem necessary or appropriate, and prior to
the Closing Date, ALZA shall determine the Final Purchase
Option Exercise Price by making the adjustments to the
Purchase Option Exercise Price contemplated by Section
(A)(10) of this Article FIFTH and shall notify this
corporation of such determination.
(4) Payment of Final Purchase Option Exercise
Price. On or before the Closing Date, ALZA shall deposit the
full amount of the Final Purchase Option Exercise Price with
a bank or banks or similar entities designated by ALZA
(which may include ALZA's transfer agent if shares of ALZA
Common Stock are being delivered) to pay, on ALZA's behalf,
the Final Purchase Option Exercise Price (the "Payment
Agent"). Funds, if any, and ALZA Common Stock, if any,
deposited with the Payment Agent shall be delivered in trust
for the benefit of the holders of Class A Common Stock, and
ALZA shall provide the Payment Agent with irrevocable
instructions to pay, on or after the Closing Date, the Final
Purchase Option Exercise Price for the shares of Class A
Common Stock to the holders of record thereof determined as
of the Closing Date. Payment for shares of Class A Common
Stock shall be mailed to each holder at the address set
forth in this corporation's records or at the address
provided by each holder or, if no address is set forth in
this corporation's records for a holder or provided by such
holder, to such holder at the address of this corporation.
As soon as practicable upon ALZA's request, this corporation
shall provide, or shall cause its transfer agent to provide,
to ALZA or to the Payment Agent, free of charge, a complete
list of the record holders of shares of Class A Common
Stock, as of a specified date, including the number of
shares of Class A Common Stock held of record and the
address of each record holder as set forth in the records of
this corporation's transfer agent.
(E) Transfer of Title. Transfer of title to all of
the issued and outstanding shares of Class A Common Stock
shall be deemed to occur automatically on the Closing Date
and thereafter this corporation shall be entitled to treat
ALZA as the sole holder of all of the issued and outstanding
shares of its Class A Common Stock, notwithstanding the
failure of any holder of Class A Common Stock to tender the
certificates representing such shares to the Payment Agent,
whether or not such tender is required or requested by the
Payment Agent. This corporation shall instruct its transfer
agent not to accept any shares of Class A Common Stock for
transfer on and after the Closing Date. This corporation
shall take all actions reasonably requested by ALZA to
assist in effectuating the transfer of shares of Class A
Common Stock in accordance with this Article FIFTH.
(F) Redemption of Class A Common Stock. At ALZA's
election (which election may be made at any time, provided
it is made, by delivery of written notice thereof to this
corporation, not less than five days prior to the Closing
Date), this corporation shall, subject to applicable
restrictions in the Delaware General Corporation Law, redeem
on the Closing Date all issued and outstanding shares of
Class A Common Stock for an aggregate redemption price equal
to the Final Purchase Option Exercise Price. Such
redemption shall be in lieu of ALZA paying the Final
Purchase Option Exercise Price directly to the stockholders
of this corporation, and shall be subject to ALZA providing
the Final Purchase Option Exercise Price to this corporation
to allow this corporation to pay the redemption price.
SIXTH: Protective Provisions.
(A) Legend. Certificates evidencing shares of Class A
Common Stock issued by or on behalf of this corporation
shall bear a legend in substantially the following form:
"The shares of Crescendo Pharmaceuticals Corporation
evidenced hereby are subject to an option in favor of ALZA
Corporation, its successors and assigns, as described in the
Restated Certificate of Incorporation of Crescendo
Pharmaceuticals Corporation to purchase such shares at a
purchase price determined in accordance with Article FIFTH
thereof exercisable by notice delivered to this corporation
at or prior to the Purchase Option Expiration Time (as
defined in the Restated Certificate of Incorporation of
Crescendo Pharmaceuticals Corporation). Copies of the
Restated Certificate of Incorporation of Crescendo
Pharmaceuticals Corporation are available at the principal
place of business of Crescendo Pharmaceuticals Corporation
at 1454 Page Mill Road, Palo Alto, California 94304 and will
be furnished to any stockholder on request and without
cost."
(B) No Conflicting Action. This corporation shall not
take, nor permit any other person or entity within its
control to take, any action inconsistent with ALZA's rights
under Article FIFTH. This corporation shall not enter into
any arrangement, agreement or understanding, whether oral or
in writing, that is inconsistent with or limits or impairs
the rights of ALZA and the obligations of this corporation
hereunder, including without limitation any arrangement,
agreement or understanding which imposes any obligation upon
this corporation, or deprives this corporation of any
material rights, as a consequence of the exercise of the
Purchase Option or the acquisition of the outstanding Class
A Common Stock pursuant thereto.
(C) Inspection and Visitation Rights; Status
Statements. ALZA shall have the right to inspect and copy,
on reasonable notice and during regular business hours, the
books and records of this corporation. ALZA shall also have
the right to request from time to time (but not more
frequently than monthly) a Status Statement as of such date
as ALZA may request. Each Status Statement shall be sent
within seven days of request by ALZA. ALZA shall also have
the right to send a non-voting representative to attend all
meetings of this corporation's Board of Directors and any
committees thereof. Any representative, if designated in
writing by ALZA as such, shall receive notice of all
meetings of this corporation's Board of Directors and each
committee thereof, as well as copies of all documents and
other materials provided to any directors of this
corporation in connection with any such meeting not later
than the time such materials are provided to other
directors. Such representative shall also be provided with
copies of all resolutions adopted or proposed to be adopted
by unanimous written consent not later than the time such
resolutions are provided to other directors.
SEVENTH: Board of Directors.
(A) The number of directors which shall constitute the
whole Board of Directors of this corporation shall initially
be three, but may be increased or decreased from time to
time by a resolution duly adopted by the Board of Directors
and shall be automatically increased as provided in Article
FOURTH, Section (B)(4).
(B) Nomination of candidates for election to the Board
of Directors shall be made as provided in the bylaws of this
corporation. Election of directors need not be by written
ballot.
(C) Subject to Article FOURTH, Section (B)(4), the
Board of Directors shall be and is divided into three
classes: Class I, Class II and Class III. Each director
shall serve for a term ending on the date of the third
annual meeting of stockholders following the annual meeting
at which the director was elected; provided, however, that
each initial director in Class I shall hold office until the
annual meeting of stockholders in 1998; each initial
director in Class II shall hold office until the annual
meeting of stockholders in 1999; and each initial director
in Class III shall hold office until the annual meeting of
stockholders in 2000. Notwithstanding the foregoing
provisions of this Article SEVENTH, each director shall
serve, until his or her successor is duly elected and
qualified or until his or her death, resignation,
disqualification or removal.
(D) In the event of any increase or decrease in the
authorized number of directors, the newly created or
eliminated directorships resulting from such increase or
decrease shall be apportioned by the Board of Directors
among the three classes of directors. No decrease in the
number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
(E) Except as otherwise provided in Article FOURTH,
Section (B)(4), or as required by law, newly created
directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal
or other cause shall be filled by the affirmative vote of a
majority of the remaining directors then in office (and not
by stockholders), even though less than a quorum of the
Board of Directors. Any director elected in accordance with
the preceding sentence shall hold office for the remainder
of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until
such director's successor shall have been elected and
qualified.
(F) The name and mailing address of each person who is
to serve as a director until the annual meeting of the
stockholders entitled to vote for the class or until a
successor is elected or appointed and qualified are as
follows:
NAME MAILING ADDRESS CLASS
James Butler 950 Page Mill Road I
Palo Alto, CA 94304
Dr. Samuel R. Saks 950 Page Mill Road II
Palo Alto, CA 94304
Dr. James W. Young 950 Page Mill Road III
Palo Alto, CA 94304
EIGHTH: Bylaws. In furtherance and not in limitation
of the powers conferred by statute, and subject to the next
sentence, the Board of Directors and the stockholders of
this corporation are each expressly authorized to adopt,
amend or repeal the bylaws of this corporation subject to
any particular provisions concerning amendments set forth in
this Restated Certificate of Incorporation or the bylaws of
this corporation. No amendment to the bylaws may be adopted
by the stockholders without the approval of holders of a
majority of the Class B Common Stock voting separately as a
class if such amendment would affect the classification of
the Board of Directors, or would otherwise regulate the
conduct of the Board's affairs or the manner in which it may
act.
NINTH: Stockholder Meetings.
(A) Special Meetings. Special meetings of the
stockholders for any purpose or purposes whatsoever may be
called at any time only by the Board of Directors, the
Chairman of the Board or the President of this corporation.
(B) No Action Without Meeting. At any time when
this corporation has more than one stockholder of any class
of capital stock, no action required to be taken or which
may be taken at any annual or special meeting of the
stockholders may be taken without a meeting, and the power
of stockholders to consent in writing, without a meeting, to
the taking of any action is specifically denied.
Notwithstanding the foregoing, the holder or holders of the
Class B Common Stock may take any action permitted to be
taken by such holders as a class by written consent without
a meeting.
TENTH: Limitation of Liability and Indemnification of
Directors.
(A) Elimination of Certain Liability of
Directors. No director of this corporation shall be
personally liable to this corporation or its stockholders
for monetary damages for breach of fiduciary duty as a
director except, to the extent provided by applicable law,
for liability (i) for any breach of the director's duty of
loyalty to this corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of
this Article TENTH shall apply to or have any effect on the
liability or alleged liability of any director of this
corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment.
(B) Indemnification and Insurance.
1. Right to Indemnification. Each person who was
or is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a
"proceeding"), because he or she, or a person of whom he or
she is the legal representative, is or was a director or
officer of this corporation or is or was serving at the
request of this corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint
venture, trust or other enterprise (including service with
respect to employee benefit plans), whether the basis of the
proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by this
corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to
the extent that such amendment permits this corporation to
provide broader indemnification rights than that law
permitted this corporation to provide before such
amendment), against all expense, liability and loss
(including attorneys' fees, judgments, penalties, fines,
Employee Retirement Income Security Act of 1974 excise taxes
or penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection
therewith; provided, however, that this corporation shall
indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by
such person only if the proceeding (or part thereof) was
authorized by the Board of Directors of this corporation.
Such indemnification shall continue as to a person who has
ceased to be a director or officer of this corporation and
shall inure to the benefit of his or her heirs, executors
and administrators. The right to indemnification conferred
by this Section shall be a contract right which may not be
retroactively amended and shall include the right to be paid
by this corporation the expenses incurred in defending any
such proceeding in advance of its final disposition;
provided, however, that the payment of such expenses
incurred by a director or officer in his or her capacity as
a director or officer (and not in any other capacity in
which service was or is rendered by such person while a
director or officer, including, without limitation, service
with respect to an employee benefit plan) in advance of the
final disposition of the proceeding shall be made only upon
delivery to this corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so
advanced if ultimately it shall be determined that such
director or officer is not entitled to be indemnified under
this Section or otherwise. This corporation may, by action
of its Board of Directors, provide indemnification to
employees and agents of this corporation with the same scope
and effect as the indemnification of directors and officers.
2. Right of Claimant to Bring Suit. If a claim
under Paragraph 1 of this Section is not paid in full by
this corporation within ninety (90) days after a written
claim has been received by this corporation, the claimant
may at any time thereafter bring suit against this
corporation to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been
tendered to this corporation) that the claimant has not met
the standards of conduct which make it permissible under the
Delaware General Corporation Law for this corporation to
indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on this corporation.
Neither the failure of this corporation (including its Board
of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the
commencement of such action that indemnification of the
claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual
determination by this corporation (including its Board of
Directors, independent legal counsel, or its stockholders)
that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable
standard of conduct.
3. Nonexclusivity of Rights. The right to
indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition
conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire
under any statute, provision of this Restated Certificate of
Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
4. Insurance. This corporation may maintain
insurance, at its expense, to protect itself and any
director, officer, employee or agent of this corporation or
another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or
loss, whether or not this corporation would have the power
to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law. IN WITNESS
WHEREOF, the undersigned officer has executed this Restated
Certificate of Incorporation on September 4, 1997 and does
hereby certify that this Restated Certificate of
Incorporation, which restates and integrates, and also
further amends, the provisions of this corporation's
Certificate of Incorporation, was duly adopted by the
stockholders of this corporation in accordance with Sections
242 and 245 of the Delaware General Corporation Law.
CRESCENDO PHARMACEUTICALS CORPORATION
By: /s/Dr. James W. Young
_____________________
Dr. James W. Young
President and
Chief Executive Officer
Exhibit 10.2
TECHNOLOGY LICENSE AGREEMENT
This Technology License Agreement (this "Agreement") is
made as of the 5th day of September, 1997 between ALZA
Corporation, a Delaware corporation ("ALZA"), and Crescendo
Pharmaceuticals Corporation, a Delaware corporation
("Crescendo").
BACKGROUND
A. Crescendo has been formed for the purpose of
selecting and developing human pharmaceutical products,
including products using ALZA Technology (as defined
herein), and commercializing such products, most likely
through licensing to ALZA.
B. ALZA and Crescendo have entered into the
Development Agreement (as defined herein) for the selection
and development of such products and related activities.
C. ALZA is willing to grant to Crescendo a license to
use ALZA Technology solely for the purposes set forth above
on the terms set forth herein and in the Development
Agreement and the License Option Agreement (as defined
herein).
Now, therefore, the parties agree as follows:
1. Definitions.
For the purposes of this Agreement, the following
terms shall have the meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any
other entity that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under
common control with, the designated party. "Control" shall
mean ownership of at least 50% of the shares of stock
entitled to vote for the election of directors in the case
of a corporation, and at least 50% of the interests in
profits in the case of a business entity other than a
corporation.
1.2 "ALZA Technology" shall mean all Proprietary
Rights, whether patented or unpatented, owned by, licensed
to or controlled by ALZA, as of the date of this Agreement
or during the term of the Development Agreement, including
the Developed Technology and the Identified Product
Technology.
1.3 "Crescendo Product" shall mean an Identified
Product, or another human pharmaceutical product which has
been recommended by ALZA and accepted by Crescendo's
independent Board of Directors for development as such under
the Development Agreement.
1.4 "Developed Technology" shall mean Proprietary
Rights that (a) are first generated, conceived or reduced to
practice, as the case may be, by ALZA or by any third party
in the course of performing activities undertaken pursuant
to the Development Agreement or (b) are, in any manner,
acquired by, or otherwise obtained on behalf of, Crescendo
during the term of the Development Agreement from persons
other than ALZA and are necessary or useful to the
selection, development or commercialization of Crescendo
Products or Technical Evaluation Products.
1.5 "Development Agreement" shall mean the
Development Agreement dated as of the date hereof between
ALZA and Crescendo.
1.6 "Distribution" shall mean ALZA's distribution
of all of the outstanding shares of Class A Common Stock of
Crescendo to ALZA stockholders and debenture holders of
record on September 18, 1997.
1.7 "Identified Product Technology" shall mean
all ALZA Technology existing on the date of the closing of
ALZA's purchase of the outstanding shares of Therapeutic
Discovery Corporation relating to any Identified Product.
1.8 "Identified Products" shall mean, upon the
closing of ALZA's purchase of the outstanding shares of
Therapeutic Discovery Corporation, the following products:
OROSr oxybutynin, DUROST leuprolide, OROSr methylphenidate,
IUTS progesterone, D-TRANST testosterone matrix, E-TRANST
LHRH and E-TRANST (skin interface technology) insulin.
1.9 "Infringing Product" shall mean any product
sold by a third party which infringes or is alleged to
infringe any patent or patents licensed to Crescendo
hereunder and covering a Crescendo Product.
1.10 "License Agreement" shall mean an exclusive
license agreement for a particular Crescendo Product between
ALZA and Crescendo, entered into as a result of ALZA's
exercise of the License Option for such product.
1.11 "License Option" shall mean the option
granted to ALZA pursuant to the License Option Agreement.
1.12 "License Option Agreement" shall mean the
License Option Agreement dated as of the date hereof between
ALZA and Crescendo.
1.13 "Pre-Existing Rights" shall mean the rights
of Ciba-Geigy Limited or one of its Affiliates under those
certain agreements dated May 2, 1982 between ALZA and Ciba-
Geigy Limited or one of its Affiliates.
1.14 "Proprietary Rights" shall mean data,
inventions, information, processes, know-how and trade
secrets, and patents or patent applications claiming any of
the foregoing, owned by, licensed to or controlled by a
person and which such person has the right to license or
sublicense. Proprietary Rights shall not include
trademarks.
1.15 "Purchase Option" shall mean that certain
option contained
in Crescendo's Restated Certificate of Incorporation
pursuant to which ALZA has the right to purchase all of the
outstanding shares of Crescendo Class A Common Stock.
1.16 "Technical Evaluation" shall mean a limited
technical evaluation involving a proprietary therapeutic
agent of a third party undertaken in order to determine the
suitability of such therapeutic agent in an ALZA drug
delivery system or to induce the third party to license the
therapeutic agent to ALZA or Crescendo or otherwise
collaborate with ALZA and Crescendo in the development of a
product.
1.17 "Technical Evaluation Product" shall mean a
product, other than one which will become a Crescendo
Product, for which Crescendo funds a Technical Evaluation.
2. License.
2.1 Grant of License. ALZA hereby grants to
Crescendo, on the terms and conditions of this Agreement, a
worldwide, exclusive license (subject to the Pre-Existing
Rights), in perpetuity, with the right to sublicense (as set
forth below), to use the ALZA Technology to select and
develop Crescendo Products, to conduct related activities
(including Technical Evaluations), and to commercialize
Crescendo Products, but for no other purposes whatsoever.
Crescendo shall not sublicense any ALZA Technology to, or
enter into other arrangements with respect to any ALZA
Technology with, any third party for any purpose, except as
set forth in Sections 2.2 and 2.3 hereof.
2.2 Permitted Sublicenses.
(a) Except as set forth in Section 2.2(b)
hereof, Crescendo may grant sublicenses to ALZA and third
parties to use the ALZA Technology solely for the purpose of
performing activities in connection with the selection and
development of Crescendo Products and conducting related
activities (including Technical Evaluations); provided
however, that, during the term of the Development Agreement,
any such sublicenses shall be granted in accordance with the
terms of the Development Agreement.
(b) If the License Option with respect to
any Crescendo Product in one or more countries expires
unexercised, from and after expiration of such License
Option in any such country, Crescendo may sublicense ALZA
Technology to a third party or third parties solely to the
extent necessary to complete the development of, or to make
(or have made) and use such Crescendo Product, or to sell
(or have sold) such Crescendo Product in such country.
2.3 Conditions of Sublicenses. Each sublicensee
shall execute such agreements as ALZA reasonably deems
appropriate to protect
the ALZA Technology and to protect ALZA's rights under all
agreements between ALZA and Crescendo and under the Purchase
Option. Each sublicensee shall have all the duties of
Crescendo hereunder with respect to such sublicense, and
each sublicensee shall acknowledge these duties to ALZA in
writing. No sublicense shall have the effect of relieving
Crescendo of any of its obligations hereunder.
2.4 Prior and Future Grants. Crescendo
understands and acknowledges that ALZA is in the business of
developing products incorporating the ALZA Technology for
its own account and under arrangements with third parties,
and as a result, the license granted hereunder is limited
strictly to use the ALZA Technology for the purpose of
selecting and developing Crescendo Products and conducting
related activities (including Technical Evaluations) and
commercializing Crescendo Products. Crescendo acknowledges
that ALZA may use and may grant third party licenses to use
the ALZA Technology for any and all other purposes.
3. Covenants of Crescendo.
3.1 Diligence. Crescendo promptly shall commence
and shall use diligent efforts to develop Crescendo Products
in accordance with
approved work plans and cost estimates under the Development
Agreement, subject to ALZA diligently undertaking its
obligations thereunder.
3.2 Technology Fee. In consideration of the
license granted hereunder by ALZA to Crescendo to use the
Identified Product Technology, Crescendo shall pay ALZA in
arrears as follows:
(a) $1,000,000 thirty days after the later
of (i) the date of the Distribution and (ii) the date of the
closing of ALZA's purchase of outstanding shares of
Therapeutic Discovery Corporation, and $1,000,000 on the
same day of each of the next eleven months;
(b) $667,000 per month on the same day of
each of the next twelve months; and
(c) $333,000 per month on the same day of
each of the next twelve months;
provided, however, that once Crescendo has commenced payment
of the Technology Fee hereunder, such obligation will cease
on the date on which fewer than two of the Identified
Products are under development by Crescendo pursuant to the
Development Agreement and/or have been licensed to ALZA
pursuant to ALZA's exercise of the License Option.
4. Patents.
4.1 Infringement. Each party shall promptly
notify the other of any infringement or alleged infringement
known to such party of any patent covering ALZA Technology,
by the manufacture, development, use or sale by a third
party of any Infringing Product.
4.2 Action by ALZA. Subject to the provisions of
the Development Agreement and any License Agreement, in the
event of any such alleged infringement, ALZA shall have the
right, at its own expense and with the right to all
recoveries, to take appropriate action to restrain such
alleged infringement. If ALZA takes any such action,
Crescendo shall cooperate fully with ALZA in its pursuit
thereof, at ALZA's expense, to the extent reasonably
requested by ALZA. If ALZA brings an action under this
Section 4.2, the parties shall share equally any recoveries,
after ALZA is reimbursed for its expenses of bringing the
action (including reasonable attorneys' fees).
4.3 Action by Crescendo. If (a) the Infringing
Product is substantially similar to a Crescendo Product (in
that the Infringing Product incorporates the same active
therapeutic agent or agents as such Crescendo Product and,
in the case of a Crescendo Product that utilizes ALZA drug
delivery technology, a drug delivery system substantially
similar to the ALZA drug delivery system) for which the
License Option has expired unexercised, and (b) within 90
days after the written notice from either party described
above (or at any time thereafter), ALZA has not taken
appropriate action to restrain such alleged infringement,
and (c) at such time, the annualized unit sales volume of
such Infringing Product in a country over a period of at
least two calendar quarters, equals or exceeds 25% of the
annualized unit sales volume of the related Crescendo
Product in such country during the same period, then
Crescendo shall have the right, at its own expense and with
the right to all recoveries, to take such action as it deems
appropriate to restrain such alleged infringement. If
Crescendo takes any such action, ALZA shall cooperate with
Crescendo in its pursuit thereof, at Crescendo's expense, to
the extent reasonably requested by Crescendo. If the third
party in any such action brings a counteraction for
invalidation or misuse of a patent covering the ALZA
Technology or the Crescendo Product, Crescendo shall
promptly notify ALZA, and ALZA may, within six months after
the notification, join and participate in such action at its
own expense. Crescendo shall not settle any such action
relating to any alleged infringement which in any manner
would adversely affect ALZA Technology without the prior
written consent of ALZA.
5. Confidentiality of Information.
5.1 Confidentiality. During the term of this
Agreement and for a period of ten years following its
termination, Crescendo shall maintain in confidence all ALZA
Technology; provided, however, that nothing contained herein
shall prevent Crescendo from disclosing any ALZA Technology
to the extent such ALZA Technology (a) is required to be
disclosed in connection with developing Crescendo Products,
conducting Technical Evaluations, conducting related
activities, securing necessary governmental authorization
for the marketing of Crescendo Products, or directly or
indirectly making, using or selling Crescendo Products, as
permitted or provided for in the agreements between the
parties, (b) is required to be disclosed by law for the
purpose of complying with governmental regulations, (c) is
disclosed in connection with any sublicense permitted
hereunder, (d) is known to or used by Crescendo prior to the
date hereof (other than through disclosure by or on behalf
of ALZA) as evidenced by Crescendo's written records, (e) is
lawfully disclosed to Crescendo by a third party having the
right to disclose such information to Crescendo, or (f)
either before or after the time of disclosure to Crescendo,
becomes known to the public other than by an unauthorized
act or omission of Crescendo or any of Crescendo's employees
or agents. Any disclosure of ALZA Technology to third
parties shall be made subject to similar obligations of
confidentiality on the part of such third parties. The
obligations of Crescendo pursuant to this Section 5.1 shall
survive the termination of this Agreement for any reason.
Any breach of this Section 5.1 may result in irreparable
harm to ALZA, and in the event of a breach, ALZA shall be
entitled to seek injunctive relief (without the need to post
a bond) in addition to any other remedies available at law
or in equity.
6. Disclaimer.
6.1 Disclaimer Concerning ALZA Technology. ALZA
DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY (A) THAT ANY ALZA
TECHNOLOGY, OR THE USE THEREOF, OR ANY PRODUCTS
INCORPORATING OR MANUFACTURED BY THE USE THEREOF, WILL BE
FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR
UNLAWFUL USE OF PROPRIETARY INFORMATION OF ANY THIRD PARTY
AND (B) OF THE ACCURACY, RELIABILITY, TECHNOLOGICAL OR
COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF
THE ALZA TECHNOLOGY OR ITS SUITABILITY OR FITNESS FOR ANY
PURPOSE WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE
DESIGN, DEVELOPMENT, MANUFACTURE, USE OR SALE OF PRODUCTS.
ALZA DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER NATURE,
EXPRESS OR IMPLIED.
7. Reports of Adverse Reactions.
7.1 Reports of Adverse Reactions. During the
term of this Agreement, each party shall promptly inform the
other party of any information that it obtains or develops
regarding the efficacy or safety of a Crescendo Product and
shall promptly report to the other party any information or
notice of adverse or unexpected reactions or side effects
related to the utilization or medical administration of a
Crescendo Product. Further, during the term of this
Agreement, each party shall promptly inform the other of any
information that it obtains or develops regarding the safety
of any ALZA Technology as related to the Crescendo Products.
Each such party shall permit the other to comply with the
adverse reaction reporting obligations under the United
States Food, Drug and Cosmetic Act, or similar statutory
provisions, and regulations thereunder and shall assist the
other party in complying therewith, with respect to the
Crescendo Products. When appropriate, the parties will
execute a standard operating procedure to cover the
foregoing. Crescendo agrees and acknowledges that ALZA may
provide information it obtains under this Section 7.1 to
ALZA's other clients developing and/or commercializing
products incorporating the same ALZA drug delivery systems
as are incorporated in the Crescendo Products.
8. Effective Date; Termination.
8.1 Effective Date. This Agreement shall become
effective on the date of the Distribution.
8.2 Termination for Breach. Either party may
terminate this Agreement effective upon the giving of
written notice of such termination to the other party in the
event such other party breaches any of its material
obligations hereunder or under the License Option Agreement
and such breach continues for a period of 60 days after
written notice thereof by the terminating party to the other
party.
8.3 Automatic Termination. This Agreement shall
automatically terminate upon termination by Crescendo of the
Development Agreement other than due to a breach by ALZA,
or upon termination by ALZA of the Development Agreement due
to a breach by Crescendo.
8.4 Termination of Sublicenses. Termination by
ALZA of this Agreement shall automatically terminate any
sublicenses granted by Crescendo hereunder.
9. Force Majeure.
9.1 Force Majeure. Neither party to this
Agreement shall be liable for failure or delay in the
performance of any of its obligations hereunder if such
failure or delay is due to causes beyond its reasonable
control, including, without limitation, acts of God,
earthquakes, fires, strikes, acts of war, or intervention of
any governmental authority, but any such delay or failure
shall be remedied by such party as soon as possible after
the removal of the cause of such failure or delay.
10. Indemnification.
10.1 Indemnity. Crescendo shall indemnify, defend
and hold ALZA harmless from and against any and all
liabilities, claims, demands, damages, costs, expenses or
money judgments incurred by or rendered against ALZA and its
Affiliates, which arise out of the use, design, labeling,
manufacture, processing, packaging, sale or
commercialization of the Crescendo Products by Crescendo,
its Affiliates and permitted subcontractors and sublicensees
(other than ALZA and its Affiliates, subcontractors,
sublicensees, distributors and others operating under
arrangements with or through ALZA). ALZA shall permit
Crescendo's attorneys, at Crescendo's discretion and cost,
to control the defense of any claims or suits as to which
ALZA may be entitled to indemnity hereunder, and ALZA agrees
not to settle any such claims or suits without the prior
written consent of Crescendo. ALZA shall have the right to
participate, at its own expense, in the defense of any such
claim or demand to the extent it so desires.
10.2 Notice. ALZA shall give Crescendo prompt
notice in writing, in the manner set forth in Section 11.7
below, of any claim or demand made against ALZA for which
ALZA may be entitled to indemnification under Section 10.1.
11. Miscellaneous.
11.1 Waiver, Remedies and Amendment. Any waiver
by either party hereto of a breach of any provisions of this
Agreement shall not be implied and shall not be valid unless
such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances,
performance by the other party in strict accordance with the
terms and conditions of this Agreement shall not be deemed a
waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and
conditions of this Agreement. A waiver by either party of
any term or condition of this Agreement shall not be deemed
or construed to be a waiver of any other term or condition
of this Agreement. All rights, remedies, undertakings,
obligations and agreements contained in this Agreement shall
be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a
writing signed by both parties.
11.2 Assignment. Neither party may assign its
rights and obligations hereunder without the prior written
consent of the other party, which consent may not be
unreasonably withheld; provided, however, that ALZA may
assign such rights and obligations hereunder to an Affiliate
of ALZA or to any person or entity with which ALZA is merged
or consolidated or which acquires all or substantially all
of the assets of ALZA.
11.3 Arbitration.
(a) All disputes which may arise under, out
of or in connection with this Agreement shall be settled by
arbitration conducted in the city of San Francisco, state of
California, in accordance with the then existing rules of
the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The parties hereby agree
that service of any notices in the course of such
arbitration at their respective addresses as provided for in
Section 11.7 of this Agreement shall be valid and
sufficient.
(b) In any arbitration pursuant to this
Section 11.3, the award shall be rendered by a majority of
the members of a board of arbitration consisting of three
members who shall be appointed by the parties jointly, or if
the parties cannot agree as to three arbitrators within 30
days after the commencement of the arbitration proceeding,
then one arbitrator shall be appointed by ALZA and one
arbitrator shall be appointed by Crescendo within 60 days
after the commencement of the arbitration proceeding. The
third arbitrator shall be appointed by mutual agreement of
such two arbitrators. In the event of failure of the two
arbitrators to agree within 75 days after commencement of
the arbitration proceeding upon the appointment of the third
arbitrator, the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then
existing rules. Notwithstanding the foregoing, in the event
that any party shall fail to appoint an arbitrator it is
required to appoint within the specified time period, such
arbitrator and the third arbitrator shall be appointed by
the American Arbitration Association in accordance with its
then existing rules. For purposes of this Section 11.3, the
"commencement of the arbitration proceeding" shall be deemed
to be the date upon which a written demand for arbitration
is received by the American Arbitration Association from one
of the parties.
11.4 Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so
executed shall be deemed to be an original and all of which
when taken together shall constitute this Agreement.
11.5 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
state of California as applied to residents of that state
entering into contracts to be performed in that state.
11.6 Headings. The section headings contained in
this Agreement are included for convenience only and form no
part of the Agreement between the parties.
11.7 Notices. Notices required under this
Agreement shall be in writing and sent by registered or
certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid,
and addressed as follows:
If to ALZA: ALZA Corporation
950 Page Mill Road
Palo Alto, CA 94304
Facsimile: (650) 494-8048
Attention: Senior Vice President
and General Counsel
If to Crescendo: Crescendo Pharmaceuticals Corporation
1454 Page Mill Road
Palo Alto, CA 94304
Facsimile: (650) 496-8250
Attention: President and Chief
Executive Officer
All notices shall be deemed to be effective five days
after the date of mailing or upon receipt if sent by
facsimile (but only if followed by certified or registered
confirmation). Either party may change the address at which
notice is to be received by written notice pursuant to this
Section 11.7.
11.8 Severability. If any provision of this
Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, it shall be modified, if possible,
to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it
shall be stricken and the re
maining provisions shall remain in full force and effect.
11.9 Relationship of the Parties. For purposes of
this Agreement, Crescendo and ALZA shall be deemed to be
independent contractors, and anything in this Agreement to
the contrary notwithstanding, nothing herein shall be deemed
to constitute Crescendo and ALZA as partners, joint
venturers, co-owners, an association or any entity separate
and apart from each party itself, nor shall this Agreement
constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever.
Neither party hereto is authorized to make any statements or
representations on behalf of the other party or in any way
obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to
the contrary notwithstanding, no party hereto shall assume
or be liable for any liabilities or obligations of the other
party, whether past, present or future.
11.10 Survival. The provisions of Sections 1,
5, 6, 7, 10, 11.1, 11.3, 11.5, 11.7, 11.8, 11.9 and this
Section 11.10 shall survive the termination for any reason
of this Agreement. Any payments due under this Agreement
with respect to any period prior to its termination shall be
made notwithstanding the termination of this Agreement.
Neither party shall be liable to the other due to the
termination of this Agreement as provided herein, whether in
loss of good will, anticipated profits or otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
ALZA CORPORATION
By: /s/ Peter D. Staple
Title: Senior Vice President
and General Counsel
CRESCENDO PHARMACEUTICALS CORPORATION
By: /s/ Dr. James W. Young
Title: President and
Chief Executive Officer
EXHIBIT 10.3
DEVELOPMENT AGREEMENT
This Development Agreement (the "Agreement") is made as
of the 5th day of September, 1997 between ALZA Corporation,
a Delaware corporation ("ALZA"), and Crescendo
Pharmaceuticals Corporation, a Delaware corporation
("Crescendo").
BACKGROUND
A. Crescendo has been formed for the purpose of
selecting and developing human pharmaceutical products,
including products using ALZA Technology (as defined below)
and commercializing such products, most likely through
licensing to ALZA.
B. ALZA is engaged in the business of performing
research and development directed toward the development and
commercialization of pharmaceutical products.
C. Crescendo desires that ALZA perform, on behalf of
Crescendo, research and development activities directed
toward the selection and development of Crescendo Products
(as defined below) and related activities.
Now, therefore, the parties agree as follows:
1. Definitions.
For the purposes of this Agreement, the following terms
shall have the meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any
other entity that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under
common control with, the designated party. "Control" shall
mean ownership of at least 50% of the shares of stock
entitled to vote for the election of directors in the case
of a corporation, and at least 50% of the interests in
profits in the case of a business entity other than a
corporation.
1.2 "ALZA Technology" shall mean all Proprietary
Rights, whether patented or unpatented, owned by, licensed
to or controlled by ALZA, as of the date of this Agreement
or during the term of this Agreement, including the
Developed Technology and the Identified Product Technology.
1.3 "Available Funds" shall mean, as of any date
of determination, $300 million contributed to Crescendo by
ALZA on or about September 30, 1997, plus any investment
income earned thereon, less (a) Crescendo's reasonable
ongoing administrative expenses, (b) the Technology Fee and
(c) reserves of up to $2 million.
1.4 "Crescendo Product" shall mean an Identified
Product, or another human pharmaceutical product which has
been recommended by ALZA and accepted by Crescendo's
independent Board of Directors for development as such under
this Agreement.
1.5 "Developed Technology" shall mean Proprietary
Rights that (a) are first generated, conceived or reduced to
practice, as the case may be, by ALZA or by any third party
in the course of performing activities undertaken pursuant
to this Agreement or (b) are, in any manner, acquired by, or
otherwise obtained on behalf of, Crescendo during the term
of this Agreement from persons other than ALZA and are
necessary or useful to the selection, development or
commercialization of Crescendo Products or Technical
Evaluation Products.
1.6 "Developed Technology Product" shall mean any
product (other than a Crescendo Product) (i) covered, at the
time of sale in a country by one or more unexpired patents
issued in such country that are included in Developed
Technology and (ii) with respect to which ALZA receives any
consideration.
1.7 "Developed Technology Royalties" shall mean
the payments made by ALZA to Crescendo with respect to Net
Sales of Developed Technology Products.
1.8 "Development Costs" shall mean the cost of
the activities undertaken pursuant to this Agreement,
determined in accordance with Exhibit A hereto.
1.9 "Distribution" shall mean ALZA's distribution
of all of the outstanding shares of Class A Common Stock of
Crescendo to ALZA stockholders and debenture holders of
record on September 18, 1997.
1.10 "Distribution Agreement" shall mean the
Distribution Agreement dated as of the date hereof between
ALZA and Crescendo.
1.11 "FDA" shall mean the United States Food and
Drug Administration or any successor agency whose clearance
is necessary to market a Crescendo Product in the United
States.
1.12 "Identified Product Technology" shall mean
all ALZA Technology existing on the date of the closing of
ALZA's purchase of the outstanding shares of Therapeutic
Discovery Corporation relating to any Identified Product.
1.13 "Identified Products" shall mean, upon the
closing of ALZA's purchase of the outstanding shares of
Therapeutic Discovery Corporation, the following products:
OROSr oxybutynin, DUROST leuprolide, OROSr methylphenidate,
IUTS progesterone, D-TRANST testosterone matrix, E-TRANST
LHRH and E-TRANST (skin interface technology) insulin.
1.14 "License Option" shall mean the option
granted to ALZA, pursuant to the License Option Agreement.
1.15 "License Option Agreement" shall mean the
License Option Agreement dated as of the date hereof between
ALZA and Crescendo.
1.16 "Major Market Country" shall mean any of the
following
countries: United States, France, Germany, Italy, Japan or
the
United Kingdom.
1.17 "Net Sales" shall mean the total amount
invoiced in United States dollars (or converted thereto in
accordance with Section 7.6 hereof) on sales of a product by
ALZA (or its Affiliates) or any ALZA sublicensee,
distributor or marketing partner (or its Affiliates), to
unrelated third parties such as wholesalers, hospitals and
others, in bona fide arm's-length transactions, less the
following deductions, in each case related specifically to
the product in question and actually allowed and taken and
not otherwise recovered by or reimbursed to ALZA (or its
Affiliates) or such sublicensee, distributor or marketing
partner (or its Affiliates): (i) trade, cash and quantity
discounts; (ii) taxes on sales (such as sales or use taxes)
to the extent added to the sales price and set forth
separately as such in the total amount invoiced; (iii)
freight, insurance and other transportation charges to the
extent added to the sales price and set forth separately as
such in the total amount invoiced; and (iv) amounts repaid
or credited by reason of rejections, defects or returns or
because of retroactive price reductions, chargebacks or
rebates under government programs. Net Sales shall also
include the fair market value of all other consideration
received (a) by ALZA (or its Affiliates) with respect to
sales by them of the product to unrelated third parties
other than sublicensees, distributors or marketing partners
(or their Affiliates) or (b) by any ALZA sublicensee,
distributor or marketing partner (or its Affiliates) with
respect to their sales of the product to unrelated third
parties, in each case whether such consideration is in cash,
payment in kind, exchange or other form.
1.18 "Product Candidate" shall mean a potential
Crescendo Product for which ALZA proposes a Work Plan in accordance with
Section 2.2.
1.19 "Product Development Program" shall mean a
program to develop a Crescendo Product.
1.20 "Proprietary Rights" shall mean data,
inventions, information, processes, know-how and trade
secrets, and patents or patent applications claiming any of
the foregoing, owned by, licensed to or controlled by a
person and which such person has the right to license or
sublicense. Proprietary Rights shall not include
trademarks.
1.21 "Purchase Option" shall mean that certain
option contained in Crescendo's Restated Certificate of
Incorporation pursuant to which ALZA has the right to
purchase all of the outstanding shares of Crescendo Class A
Common Stock.
1.22 "Technical Evaluation" shall mean a limited
technical evaluation involving a proprietary Therapeutic
Agent of a third party undertaken in order to determine the
suitability of such Therapeutic Agent in an ALZA drug
delivery system or to induce the third party to license the
Therapeutic Agent to ALZA or Crescendo or otherwise
collaborate with ALZA and Crescendo in the development of a
product.
1.23 "Technical Evaluation Product" shall mean a
product, other than one which will become a Crescendo
Product, for which
Crescendo funds a Technical Evaluation.
1.24 "Technical Evaluation Product Payments" shall
mean the payments made by ALZA to Crescendo pursuant to
Section 7.4 with respect to Net Sales of Technical
Evaluation Products.
1.25 "Technology Fee" shall mean payments to be
made over a maximum period of three years by Crescendo to
ALZA in exchange for ALZA granting Crescendo a license to
use the Identified Product Technology.
1.26 "Technology License Agreement" shall mean the
Technology License Agreement dated as of the date hereof
between ALZA and Crescendo.
1.27 "Therapeutic Agent" shall mean a drug,
protein, peptide, gene, compound or other pharmaceutically
active ingredient.
1.28 "TDC" shall mean Therapeutic Discovery
Corporation.
1.29 "Work Plan" shall mean a work plan including
a cost estimate.
2. Product Development Program.
2.1 Product Candidate Identification Process.
Within 30 days after the date of the Distribution and at
least annually thereafter, ALZA shall provide Crescendo with
a proposed Work Plan covering activities to be undertaken by
ALZA to search for and identify Product Candidates for
consideration by Crescendo under Section 2.2 and to
identify potential Technical Evaluations for consideration
by Crescendo under Section 2.4. Promptly after ALZA
provides Crescendo with such proposed Work Plan, Crescendo
shall notify ALZA of its acceptance or rejection of such
proposed Work Plan.
2.2 Product Candidate Selection.
(a) From time to time during the term of
this Agreement, ALZA shall present Crescendo with Product
Candidates recommended by ALZA for development as Crescendo
Products, together with preliminary lifetime plans that
provide, for each such Product Candidate, an estimate of the
total Development Costs for the Product Development Program
for such Product Candidate through FDA review for clearance
to market the resulting product, milestones (including the
timetable for the development of the resulting product),
detailed Work Plans for the first proposed stage of the
Product Development Program and any other factors that ALZA
deemed appropriate to determine whether to recommend the
Product Candidate for development.
(b) Promptly after ALZA recommends a Product
Candidate for development to Crescendo, Crescendo shall
notify ALZA in writing of its acceptance (in whole or in
part) or rejection (in whole or in part) of the initial Work
Plan included with such recommendation. Upon written
acceptance (in whole or in part) of a Work Plan for a
Product Candidate under this Section 2.2, such Product
Candidate shall be deemed to be a Crescendo Product.
(c) If Crescendo fails to accept a
recommended Product Candidate for development as a Crescendo
Product within 120 days of recommendation by ALZA, then
Crescendo shall have no rights with respect to such Product
Candidate; provided, however, that, at any time during the
term of this Agreement, Crescendo may request ALZA to
perform a Product Development Program for such Product
Candidate and ALZA shall undertake its duties with respect
to such Product Development Program, all in accordance with
this Section 2 and Section 3, unless, at the time of such
request, ALZA is then undertaking the development of such
Product Candidate for its own account or with a third party,
or ALZA is otherwise not permitted to undertake such
development hereunder because of an arrangement with a third
party.
2.3 Identified Products. As set forth in Section
4.1, Crescendo shall fund the Development Costs under ALZA-
approved Work Plans for each of the Identified Products
during the period from the date on which TDC ceased funding
such products through October 31, 1997. On or before
October 10, 1997, ALZA shall provide Crescendo with a
proposed Work Plan and a lifetime plan for the continued
development of each of the Identified Products. On or before
October 31, 1997, Crescendo shall notify ALZA in writing of
its acceptance (in whole or in part) or rejection (in whole
or in part) thereof.
2.4 Technical Evaluations. From time to time
during the term of this Agreement, ALZA may provide
Crescendo with a proposed Work Plan covering one or more
Technical Evaluations with respect to potential Technical
Evaluation Products. Promptly after ALZA provides Crescendo
with such proposed Work Plan, Crescendo shall notify ALZA of
its acceptance (in whole or in part) or rejection (in whole
or in part) of such proposed Work Plan. ALZA may propose to
Crescendo at any time that any Technical Evaluation Product
become a Crescendo Product by complying with the procedures
set forth in Section 2.2.
2.5 Partial Acceptance. If Crescendo accepts or
rejects a Work Plan in part, ALZA may either (i) perform the
activities under the Work Plan as approved by Crescendo or
(ii) propose a modified Work Plan to Crescendo for approval.
3. Research and Development Programs; ALZA Services.
3.1 Product Development - Crescendo Obligations.
Once Crescendo accepts a Work Plan for a Crescendo Product
or a Technical Evaluation pursuant to Section 2.2 or 2.4,
Crescendo shall use diligent efforts to complete such Work
Plan, as amended from time to time. Crescendo shall request
that ALZA or a third party perform the activities under each
such Work Plan; provided, however, that ALZA's prior written
consent shall be required for a third party to perform any
activities that involve ALZA Technology or that could affect
ALZA's rights under any agreement between ALZA and Crescendo
or ALZA's rights as holder of the Class B Common Stock of
Crescendo. Crescendo shall use diligent efforts to cause
each third party other than ALZA (or a third party engaged
by ALZA) to perform diligently the activities assigned it
under a Work Plan.
3.2 Product Development - ALZA Obligations; Other
ALZA Activities. Crescendo hereby engages ALZA to perform
product identification, evaluation, research, development
and related activities in accordance with the tasks assigned
to ALZA under the Work Plans accepted under Section 2, and
to undertake such other activities as the parties may agree.
ALZA diligently shall perform or cause to be performed such
activities. In connection therewith, ALZA shall make
available such of its scientific, engineering, manufacturing
and other personnel, and shall take such steps as it deems
necessary in order to perform its obligations in accordance
with the terms hereof, but ALZA is not obligated to devote
any specific amount of time or resources to activities
hereunder. ALZA shall have full discretion to determine
from time to time the allocation of resources of ALZA
(facilities, equipment and personnel) that are available for
activities hereunder, and to determine from time to time the
allocation of resources of ALZA among such activities.
Crescendo understands, acknowledges and agrees that ALZA may
devote substantial time and resources to research and
development activities for other persons and for its own
account, and as a result, ALZA may develop and
commercialize, or have commercialized, products competitive
with Crescendo Products, Technical Evaluation Products and
Developed Technology Products.
3.3 Work Plans. The parties understand and
acknowledge that it is difficult to predict accurately the
activities that will be necessary to complete any Work Plan,
including the Development Costs thereof, and that
significant uncertainties exist in any product development
effort. Crescendo and ALZA shall cooperate in good faith to
devise mutually acceptable Work Plans for Product
Development Programs, Technical Evaluations, candidate
identification activities and such other activities as the
parties may agree. ALZA and Crescendo shall review each
such Work Plan from time to time, and with respect to a Work
Plan for a Crescendo Product no less often than at the end
of each stage of development, and shall revise each Work
Plan as appropriate such that each Work Plan remains a best
estimate of the work to be performed to complete the
development objectives identified therein and of the
Development Costs thereunder. Crescendo shall not be
obligated to pay Development Costs in excess of those
provided for in approved Work Plans, and ALZA shall not be
obligated to perform work which would result in Development
Costs exceeding those in approved Work Plans.
3.4 Consultation. Crescendo shall consult with
ALZA and shall review with ALZA from time to time the
progress toward completion of the activities under the Work
Plans for candidate identification activities and for each
Crescendo Product and Technical Evaluation, including
without limitation, the status in each country for each
Crescendo Product for which marketing clearance is being
sought.
3.5 Third Party Rights. Subject to the terms and
conditions of this Agreement, Crescendo shall have
discretion to attempt to obtain, using Available Funds, any
Proprietary Rights from any third party that Crescendo
reasonably determines to be necessary or useful to conduct
any Product Development Program, Technical Evaluation or
related activities under this Agreement. Such Proprietary
Rights shall be included in the Developed Technology. The
costs of obtaining any such Proprietary Rights shall be
included in the calculation of Development Costs paid by
Crescendo pursuant to this Agreement.
3.6 Development Assets. ALZA shall own and have
the right to use any clinical supplies, materials and other
assets purchased, manufactured or developed pursuant to
approved Work Plans ("Development Assets") and, until such
time as the License Option is exercised with respect to the
product to which any particular Development Asset pertains,
shall use such Development Assets solely in the development
of Crescendo Products under approved Work Plans.
3.7 No Use of Available Funds After Expiration of
License Option. After such time as the License Option for a
Crescendo Product in a country expires unexercised as to
such country, no additional Available Funds shall be
expended for the development of such Crescendo Product for
sale in such country.
3.8 Notices. ALZA shall notify Crescendo within
three business days after ALZA receives notice of clearance
to market any Crescendo Product in any country. ALZA shall
promptly notify Crescendo of the first commercial sale of a
Crescendo Product, Developed Technology Product or Technical
Evaluation Product in any country.
4. Payment For Services; Timing of Payments.
4.1 Payment of Development Costs. In
consideration of the work to be carried out by ALZA
hereunder, Crescendo shall reimburse ALZA for all
Development Costs incurred by ALZA in accordance with
accepted Work Plans. Crescendo shall also reimburse ALZA
for Development Costs incurred with respect to the
Identified Products from the date on which TDC ceased
funding the development of such products through October 31,
1997 in accordance with the ALZA-approved Work Plans for
such products in effect as of the date hereof.
4.2 Timing of Payments. Crescendo shall pay to
ALZA monthly, in arrears, all such Development Costs
incurred by ALZA during the preceding calendar month, within
30 days after ALZA's invoice therefor.
4.3 Sufficiency of Funds. Neither Crescendo nor
ALZA makes any warranty, express or implied, that Available
Funds will be sufficient to complete the development of any
or all Crescendo Products or the other activities
contemplated hereunder.
5. Reports and Records.
5.1 Product Development Program Reports. Within
45 days after the end of each calendar quarter, ALZA shall
provide to Crescendo, and Crescendo shall require each third
party engaged by Crescendo pursuant to Section 3.1 to
provide to Crescendo and to ALZA, a reasonably detailed
report setting forth (a) a summary of the work performed
hereunder by ALZA or such third party, as appropriate, and
its employees and agents during such quarter; and (b) the
total Development Costs of such activities during such
quarter and cumulatively to date, for each Work Plan.
5.2 Available Funds Statement. Within 45 days
after the end of each calendar quarter, Crescendo shall
provide to ALZA a statement setting forth, as of the end of
such quarter, the Available Funds remaining.
5.3 Product Payment Reports. Within 90 days
after the end of each calendar quarter for which payments
are due under Section 7.4, ALZA shall render an accounting
to Crescendo, on a productby-product and country-by-country
basis, with respect to all payments due for such quarter
under Section 7.4. Such report shall indicate, for such
quarter, the quantity and dollar amount of Net Sales of each
Developed Technology Product and each Technical Evaluation
Product by ALZA and its Affiliates, sublicensees,
distributors and marketing partners (and their Affiliates),
or other consideration with respect to Net Sales, with
respect to which payments are due; provided, however, that
if ALZA shall not have received from any foreign
sublicensee, distributor or marketing partner a report of
its (and its Affiliates') sales for such quarter, then such
sales shall be included in the next quarterly report, and
payments with respect to such report shall be due in the
next quarter. In case no payment is due for any calendar
quarter, ALZA shall so report. ALZA shall keep accurate
records in sufficient detail to enable the payments due
hereunder to be determined.
5.4 Records; Review by Accountants. Each of
Crescendo and ALZA shall keep and maintain, in accordance
with generally accepted accounting principles, proper and
complete records and books of account documenting all
Development Costs and amounts paid or payable by ALZA to
Crescendo under this Agreement, in the case of ALZA, and
remaining Available Funds, in the case of Crescendo. Each of
Crescendo and ALZA shall have the right, once in each
calendar year during regular business hours and upon
reasonable notice to the other party, and at its own
expense, to examine or to have examined by a certified
public accountant or similar person reasonably acceptable to
the other party, pertinent books and records of one another,
for the sole purpose of determining the correctness of
amounts invoiced, paid or due under this Agreement and the
application of Available Funds by Crescendo. Such
examination shall take place not later than two years
following the year in question, and only one examination may
take place with respect to any period as to which such books
and records are examined. Each party shall obtain, for
itself and for the other party, similar reasonable rights to
audit the Development Costs of, and payments with respect to
Net Sales by, each third party engaged by Crescendo pursuant
to Section 3.1 or appointed or permitted by ALZA to
commercialize any product as to which payments are due to
Crescendo hereunder.
6. Technology Licensed For Development.
6.1 License to Use ALZA Technology. Crescendo
hereby grants to ALZA a sublicense to use the ALZA
Technology licensed to Crescendo under the Technology
License Agreement solely for the purpose of conducting the
activities contemplated hereunder.
6.2 Termination of License. Termination of the
license granted under the Technology License Agreement
automatically shall terminate the sublicense to the ALZA
Technology granted to ALZA pursuant to Section 6.1.
7. Ownership of Crescendo Products and Developed
Technology Patents; Payments to Crescendo.
7.1 Ownership of Crescendo Products. Unless
Crescendo agrees otherwise, all Crescendo Products will be
owned by Crescendo or, in the case of a product licensed
from a third party (or a product incorporating a Therapeutic
Agent licensed from a third party), exclusively licensed to
Crescendo on a worldwide basis, with the right to
sublicense, and otherwise on terms granting rights
substantially similar to those rights Crescendo would have
as an owner, in either case subject to the License Option.
7.2 Ownership of Developed Technology. As
between ALZA and Crescendo, ALZA shall own all Developed
Technology (which shall be part of the ALZA Technology),
subject to the Technology License Agreement.
7.3 Patents Covering Developed Technology. ALZA
shall determine whether and to what extent to seek and
maintain United States and/or foreign patents covering any
Developed Technology. Any such patents and applications
therefor shall be in ALZA's name and shall be owned by ALZA.
Crescendo and ALZA each shall pay one-half of the costs of
obtaining and maintaining any such patents during the term
of this Agreement.
7.4 Payments Based on Sales of Developed
Technology Products and Technical Evaluation Products.
(a) ALZA shall pay Developed Technology
Royalties to Crescendo, on a country-by-country basis, equal
to 1% of Net Sales in the relevant country of each Developed
Technology Product. Only one payment under this Section 7.4
shall be payable by ALZA to Crescendo with respect to Net
Sales of each Developed Technology Product in any country,
regardless of the number of patents covering such Developed
Technology Product in such country. Subject to Section 7.5,
payments with respect to sales of a Developed Technology
Product in any country shall be made by ALZA until the
expiration of the last to expire of the patent or patents
covering such Developed Technology Product in any country.
(b) ALZA shall make Technical Evaluation
Product Payments to Crescendo equal to 1% of Net Sales of
each Technical Evaluation Product. Subject to Section 7.5,
payments with respect to sales of a Technical Evaluation
Product shall be made by ALZA until seven years after the
first commercial sale of such Technical Evaluation Product
in the first Major Market Country in which such product is
commercially sold.
(c) In determining payments due under this
Section 7.4, Net Sales by ALZA shall be reduced by the
dollar amount of any license or similar payments made by or
due from ALZA or its Affiliates to third parties with
respect to any such sales of such Developed Technology
Product or Technical Evaluation Product. If license or
similar payments are made to third parties with respect to
sales of such products and to sales of other products, ALZA
shall allocate such payments, if necessary, in a
commercially reasonable manner.
(d) Notwithstanding the foregoing, if a
product is both a Developed Technology Product and a
Technical Evaluation Product, amounts payable under this
Section 7.4 with respect to such product for any period of
time shall be limited to 1% of Net Sales.
7.5 Buy-Out of Payments Based on Sales of
Developed Technology Products and Technical Evaluation
Products.
(a) ALZA shall have the option with respect
to each Developed Technology Product and each Technical
Evaluation Product, in its discretion, at any time after the
end of the twelfth calendar quarter during which such
product was commercially sold in a country, to buy out its
remaining obligation to make payments under Section 7.4
with respect to sales of such Developed Technology Product
or Technical Evaluation Product in such country. The buy-
out price shall be an amount equal to 15 times the payments
made by or due from ALZA to Crescendo under Section 7.4 with
respect to sales of such Developed Technology Product or
Technical Evaluation Product in such country for the four
calendar quarters immediately preceding the quarter in which
the buy-out option is exercised.
(b) ALZA shall have the option with respect
to each Developed Technology Product and each Technical
Evaluation Product, in its discretion, at any time after the
end of the twelfth calendar quarter during which such
product was commercially sold in either the United States or
two other Major Market Countries, to buy out its remaining
worldwide obligations to make payments under Section 7.4
with respect to sales of such Developed Technology Product
or Technical Evaluation Product. The buy-out price shall be
an amount equal to (i) 20 times (A) the payments made by or
due from ALZA to Crescendo under Section 7.4 with respect to
sales of such Developed Technology Product or Technical
Evaluation Product, plus (B) such payments as would have
been made by or due from ALZA to Crescendo if ALZA had not
exercised any country-specific buy-out option with respect
to such Developed Technology Product or Technical Evaluation
Product, in each case, for the four calendar quarters
immediately preceding the quarter in which the buy-out
option is exercised, less (ii) any amounts previously paid
to exercise any country-specific buyout option with respect
to such Developed Technology Product or Technical Evaluation
Product.
7.6 Payments. Payments shown by each calendar
quarter report described in Section 5.3 to have accrued
shall be due and payable on the date the report is due and
shall be paid in United States dollars. Any and all taxes
due or payable on such payments or with respect to the
remittance thereof shall be deducted from such payments and
shall be paid by ALZA to the proper taxing authorities, and
proof of payment shall be secured and sent to Crescendo as
evidence of such payment. The rate of exchange to be used
in computing the amount of United States dollars due to
Crescendo in satisfaction of payment obligations with
respect to sales in foreign countries shall be calculated by
converting the amount due in such foreign currency into
United States dollars based on the rate for the purchase of
United States dollars with such currency as published in the
Wall Street Journal on the last business day of the calendar
quarter for which payment is being made.
7.7 Certain Foreign Payments. If governmental
regulations prevent remittance from any foreign country of
any amounts due under Section 7.4 with respect to that
country, ALZA shall so notify Crescendo in writing, and the
obligation under this Agreement to make payments with
respect to sales in that country shall be suspended (but the
amounts due but not paid shall continue to accrue) until
such remittances are possible. Crescendo shall have the
right, upon written notice to ALZA, to receive payment in
any such country in the local currency.
7.8 Late Payments. Any payments due hereunder
that are not made when due shall accrue interest at the
lesser of 10% per annum or the maximum rate as may be
allowed by law, beginning on the date when Crescendo
notifies ALZA that such payments are overdue.
8. Access to Information; Confidentiality.
8.1 Access. Subject to the terms of this
Agreement, each party shall be permitted access to the
premises of the other during normal business hours, for the
purpose of monitoring the progress of activities under this
Agreement. Each party shall keep full and complete records
and notebooks containing all experiments performed during
its work under this Agreement and the results thereof. Such
items and copies of all documentation shall be available
during normal business hours for inspection by the other
party. In addition, each party shall provide to the other
such other information as reasonably may be requested.
8.2 Third Parties. Crescendo and ALZA shall
cause each third party engaged pursuant to Section 3.1 or
3.2 to provide access similar to that to be provided
pursuant to Section 8.1, for the benefit of both Crescendo
and ALZA.
8.3 Product Lists. ALZA shall maintain a
complete list of Crescendo Products, Developed Technology
Products and Technical Evaluation Products at all times.
Confirmation of the completeness and accuracy of such list
shall be made at any time upon the reasonable request of
Crescendo.
8.4 Confidentiality. During the term of this
Agreement and for a period of ten years following its
termination, each party shall maintain in confidence all
Proprietary Rights of the other; provided, however, that
nothing contained herein shall prevent either party from
disclosing any Proprietary Rights to the extent that such
Proprietary Rights (a) are required to be disclosed in
connection with selecting and developing Crescendo Products,
conducting Technical Evaluations, conducting related
activities, securing necessary governmental authorization
for the marketing of Crescendo Products, or directly or
indirectly making, using or selling Crescendo Products, as
permitted or provided for in the agreements between the
parties, (b) are required to be disclosed by law for the
purpose of complying with governmental regulations, (c) are
disclosed to sublicensees, distributors or marketing
partners or potential sublicenses, distributors or marketing
partners permitted under the agreements between the parties
in connection with the proposed or actual development,
manufacturing or marketing of Crescendo Products, subject to
similar obligations of confidentiality on the part of such
third parties as required by the agreements between the
parties, (d) are known to or used by the recipient prior to
the date hereof (other than through disclosure by or on
behalf of the other party) as evidenced by the recipient's
written records , (e) are lawfully disclosed to the
recipient by a third party having the right to disclose such
information to the recipient, or (f) either before or after
the time of disclosure to the recipient, become known to the
public other than by an unauthorized act or omission of the
recipient or any of the recipient's employees or agents;
provided that clause (d) does not give ALZA the right to
disclose Proprietary Rights that relate exclusively to the
Identified Products; provided further that, Crescendo may
disclose ALZA Proprietary Rights to third parties only in
accordance with the provisions of Section 10.3 hereof and in
accordance with the provisions of the Technology License
Agreement. The obligations of each of the parties pursuant
to this Section 8.4 shall survive the termination of this
Agreement for any reason. Any breach of this Section 8.4
may result in irreparable harm, and in the event of a
breach, the aggrieved party shall be entitled to seek
injunctive relief (without the need to post a bond) in
addition to any other remedies available at law or in
equity.
9. Public Disclosure.
9.1 Public Disclosure. The parties will work
together with respect to public statements disclosing the
status of and results under Product Development Programs and
related matters. Except to the extent previously disclosed
pursuant to the terms hereof, neither party shall disclose
to third parties nor originate any publicity, news release
or public announcement, written or oral, whether to the
public, the press, stockholders or otherwise, referring to
activities conducted, or the parties' performance under,
this Agreement, except such announcements, as in the opinion
of the counsel for the party making such announcement, are
required by law, including United States securities laws,
rules or regulations, without the prior written consent of
the other party. If a party decides to make an announcement
it believes to be required by law with respect to this
Agreement, it will give the other party such notice as is
reasonably practicable and an opportunity to comment upon
the announcement.
10. Covenants.
10.1 Use of Available Funds. Unless ALZA agrees
otherwise, Crescendo agrees to expend all Available Funds
for activities undertaken pursuant to this Agreement.
Pending application of all Available Funds as set forth
above, Available Funds shall be invested in securities
issued or guaranteed as to principal and interest by the
United States, or by a person controlled or supervised by or
acting as an instrumentality of the government of the United
States pursuant to authority granted by the Congress of the
United States, or any certificate of deposit for any of the
foregoing, or any other types of high quality marketable
investment securities that are proposed by Crescendo and are
approved by ALZA in its sole discretion.
10.2 Negative Pledge. Crescendo shall not create,
incur, assume or suffer to exist any lien upon or with
respect to, or otherwise take any action with respect to,
Available Funds so as to prevent or interfere with full
expenditure of such funds for activities under this
Agreement in accordance with Section 10.1.
10.3 No Inconsistent Agreements. Without the
written consent of ALZA, Crescendo shall not enter into any
agreement or arrangement that is in any way inconsistent
with or that could adversely affect ALZA Technology or
ALZA's rights under any agreement between ALZA and
Crescendo, or that is in any way inconsistent with or that
could adversely affect ALZA's rights as holder of the Class
B Common Stock of Crescendo. Crescendo must include in any
agreement between Crescendo and a third party relating to
Crescendo Products and/or activities hereunder such
provisions as ALZA reasonably deems appropriate to protect
ALZA Technology and to protect ALZA's rights under any
agreement between ALZA and Crescendo and as a holder of the
Class B Common Stock of Crescendo (including ALZA's rights
under the Purchase Option).
11. Effective Date; Term and Termination.
11.1 Effective Date. The effective date of this
Agreement shall be the date of the Distribution.
11.2 Automatic Termination. This Agreement shall
terminate upon exercise or expiration of the Purchase
Option, except that ALZA's obligations to make payments to
Crescendo with respect to Developed Technology Products and
Technical Evaluation Products shall continue after
expiration of the Purchase Option as provided in Section 7
hereof.
11.3 Other Termination. Either party may, in its
discretion, terminate this Agreement in the event that the
other party:
(a) breaches any material obligation
hereunder or under the Technology License Agreement, the
License Option Agreement, or any license thereunder, and
such breach continues for a period of 60 days after written
notice thereof by the terminating party to the other party;
or
(b) enters into any proceeding, whether
voluntary or otherwise, in bankruptcy, reorganization or
arrangement for the appointment of a receiver or trustee to
take possession of its assets or any other proceeding under
any law for the relief of creditors, or makes an assignment
for the benefit of its creditors.
12. Force Majeure.
12.1 Force Majeure. Neither party to this
Agreement shall be liable for failure or delay in the
performance of any of its obligations hereunder, if such
failure or delay is due to causes beyond its reasonable
control including, without limitation, acts of God,
earthquakes, fires, strikes, acts of war, or intervention of
any governmental authority, but any such delay or failure
shall be remedied by such party as soon as possible after
the removal of the cause of such failure or delay.
13. Miscellaneous.
13.1 Waiver, Remedies and Amendment. Any waiver
by either party hereto of a breach of any provisions of this
Agreement shall not be implied and shall not be valid unless
such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances,
performance by the other party in strict accordance with the
terms and conditions of this Agreement shall not be deemed a
waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and
conditions of this Agreement. A waiver by either party of
any term or condition of this Agreement shall not be deemed
or construed to be a waiver of any other term or condition
of this Agreement. All rights, remedies, undertakings,
obligations and agreements contained in this Agreement shall
be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a
writing signed by both parties.
13.2 Assignment. Neither party may assign its
rights and obligations hereunder without the prior written
consent of the other party, which consent may not be
unreasonably withheld; provided, however, that ALZA may
assign such rights and
obligations hereunder to an Affiliate of ALZA or to any
person or entity with which ALZA is merged or consolidated
or which acquires all or substantially all of the assets of
ALZA.
13.3 Arbitration.
(a) All disputes which may arise under, out
of or in connection with this Agreement shall be settled by
arbitration conducted in the city of San Francisco, State of
California, in accordance with the then existing rules of
the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The parties hereby agree
that service of any notices in the course of such
arbitration at their respective addresses as provided for in
Section 13.7 of this Agreement shall be valid and
sufficient.
(b) In any arbitration pursuant to this
Section 13.3, the award shall be rendered by a majority of
the members of a board of arbitration consisting of three
members who shall be appointed by the parties jointly, or if
the parties cannot agree as to three arbitrators within 30
days after the commencement of the arbitration proceeding,
then one arbitrator shall be appointed by ALZA and one
arbitrator shall be appointed by Crescendo within 60 days
after the commencement of the arbitration proceeding. The
third arbitrator shall be appointed by mutual agreement of
such two arbitrators. In the event of failure of the two
arbitrators to agree within 75 days after commencement of
the arbitration proceeding upon the appointment of the third
arbitrator, the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then
existing rules. Notwithstanding the foregoing, in the event
that any party shall fail to appoint an arbitrator it is
required to appoint within the specified time period, such
arbitrator and the third arbitrator shall be appointed by
the American Arbitration Association in accordance with its
then existing rules. For purposes of this Section 13.3, the
"commencement of the arbitration proceeding" shall be deemed
to be the date upon which a written demand for arbitration
is received by the American Arbitration Association from one
of the parties.
13.4 Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so
executed shall be deemed to be an original and all of which
when taken together shall constitute this Agreement.
13.5 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
state of California as applied to residents of that state
entering into contracts to be performed in that state.
13.6 Headings. The section headings contained in
sections of this Agreement are included for convenience only
and form no part of the Agreement between the parties.
13.7 Notices. Notices required under this
Agreement shall be in writing and sent by registered or
certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid,
and addressed as follows:
If to ALZA: ALZA Corporation
950 Page Mill Road
Palo Alto, CA 94304
Facsimile: (650) 496-8048
Attention: Senior Vice President
and General Counsel
If to Crescendo: Crescendo Pharmaceuticals Corporation
1454 Page Mill Road
Palo Alto, CA 94304
Facsimile: (650) 496-8250
Attention: President and
Chief Executive Officer
All notices shall be deemed to be effective five days after
the date of mailing or upon receipt if sent by facsimile
(but only if followed by certified or registered
confirmation). Either party may change the address at which
notice is to be received by written notice pursuant to this
Section 13.7.
13.8 Severability. If any provision of this
Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, it shall be modified, if possible,
to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it
shall be stricken and the remaining provisions shall remain
in full force and effect.
13.9 Relationship of the Parties. For purposes of
this Agreement, Crescendo and ALZA shall be deemed to be
independent contractors, and anything in this Agreement to
the contrary notwithstanding, nothing herein shall be deemed
to constitute Crescendo and ALZA as partners, joint
venturers, co-owners, an association or any entity separate
and apart from each party itself, nor shall this Agreement
constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever.
Neither party hereto is authorized to make any statements or
representations on behalf of the other party or in any way
obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to
the contrary notwithstanding, no party hereto shall assume
or be liable for any liabilities or obligations of the other
party, whether past, present or future.
13.10 Survival. The provisions of Sections 1, 7,
8.3, 8.4, 11, 13.1, 13.3, 13.5, 13.6, 13.7, 13.8, 13.9, and
this Section 13.10, and of Sections 4 and 5 to the extent of
obligations under such sections relating to periods prior to
termination of this Agreement, shall survive the termination
for any reason of this Agreement. Any payments due under
this Agreement with respect to any period prior to its
termination shall be made notwithstanding the termination of
this Agreement. Neither party shall be liable to the other
due to the termination of this Agreement as provided herein,
whether in loss of good will, anticipated profits or
otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
ALZA CORPORATION
By: /s/Peter D. Staple
Title: Senior Vice President and General Counsel
CRESCENDO PHARMACEUTICALS CORPORATION
By: /s/ Dr. James W Young
Title: President and Chief Executive Officer
EXHIBIT A
DEVELOPMENT COSTS
Development Costs are equal to the sum of (i) Research
Expenses, (ii) General and Administrative Expenses and (iii)
Capital Asset Expenditures.
(i) Research Expenses include both Direct Expenses and
Indirect Expenses, with the cost elements outlined on
Exhibit A-1.
(a) Direct Expenses include Direct Research
Salaries, Clinical Expenses, Supplies and other expenses
incurred specifically in connection with the Program.
(b) Indirect Expenses include Research Management
and support costs of the research and product development
organization. (Indirect Expenses are allocated to all
projects and billed to clients at a fixed rate* of 160% of
Direct Research Salaries.)
(ii) General and Administrative Expenses include cost
elements outlined on Exhibit A-2. (General and
Administrative Expenses are allocated among the research and
product development, manufacturing and marketing
organizations. The portion allocated to the research and
product development organization is then allocated to all
projects and billed to clients at a fixed rate* of 80% of
Direct Research Salaries.)
(iii) Capital Asset Expenditures are the actual costs of
new capital assets acquired specifically for the project.
* This fixed billing rate will not be changed prior to
January 1, 1998 and, if changed on or after January 1, 1998,
such changes will be limited to not more than one change per
calendar year and shall be a maximum of 10% of the rate in
effect at the time of the increase.
EXHIBIT A-1
Research Expenses
Direct Expenses
_________________
Direct Research Salaries*
Project Clinical Expenses and Outside Services
Project Specific Supplies
Project Travel and Related Expenses
Miscellaneous Project Expenses
Regulatory and Filing Fees and Maintenance Payments
Indirect Expenses
_________________
Research Management and Indirect Salaries*
General Research Supplies and Materials
General Research Consulting and Outside Services
Facilities Expenses
Telephone and Communications
Equipment Depreciation, Rent, Maintenance and Services
Research Travel and Related Expenses
Patent and Trademark Expenses
Miscellaneous Indirect Research Expenses
*Salaries include Benefits
EXHIBIT A-2
General and Administrative Expense
Corporate Management, Administrative, and Indirect Salaries*
Telephone and Communications
Equipment Depreciation, Rent, Maintenance and Services
Board of Directors and Corporate Consulting
Annual Audit, Accounting and Legal Expenses Facilities Expenses
Information Services (Data Processing) Expenses Interest Expense
Miscellaneous General and Administrative Expenses
*Salaries include Benefits
Exhibit 10.4
LICENSE OPTION AGREEMENT
This License Option Agreement (the "Agreement") is made
as of the 5th day of September, 1997 by and between ALZA
Corporation, a Delaware corporation ("ALZA"), and Crescendo
Pharmaceuticals Corporation, a Delaware corporation
("Crescendo").
BACKGROUND
A. Crescendo has been formed for the purpose
of selecting and developing human pharmaceutical products,
including products using ALZA Technology (as defined herein)
and commercializing such products, most likely through
licensing to ALZA.
B. As of the date hereof, ALZA and Crescendo
have entered
into a Technology License Agreement and a Development
Agreement.
C. Crescendo desires to grant to ALZA an option to
commercialize the products developed by Crescendo under the
Development Agreement as set forth herein.
Now, therefore, the parties agree as follows:
1. Definitions.
For purposes of this Agreement, the following terms shall
have the meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any
other entity that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under
common control with, the designated party. "Control" shall
mean ownership of at least 50% of the shares of stock
entitled to vote for the election of directors in the case
of a corporation, and at least 50% of the interests in
profits in the case of a business entity other than a
corporation.
1.2 "Crescendo Product" shall mean an Identified
Product, or another human pharmaceutical product which has
been recommended by ALZA and accepted by Crescendo's
independent Board of Directors for development as such under
the Development Agreement.
1.3 "Development Agreement" shall mean the
Development Agreement dated as of the date hereof between
ALZA and Crescendo.
1.4 "Distribution" shall mean ALZA's distribution
of all of the outstanding shares of Class A Common Stock of
Crescendo to ALZA's stockholders and debenture holders of
record on September 18,
1997.
1.5 "FDA" shall mean the United States Food and
Drug Administration or any successor agency whose clearance
is necessary to market a Crescendo Product in the United
States.
1.6 "Identified Products" shall mean, upon the
closing of ALZA's purchase of the outstanding shares of
Therapeutic Discovery Corporation, the following products:
OROSr oxybutynin, DUROST leuprolide, OROSr methylphenidate,
IUTS progesterone, D-TRANST testosterone matrix, E-TRANST
LHRH and E-TRANST (skin interface technology) insulin.
1.7 "License Agreement" shall mean an exclusive
license agreement for a particular Crescendo Product between
ALZA and Crescendo, in the form of Exhibit A to this
Agreement.
1.8 "License Option" shall mean the option
granted to ALZA pursuant to Section 2 of this Agreement.
1.9 "Product Payments" shall have the meaning set
forth in Section 3.1 of the License Agreement.
1.10 "Proprietary Rights" shall mean data,
inventions, information, processes, know-how and trade
secrets, and patents or patent applications claiming any of
the foregoing, owned by, licensed to or controlled by a
person and which such person has the right to license or
sublicense. Proprietary Rights shall not include
trademarks.
1.11 "Purchase Option" shall mean that certain
option contained in Crescendo's Restated Certificate of
Incorporation pursuant to which ALZA has the right to
purchase all of the outstanding shares of Crescendo Class A
Common Stock.
1.12 "Technology License Agreement" shall mean the
Technology License Agreement dated as of the date hereof
between ALZA and Crescendo.
2. License Option.
2.1 Grant of License Option. On the terms and
subject to the conditions of this Agreement, Crescendo
hereby grants to ALZA an option to obtain an exclusive
license with respect to each Crescendo Product, exercisable
on a product-by-product and country-by-country basis as
described in Section 2.2.
2.2 Time for Exercise.
(a) ALZA may exercise the License Option
with respect to Product on a country-by-country basis at any
time during the period beginning on the date hereof and
ending (i) with respect to the United States, 30 days after
clearance by the FDA to market such Crescendo Product in the
United States, and (ii) with respect to any other country,
90 days after the earlier of (A) clearance by the
appropriate regulatory agency to market such Crescendo
Product in such country and (B) clearance by the FDA to
market such Crescendo Product in the United States.
Notwithstanding the foregoing, the License Option shall
expire, to the extent not previously exercised, at the close
of business on the 30th day after the expiration of the
Purchase Option or, with respect to a particular Crescendo
Product, upon exercise by ALZA of the global buy-out option
for such Crescendo Product under the License Agreement for
such Crescendo Product. In any case, ALZA must exercise the
License Option for a particular Crescendo Product in a
particular country prior to the first commercial sale of
such product in such country by ALZA or any of its
Affiliates, sublicensees, distributors or marketing
partners.
(b) The License Option for any Crescendo
Product in any country will expire if not exercised within
the time periods described above. In addition, the License
Option for any Crescendo Product will expire, with respect
to all countries for which it has not yet been exercised,
upon exercise by ALZA of the global buy-out option for such
Crescendo Product under the License Agreement for such
Crescendo Product.
(c) Crescendo will notify ALZA in writing
within 10 business days of receipt of each clearance to
market any Crescendo Product in any country.
2.3 Manner of Exercise. ALZA shall exercise its
License Option by delivering to Crescendo, within the time
period described in Section 2.2 above, a written notice of
exercise specifying the Crescendo Product and the country or
countries as to which the License Option is exercised. A
License Agreement for such Crescendo Product shall be deemed
to be effective in such country or countries as of the date
of such notice of exercise, without the necessity of any
additional action by the parties. For the convenience of
the parties, however, ALZA shall, promptly after delivery of
such notice, forward to Crescendo two executed copies of a
License Agreement dated the effective date thereof and
containing completed Attachments A and B. Crescendo shall
execute both copies and return one to ALZA as soon as
possible. Failure of either or both of the parties to
execute such License Agreement shall not, however, affect
the effectiveness of the license granted thereby. The
parties shall enter into a separate License Agreement for
each Crescendo Product as to which ALZA elects to exercise a
License Option. For convenience, the parties shall amend
Attachment B to a License Agreement to add a country or
countries in cases where a License Option is being exercised
for a Crescendo Product for which a License Option already
has been exercised in another country or countries. Such
amendment shall set forth the additional country or
countries and the dates of exercise of the License Option
for such countries.
2.4 Development Assets. If ALZA does not
exercise the License Option for any Crescendo Product in any
country prior to the expiration of such License Option or,
if ALZA notifies Crescendo that it will not exercise the
License Option for a Crescendo Product, ALZA shall make
available to Crescendo for further development and
commercialization activities at no charge, all clinical
supplies, materials and other assets purchased, manufactured
or developed for use in the development of such Crescendo
Product with respect to such country to the extent such
assets will not be used under the Development Agreement.
3. No Conflict.
Crescendo agrees that no license, sale or other
commercialization of any Crescendo Product has been or shall
be made or offered to any person or entity on any basis that
is or will be in conflict with this Agreement or any License
Agreement.
4. Access To Information.
4.1 Information Available to ALZA. Crescendo
shall make available to ALZA, at all reasonable times, all
available information relating to all Crescendo Products as
to which the License Option remains exercisable so as to
enable ALZA to determine whether and when to exercise its
License Option.
4.2 Consultation with ALZA. Crescendo shall
consult with ALZA and inform ALZA on a continuing basis of
the current state of development of all Crescendo Products
as to which the License Option remains exercisable and will
review from time to time with ALZA the progress towards
completion of the Crescendo Products.
4.3 Consultation with Crescendo. In the event
that the License Option with respect to one or more
Crescendo Products in one or more countries expires
unexercised, ALZA shall make available to Crescendo all
information reasonably available to ALZA relating to such
Crescendo Products and ALZA's previous contacts with
potential sublicensees, distributors or marketing partners
for such Crescendo Products in such countries.
5. Effective Date; Termination.
5.1 Effective Date. This Agreement will become
effective on the date of the Distribution.
5.2 Termination. This Agreement shall terminate
on the earlier of (a) the date of expiration of the License
Option for all of the Crescendo Products and (b) 30 days
after expiration of the Purchase Option.
6. Miscellaneous.
6.1 Waiver, Remedies and Amendment. Any waiver by
either party hereto of a breach of any provisions of this
Agreement shall not be implied and shall not be valid unless
such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances,
performance by the other party in strict accordance with the
terms and conditions of this Agreement shall not be deemed a
waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and
conditions of this Agreement. A waiver by either party of
any term or condition of this Agreement shall not be deemed
or construed to be a waiver of such term or condition for
any other term. All rights, remedies, undertakings,
obligations and agreements contained in this Agreement shall
be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a
writing signed by both parties.
6.2 Assignment. Neither party may assign its
rights and obligations hereunder without the prior written
consent of the other party, which consent may not be
unreasonably withheld; provided, however, that ALZA may
assign such rights and obligations hereunder to an Affiliate
of ALZA or any person or entity with which ALZA is merged or
consolidated or which acquires all or substantially all of
the assets of ALZA.
6.3 Arbitration.
(a) All disputes which may arise under, out
of or in connection with this Agreement shall be settled by
arbitration conducted in the city of San Francisco, State of
California, in accordance with the then existing rules of
the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The parties hereby agree
that service of any notices in the course of such
arbitration at their respective addresses as provided for in
Section 6.7 of this Agreement shall be valid and sufficient.
(b) In any arbitration pursuant to this
Section 6.3, the award shall be rendered by a majority of
the members of a board of arbitration consisting of three
members who shall be appointed by the parties jointly, or if
the parties cannot agree as to three arbitrators within 30
days after the commencement of the arbitration proceeding,
then one arbitrator shall be appointed by ALZA and one
arbitrator shall be appointed by Crescendo within 60 days
after the commencement of the arbitration proceeding. The
third arbitrator shall be appointed by mutual agreement of
such two arbitrators. In the event of failure of the two
arbitrators to agree within 75 days after commencement of
the arbitration proceeding upon the appointment of the third
arbitrator, the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then
existing rules. Notwithstanding the foregoing, in the event
that any party shall fail to appoint an arbitrator it is
required to appoint within the specified time period, such
arbitrator and the third arbitrator shall be appointed by
the American Arbitration Association in accordance with its
then existing rules. For purposes of this Section 6.3, the
"commencement of the arbitration proceeding" shall be deemed
to be the date upon which a written demand for arbitration
is received by the American Arbitration Association from one
of the parties.
6.4 Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so
executed shall be deemed to be an original and all of which
when taken together shall constitute this Agreement.
6.5 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
state of California as applied to residents of that state
entering into contracts wholly to be performed in that
state.
6.6 Headings. The section headings contained in
this Agreement are included for convenience only and form no
part of the greement between the parties.
6.7 Notices. Notices required under this
Agreement shall be in writing and sent by registered or
certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail and addressed as
follows:
If to ALZA: ALZA Corporation
950 Page Mill Road
Palo Alto, CA 94304
Facsimile: (650) 496-8048
Attention: Senior Vice President and
General Counsel
If to Crescendo: Crescendo PharmaceuticalsCorporation
1454 Page Mill Road
Palo Alto, CA 94304
Facsimile: (650) 496-8250
Attention: President and
Chief Executive Officer
All notices shall be deemed to be effective five days
after the date of mailing or upon receipt if sent by
facsimile (but only if followed by certified or registered
confirmation). Either party may change the address at which
notice is to be received by written notice pursuant to this
Section 6.7.
6.8 Severability. If any provision of this
Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, it shall be modified, if possible,
to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it
shall be stricken and the remaining provisions shall remain
in full force and effect.
6.9 Relationship of the Parties. For purposes of
this Agreement, Crescendo and ALZA shall be deemed to be
independent contractors, and anything in this Agreement to
the contrary notwithstanding, nothing herein shall be deemed
to constitute Crescendo and ALZA as partners, joint
venturers, co-owners, an association or any entity separate
and apart from each party itself, nor shall this Agreement
constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever.
Neither party hereto is authorized to make any statements or
representations on behalf of the other party or in any way
obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to
the contrary notwithstanding, no party hereto shall assume
nor shall be liable for any liabilities or obligations of
the other party, whether past, present or future.
6.10 Survival. The provisions of Sections 1, 2.4,
4.3, 6.1, 6.3, 6.5, 6.7, 6.8, 6.9 and this Section 6.10
shall survive the termination for any reason of this
Agreement. Any payments due under this Agreement with
respect to any period prior to its termination shall be made
notwithstanding the termination of this Agreement. Neither
party shall be liable to the other due to the termination of
this Agreement as provided herein, whether in loss of good
will, anticipated profits or otherwise.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first set forth above.
ALZA CORPORATION
By: /s/ Peter D. Staple
Title: Senior Vice President
and General Counsel
CRESCENDO PHARMACEUTICALS CORPORATION
By: /s/ Dr. James W. Young
Title: President and
Chief Executive Officer
EXHIBIT A
FORM OF LICENSE AGREEMENT
This License Agreement (the "Agreement") is made this
____ day of _______________ , _____, by and between ALZA
Corporation, a Delaware corporation ("ALZA"), and Crescendo
Pharmaceuticals Corporation ("Crescendo"), a Delaware
corporation.
BACKGROUND
A. Crescendo and ALZA have entered into a License
Option Agreement and certain other agreements dated as of
September 5, 1997.
B. Section 2 of the License Option Agreement provides
for a license, the terms of which are to be set forth
herein.
Now, therefore, the parties agree as follows:
1. Definitions.
For purposes of this Agreement, the following terms shall
have the meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any
other entity that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under
common control with, the designated party. "Control" shall
mean ownership of at least 50% of the shares of stock
entitled to vote for the election of directors in the case
of a corporation, and at least 50% of the interests in
profits in the case of a business entity other than a
corporation.
1.2 "Development Agreement" shall mean the
Development Agreement between ALZA and Crescendo dated as of
September 5, 1997.
1.3 "Development Cost(s)" shall mean the cost of
activities undertaken pursuant to the Development Agreement
with respect to the Licensed Product, determined in
accordance with Exhibit A thereto.
1.4 "Infringing Product" shall mean any product
sold by a third party, other than pursuant to an agreement
with ALZA, (i) which incorporates the same therapeutic agent
or agents as incorporated in the Licensed Product and (ii)
in the case of a Licensed Product using an ALZA drug
delivery system, which incorporates a delivery system
substantially similar to that incorporated in the Licensed
Product, and (iii) which infringes or is alleged to infringe
any patent or patents owned by, licensed to or controlled by
ALZA.
1.5 "License Option Agreement" shall mean the
License
Option Agreement between ALZA and Crescendo dated as of
September 5, 1997.
1.6 "Licensed Product" shall mean the product
listed on Exhibit A hereto.
1.7 "Major Market Country" shall mean any of the
following countries: the United States, France, Germany,
Italy, Japan or the United Kingdom.
1.8 "Net Sales" shall mean the total amount
invoiced in United States dollars (or converted thereto in
accordance with Section 5.2 hereof) on sales of a Licensed
Product by ALZA (or its Affiliates) or any ALZA sublicensee,
distributor or marketing partner (or its Affiliates) to
unrelated third parties such as wholesalers, hospitals and
others, in bona fide arm's-length transactions, less the
following deductions, in each case related specifically to
the Licensed Product and actually allowed and taken and not
otherwise recovered by or reimbursed to ALZA (or its
Affiliates) or such sublicensee, distributor or marketing
partner (or its Affiliates): (i) trade, cash and quantity
discounts; (ii) taxes on sales (such as sales or use taxes)
to the extent added to the sales price and set forth
separately as such in the total amount invoiced; (iii)
freight, insurance and other transportation charges to the
extent added to the sales price and set forth separately as
such in the total amount invoiced; and (iv) amounts repaid
or credited by reason of rejections, defects or returns or
because of retroactive price reductions, chargebacks or
rebates under government programs. Net Sales shall also
include the fair market value of all other consideration
received (a) by ALZA (or its Affiliates) with respect to
sales by them of the Licensed Product to unrelated third
parties from persons other than sublicensees, distributors
or marketing partners (or their Affiliates) or (b) by any
ALZA sublicensee, distributor or marketing partner (or its
Affiliates) with respect to their sales of the Licensed
Product to unrelated third parties, in each case whether
such consideration is in cash, payment in kind, exchange or
other form.
1.9 "Territory" shall mean the country or
countries listed on Exhibit B hereto, as amended from time
to time by the parties in connection with the exercise by
ALZA of its option for additional countries under the
License Option Agreement or the surrender by ALZA of its
rights to commercialize the Licensed Product in any country
or countries.
2. Grant of License.
2.1 Grant. Crescendo hereby grants to ALZA an
exclusive, perpetual license, with the right to sublicense,
to develop, make, have made and use the Licensed Product and
to sell and have sold the Licensed Product in the Territory.
ALZA agrees to use diligent efforts to conduct or have
conducted any remaining activities necessary to complete the
development of the Licensed Product in the Territory through
regulatory clearance to market the Licensed Product in the
Territory. Such activities will be undertaken at no cost to
Crescendo, unless Crescendo agrees otherwise in writing.
Promptly after regulatory clearance, ALZA shall commence and
continue to use diligent efforts to commercialize the
Licensed Product in each Major Market Country of the
Territory through the manufacture and sale or the
sublicensing of the Licensed Product, devoting to the
Licensed Product the same resources as other pharmaceutical
companies of similar size devote to products with similar
market potential and with similar relative importance to
their product portfolios. ALZA may use reasonable business
discretion in the allocation of its technological and
monetary resources in performing its obligations hereunder,
taking into account not only the Licensed Product but also
activities for its own account and its obligations under its
other agreements with third parties. Crescendo acknowledges
that ALZA will continue to own and have the right to use any
clinical supplies, materials and other assets purchased,
manufactured or developed for use in the development of such
Licensed Product, without any additional payment to or
reimbursement of Crescendo.
2.2 No Other Commercialization. ALZA shall not
commercialize the Licensed Product in any country except
pursuant to this Agreement.
3. Product Payments.
3.1 Payments.
(a) In consideration of the grant of the
license, ALZA shall make payments to Crescendo ("Product
Payments") with respect to the Licensed Product as follows:
1% of Net Sales of the Licensed Product in the Territory,
plus an additional 0.1% of such Net Sales for each full $1
million of Development Costs of the Licensed Product paid by
Crescendo. Notwithstanding the foregoing, Product Payments
for any quarter will not exceed 2.5% of Net Sales, on a
quarterly basis, in the Territory for the first four
calendar quarters during which the Licensed Product is
commercially sold in the first Major Market Country, and 3%
of Net Sales, on a quarterly basis, for each of the
following eight completed calendar quarters.
(b) In determining Product Payments,
Development Costs shall be determined as of the last day of
each calendar quarter, in order to determine the rates
payable with respect to Net Sales for the next calendar
quarter for all countries included in the Territory as of
the first day of such next calendar quarter, and for any
country added to the Territory during such next calendar
quarter.
(c) In determining Product Payments, Net Sales by
ALZA shall be reduced by the dollar amount of any license or
similar payments made by or due from ALZA or its Affiliates
to third parties with respect to sales of such Licensed
Product in the Territory. If license or similar payments
are made to third parties with respect to sales of both the
Licensed Product in the Territory and to sales of other
products, ALZA shall allocate such payments, if necessary,
in a commercially reasonable manner.
3.2 Term of Payments. The obligation to make
Product Payments hereunder shall continue until 15 years
after the date of the first commercial sale of the Licensed
Product in any Major Market Country, and shall terminate as
to all countries at the end of such 15-year period.
3.3 Buy-Out of Payments.
(a) ALZA shall have the option, in its
discretion, at any time after the end of the twelfth
calendar quarter during which the Licensed Product was
commercially sold in any country, to buy out its remaining
obligations to make Product Payments with respect to Net
Sales of such Licensed Product in such country. The buy out
price shall be an amount equal to 15 times the Product
Payments made by or due from ALZA to Crescendo with respect
to Net Sales of such Licensed Product in such country for
the four calendar quarters immediately preceding the quarter
in which the buy-out option is exercised, plus 15 times such
additional Product Payments as would have been made but for
the 2.5% and 3% limits set forth in Section 3.1 on Product
Payments for such period.
(b) ALZA shall have the option, in its
discretion, at any time after the end of the twelfth
calendar quarter during which the Licensed Product was
commercially sold in either the United States or two other
Major Market Countries, to buy out its remaining
obligations to make Product Payments with respect to Net
Sales of such Licensed Product in the Territory. The buy-
out price shall be an amount equal to (i) 20 times (A) the
Product Payments made by or due from ALZA to Crescendo for
such Licensed Product in the Territory, plus (B) such
payments as would have been made by or due from ALZA to
Crescendo if ALZA had not exercised any country-specific buy-
out option with respect to Net Sales of such Licensed
Product, plus (C) such additional Product Payments as would
have been made but for the 2.5% and 3% limits set forth in
Section 3.1 on Product Payments for such period, in each
case, for the four calendar quarters immediately preceding
the quarter in which the buy-out option is exercised, less
(ii) any amounts previously paid to exercise any country-
specific buy out option with respect to Net Sales of such
Licensed Product.
4. Accounting.
4.1 Reports. Within 90 days after the end of
each calendar quarter for which Product Payments are due,
ALZA shall render an accounting to Crescendo, on a country-
by-country basis, with respect to all Product Payments due
for such quarter. Such report shall indicate, for such
quarter, the quantity and dollar amount of Net Sales of the
Licensed Product by ALZA and its Affiliates, sublicensees,
distributors and marketing partners (and their Affiliates),
or other consideration with respect to Net Sales, with
respect to which payments are due; provided, however, that
if ALZA shall not have received from any sublicensee,
distributor or marketing partner a report of its (and its
Affiliates') sales for such quarter, then such sales shall
be included in the next quarterly report. In case no
Product Payments are due for any calendar quarter, ALZA
shall so report.
4.2 Records; Review by Accountants. ALZA shall
keep and maintain, in accordance with generally accepted
accounting principles, proper and complete records and books
of account documenting all amounts paid or payable by ALZA
to Crescendo. Crescendo shall have the right, once in each
calendar year during regular business hours and upon
reasonable notice to ALZA, at Crescendo's expense, to
examine or have examined by a certified public accountant or
similar person, such of the records of ALZA as may be
necessary to verify the accuracy of the reports and payments
made under this Agreement. Such examination shall take
place not later than two years following the year in
question, and only one examination may take place with
respect to any period as to which such books and records are
examined. ALZA shall obtain, for itself and for Crescendo,
similar reasonable rights to audit information pertaining to
Net Sales from each party appointed to commercialize any
product as to which payments are due to Crescendo hereunder.
5. Times and Currencies Of Payments.
5.1 Payments. Payments shown by each calendar
quarter report to have accrued shall be due and payable on
the date such report is due and shall be paid in United
States dollars. Any and all taxes due or payable on such
payments or with respect to the remittance thereof shall be
deducted from such payments and shall be paid by ALZA to the
proper taxing authorities, and proof of payment shall be
secured and sent to Crescendo as evidence of such payment.
The rate of exchange to be used in computing the amount of
the United States dollars due to Crescendo in satisfaction
of payment obligations with respect to sales in foreign
countries shall be calculated by converting the amount due
in such foreign currency into United States dollars at the
rate for the purchase of United States dollars with such
currency as published in The Wall Street Journal on the last
business day of the calendar quarter for which payment is
being made.
5.2 Certain Foreign Payments. If governmental
regulations prevent remittance from any foreign country of
any amounts due under Section 3.1 in respect of that
country, ALZA shall so notify Crescendo in writing, and the
obligation under this Agreement to make payments with
respect to sales in that country shall be suspended (but the
amounts due but not paid shall continue to accrue) until
such remittances are possible. Crescendo shall have the
right, upon written notice to ALZA, to receive payment in
any such country in the local currency.
5.3 Late Payments. Any payments due hereunder
that are not made when due shall bear interest at the lesser
of 10%
per annum or the maximum rate as may be allowed by law,
beginning on the date when Crescendo has notified ALZA that
such payments are overdue.
6. Patent Infringement.
6.1 Notice. Each party shall promptly notify the
other party of use or sale by a third party of an Infringing
Product.
6.2 Legal Action. If a third party manufactures
or sells an Infringing Product, ALZA may, at its own
expense, bring legal action to restrain such infringement
and for damages. Any recoveries resulting from any such
action shall be first applied to reimburse ALZA for its
expenses (including reasonable attorneys' fees) incurred in
bringing the action. Crescendo will be entitled to a share
of the remaining recoveries in the same percentage as the
percentage of Net Sales as to which Product Payments are due
to Crescendo during the period of the infringement or
alleged infringement. If (a) ALZA fails to take the
necessary steps to restrain such infringement or alleged
infringement by litigation or otherwise within 90 days after
either party's notice described in Section 6.1, (b) if the
infringement or alleged infringement occurs during a period
for which Crescendo is entitled to receive Product Payments
hereunder, and (c) if over a period of at least two calendar
quarters such Infringing Product achieves an annualized unit
sales volume in the country of infringement equal to 25% of
the annualized unit sales volume of the Licensed Product
sold by ALZA and its Affiliates, sublicensees, distributors
and marketing partners (and their Affiliates) in such
country during such year, then Crescendo may institute, in
its own name, at its own expense and with the right to all
recoveries, such litigation or other appropriate action as
it may deem appropriate to restrain such infringement,
provided that Crescendo has first given to ALZA 60 days
advance notice of its intention to take such action, and
provided further, that ALZA has not itself taken appropriate
action during such 60 day period.
6.3 Cooperation. If either party desires to
bring an action in accordance with Section 6.2, the other
party agrees to cooperate fully with the party bringing such
action in the pursuit thereof, at the expense of the party
bringing such action and to the extent reasonably requested
by such party. If the third party in any such action
brought by Crescendo brings a counteraction for invalidation
or misuse of a patent covering the Licensed Product,
Crescendo promptly shall notify ALZA and ALZA may, within
six months of the notification, join and participate in such
action at its own expense.
6.4 Settlement. Each party agrees not to settle
any action it brings in a manner that would adversely affect
the other party without the other party's prior written
approval.
7. Effective Date and Term.
7.1 Effective Date and Term. This Agreement will
become effective in accordance with Section 2.3 of the
License Option Agreement and, unless terminated in
accordance with any of the provisions hereof, shall remain
in full force and effect thereafter.
8. Indemnification.
8.1 Indemnity. ALZA shall indemnify, defend and
hold
Crescendo (and its Affiliates) harmless from and against any
and all liabilities, claims, demands, damages, costs,
expenses or money judgments incurred by or rendered against
Crescendo and its Affiliates, which arise out of the use,
design, labeling or manufacture, processing, packaging, sale
or commercialization of the Licensed Product by ALZA, its
Affiliates, subcontractors, sublicensees, distributors and
marketing partners (and their Affiliates). Crescendo shall
permit ALZA's attorneys, at ALZA's discretion and cost, to
control the defense of any claims or suits as to which
Crescendo may be entitled to indemnification hereunder, and
Crescendo agrees not to settle any such claims or suits
without the prior written consent of ALZA. Crescendo shall
have the right to participate, at its own expense, in the
defense of any such claim or demand to the extent it so
desires.
8.2 Notice. Crescendo shall give ALZA prompt
notice in writing, in the manner set forth in Section 11.7
below, of any claim or demand made against Crescendo for
which Crescendo may be entitled to indemnification under
Section 8.1.
9. Disclaimers.
CRESCENDO DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY (A)
THAT THE LICENSED PRODUCT OR ANY TECHNOLOGY INCORPORATED
THEREIN, OR THE MANUFACTURE, USE OR SALE THEREOF, WILL BE
FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR
UNLAWFUL USE OF PROPRIETARY INFORMATION OF ANY THIRD PARTY
AND (B) OF THE ACCURACY, RELIABILITY, TECHNOLOGICAL OR
COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF
THE LICENSED PRODUCT OR ANY TECHNOLOGY INCORPORATED THEREIN
OR THEIR SUITABILITY OR FITNESS FOR ANY PURPOSE WHATSOEVER
INCLUDING, WITHOUT LIMITATION, THE DESIGN, DEVELOPMENT,
MANUFACTURE, USE OR SALE OF THE LICENSED PRODUCT. CRESCENDO
DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER NATURE, EXPRESS
OR IMPLIED.
10. Termination.
10.1 Termination by Crescendo. Crescendo may, in
its discretion, terminate this Agreement in the event that
ALZA:
(a) breaches any of its material
obligations hereunder and such breach continues for a period
of 60 days after written notice thereof; or
(b) enters into any proceeding, whether
voluntary or otherwise, in bankruptcy, reorganization or
arrangement for the appointment of a receiver or trustee to
take possession of ALZA's assets or any other proceedings
under any law for the relief of creditors or makes an
assignment for the benefit of its creditors.
10.2 Termination by ALZA. ALZA may terminate this
Agreement with respect to one or more countries included in
the Territory upon 30 days' prior written notice to
Crescendo if ALZA elects for any reason to discontinue
commercialization of the Licensed Product in such country.
10.3 Consequences of Termination. Termination of
this Agreement for any reason in accordance with the terms
hereof shall be without prejudice to:
(a) Crescendo's right to receive all
payments accrued under Section 3 prior to the effective date
of such termination; and
(b) any other remedies which either
party may then or thereafter have hereunder or otherwise.
If this Agreement terminates pursuant to this Section 10,
ALZA shall immediately discontinue any promotion and sales
of the Licensed Product. Notwithstanding the foregoing, in
the event of any termination under this Section 10, ALZA may
sell its inventory in stock on the date of termination for a
period of up to six months after the termination, and shall
remit payments to Crescendo in respect thereto in accordance
with this Agreement.
11. Miscellaneous.
11.1 Waiver, Remedies and Amendment. Any waiver
by either party hereto of a breach of any provisions of this
Agreement shall not be implied and shall not be valid unless
such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances,
performance by the other party in strict accordance with the
terms and conditions of this Agreement shall not be deemed a
waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and
conditions of this Agreement. A waiver by either party of
any term or condition of this Agreement shall not be deemed
or construed to be a waiver of such term or condition for
any other term. All rights, remedies, undertakings,
obligations and agreements contained in this Agreement shall
be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a
writing signed by both parties.
11.2 Assignment. Neither party may assign its
rights and obligations hereunder without the prior written
consent of the other party, which consent may not be
unreasonably withheld; provided, however, that ALZA may
assign such rights and obligations hereunder to an Affiliate
of ALZA or to any person or entity with which ALZA is merged
or consolidated or which acquires all or substantially all
of the assets of ALZA.
11.3 Arbitration.
(a) All disputes which may arise under, out
of or in connection with this Agreement shall be settled by
arbitration conducted in the City of San Francisco, State of
California, in accordance with the then existing rules of
the American Arbitration Association, and judgment upon the
award rendered by the Arbitrators may be entered in any
court having jurisdiction thereof. The parties hereby agree
that service of any notices in the course of such
arbitration at their respective addresses as provided for in
Section 11.7 of this Agreement shall be valid and
sufficient.
(b) In any arbitration pursuant to this
Section 11.3, the award shall be rendered by a majority of
the members of a board of arbitration consisting of three
members who shall be appointed by the parties jointly, or if
the parties cannot agree as to three arbitrators within 30
days after the commencement of the arbitration proceeding,
then one arbitrator shall be appointed by ALZA and one
arbitrator shall be appointed by Crescendo within 60 days
after the commencement of the arbitration proceeding. The
third arbitrator shall be appointed by mutual agreement of
such two arbitrators. In the event of failure of the two
arbitrators to agree within 75 days after commencement of
the arbitration proceeding upon the appointment of the third
arbitrator, the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then
existing rules. Notwithstanding the foregoing, in the event
that any party shall fail to appoint an arbitrator it is
required to appoint within the specified time period, such
arbitrator and the third arbitrator shall be appointed by
the American Arbitration Association in accordance with its
then existing rules. For purposes of this Section 11.3, the
"commencement of the arbitration proceeding" shall be deemed
to be the date upon which a written demand for arbitration
is received by the American Arbitration Association from one
of the parties.
11.4 Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so
executed shall be deemed to be an original and all of which
when taken together shall constitute this Agreement.
11.5 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
state of California as applied to residents of that state
entering into contracts to be performed in that state.
11.6 Headings. The headings set forth at the
beginning of the various sections of this Agreement are for
convenience and form no part of the Agreement between the
parties.
11.7 Notices. Notices required under this
Agreement shall be in writing and sent by registered or
certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid,
and addressed as follows:
If to ALZA: ALZA Corporation
950 Page Mill Road Palo Alto, CA 94304
Facsimile: (650) 496-8048
Attention: Senior Vice President
and General Counsel
If to Crescendo: Crescendo Pharmaceuticals Corporation
1454 Page Mill Road
Palo Alto, CA 94304
Facsimile: (650) 496-8250
Attention: President and
Chief Executive Officer
All notices shall be deemed to be effective five days
after the date of mailing or upon receipt if sent by
facsimile (but only if followed by certified or registered
confirmation). Either party may change the address at which
notice is to be received by written notice pursuant to this
Section 11.7.
11.8 Severability. If any provision of this
Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, it shall be modified, if possible,
to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it
shall be stricken and the remaining provisions shall remain
in full force and effect.
11.9 Relationship of the Parties. For all
purposes of this Agreement, Crescendo and ALZA shall be
deemed to be independent contractors and anything in this
Agreement to the contrary notwithstanding, nothing herein
shall be deemed to constitute Crescendo and ALZA as
partners, joint venturers, coowners, an association or any
entity separate and apart from each
party itself, nor shall this Agreement constitute any party
hereto an employee or agent, legal or otherwise, of the
other party for any purposes whatsoever. Neither party
hereto is authorized to make any statements or
representations on behalf of the other party or in any way
to obligate the other party, except as expressly authorized
in writing by the other party. Anything in this Agreement to
the contrary notwithstanding, no party hereto shall assume
nor shall be liable for any liabilities or obligations of
the other party, whether past, present or future.
11.10 Survival. The provisions of Sections 1,
4.2, 8, 9, 10.3, 11.1, 11.3, 11.5, 11.6, 11.7, 11.8, 11.9,
and this Section 11.10 shall survive the termination for any
reason of this Agreement. Any payments due under this
Agreement with respect to any period prior to its
termination shall be made notwithstanding the termination of
this Agreement. Neither party shall be liable to the other
due to the termination of this Agreement as provided herein,
whether in loss of good will, anticipated profits or
otherwise.
11.11 Force Majeure. Neither party to this
Agreement shall be liable for failure or delay in the
performance of any of its obligations hereunder, if such
failure or delay is due to causes beyond its reasonable
control including, without limitation, acts of God,
earthquakes, fires, strikes, acts of war, or intervention of
any governmental authority, but any such delay or failure
shall be remedied by such party as soon as possible after
the removal of the cause of such failure or delay.
IN WITNESS WHEREOF, the parties have executed this
Agreement on the date first set forth above.
ALZA CORPORATION
By: /s/ Peter D. Staple
Title: Senior Vice President
and General Counsel
CRESCENDO PHARMACEUTICALS CORPORATION
By: /s/ Dr. James W. Young
Title: President and
Chief Executive Officer
ATTACHMENT A
LICENSED PRODUCT
ATTACHMENT B
TERRITORY
DATE OF EXERCISE
COUNTRY
EXHIBIT 10.5
ALZA CORPORATION
Amended and Restated Stock Plan
(as amended through August 13, 1997)
1. Purpose. The purpose of this ALZA Corporation Amended
and Restated Stock Plan (the "Plan") is to attract, retain
and motivate key employees (including employees who are also
directors), directors and consultants of ALZA Corporation
(the "Company") and its subsidiaries by giving them the
opportunity to acquire stock ownership in the Company.
Grants under this Plan may consist of incentive stock
options, intended to satisfy the requirements of Section 422
of the Internal Revenue Code of 1986, as it may be amended
from time to time (the "Code"), or nonstatutory stock
options (in either case, where unspecified, "options").
This Plan also provides for the award of restricted stock.
2. Effective Date and Term of Plan. The effective date of
this Plan is May 4, 1992, the date of the approval of the
1992 Stock Option Plan by the Company's stockholders. This
Plan shall terminate automatically ten (10) years after its
effective date unless terminated earlier by the Board of
Directors (the "Board") under Section 13 hereof. No grant
of options or restricted stock shall be made after
termination of this Plan, but all grants made prior to
termination shall remain in effect in accordance with their
terms.
3. Shares Subject to the Plan.
(a) Number and Source of Shares. Subject to the
provisions of Section 9, the total number of shares of stock
reserved for grants under this Plan is 9,000,000 shares of
Common Stock, $. 01 par value, of the Company (the "Stock").
If any option terminates or expires without being exercised
in full, or if any shares of Stock issued as restricted
stock are forfeited prior to conferring on their holder
benefits of ownership other than voting rights or
accumulated dividends that are not realized, the shares
issuable under such option or so forfeited shall become
available again for grant under this Plan. The shares to be
issued hereunder may consist of authorized and unissued
shares or treasury shares.
(b) Individual Limitation. The Company may not grant
options covering in the aggregate more than 200,000 shares
of Stock (subject to adjustments and substitutions as
required under Section 9 below) to any one participant in
any one-year period, except that, at the time of an offer of
employment, the Company may grant options covering in the
aggregate up to 750,000 shares of Stock (subject to
adjustments and substitutions as required under Section 9
below).
4. Administration of the Plan. This Plan shall be
administered by the Board or by a committee that meets the
requirements of Rule 16b-3 under the Securities Exchange Act
of 1934 (the "Exchange Act") as in effect from time to time
(in either case, the "Administrator"). The Administrator
(i) may authorize any one or more of its members or any
officer of the Company to execute and deliver documents on
behalf of the Administrator and (ii) so long as not
otherwise required for the Plan to comply with Rule 16b-3,
may delegate to one or more officers or directors of the
Company authority to grant options to persons who are not
subject to Section 16 of the Exchange Act with respect to
Stock. The Administrator may delegate nondiscretionary
administrative duties to such employees of the Company or a
subsidiary as it deems proper. The Administrator may also
make rules and regulations which it deems useful to
administer this Plan. Any decision or action of the
Administrator in connection with this Plan or any options or
restricted stock granted or shares of Stock purchased under
this Plan shall be final and binding. No member of the
Board shall be liable for any decision, action or omission
respecting this Plan, or any options or restricted stock
granted or shares of Stock issued under this Plan.
5. Eligibility.
(a) Incentive stock options may be granted under this
Plan only to employees of the Company or a subsidiary,
including employees who may also be officers or directors of
the Company or any subsidiary of the Company. Nonstatutory
options and restricted stock may be granted to employees
(including employees who are also directors), directors,
consultants and potential employees (in contemplation of and
subject to employment) of the Company or any subsidiary of
the Company; provided, however, that grants to directors who
are not also employees of the Company may be made only in
accordance with Section 5(b) below. Participants in this
Plan shall be recommended for grants hereunder by the Chief
Executive Officer or Chief Operating Officer of the Company
and approved by the Administrator. Determination by the
Administrator as to eligibility shall be conclusive.
(b) Notwithstanding any other provision of this Plan,
directors who are not also employees of the Company may
receive grants under this Plan only in accordance with this
Section 5(b). Automatically and in connection with the offer
of directorship to a person who is not an employee of the
Company, and subject to that person becoming a director of
the Company within the time period set forth in the offer,
the person shall be granted a nonstatutory option to
purchase 20,000 shares of Stock at the fair market value of
the Stock on the date of the offer. Such option shall vest
in five equal annual increments of 4,000 shares for each
increment, beginning on the first anniversary of the date on
which the person first attends a meeting of the Board
following his or her election as a director (the "Service
Date"), and shall be exercisable until the date that is ten
(10) years after the date of grant. Assuming that the
director is a nonemployee director on the fifth anniversary
of his or her Service Date, such director automatically
shall be granted on such fifth anniversary of his or her
Service Date a further nonstatutory option to purchase
10,000 shares of Stock at the fair market value of the Stock
on the date of the grant. Such additional option shall vest
in five equal annual increments of 2,000 shares each,
beginning one year after the date of grant, and shall be
exercisable until the date that is ten (10) years after the
date of grant. Thereafter, on each subsequent fifth
anniversary of his or her Service Date, assuming the
director is then a nonemployee director, a further option to
purchase an additional 10,000 shares of Stock automatically
shall be granted to such director on the same basis as set
forth in the preceding sentence. The Service Date for a
director who is also an employee of the Company but who
terminates employment with the Company while remaining a
director shall, for purposes of this Section 5(b), be deemed
to be the date on which such director first attends a
meeting of the Board following the termination of his or her
employment with the Company. If such director has not been
granted options to purchase Stock within five years prior to
his or her Service Date, he or she automatically shall be
granted a nonstatutory option to purchase 20,000 shares of
Stock on the same basis as set forth above for a grant to a
person becoming a director of the Company; and, thereafter,
on each subsequent fifth anniversary of his or her Service
Date, assuming the director is then a non-employee director,
a further option to purchase an additional 10,000 shares of
Stock automatically shall be granted to such director on the
same basis as set forth above for further options. However,
if such director has been granted options to purchase Stock
within five years prior to his or her Service Date, he or
she shall automatically be granted a nonstatutory option to
purchase 10,000 shares of Stock on the same basis as set
forth above for further options on the fifth anniversary of
the date of the last grant of options by the Company to such
person prior to the termination of his or her employment
with the Company (the "Initial Grant Date"); and,
thereafter, on each subsequent fifth anniversary of his or
her Initial Grant Date, assuming the director is then a non
employee director, a further option to purchase an
additional 10,000 shares of Stock automatically shall be
granted to such director on the same basis as set forth
above for further options.
6. Options.
(a) Grant. The Administrator may, in its discretion,
grant options under this Plan at any time and from time to
time before the expiration of this Plan. The Administrator
shall specify the date of grant or, if it fails to, the date
of grant shall be the date of the action taken by the
Administrator to grant the option (in either case, the
"Grant Date"). If an incentive stock option is approved in
anticipation of employment, the Grant Date shall in any
event not be prior to the date the intended optionee is
first treated as an employee of the Company or any
subsidiary for payroll purposes.
(b) Option Agreements. As soon as practicable after
the Grant Date, the Company will provide the optionee a
written stock option agreement (the "Option Agreement"),
which designates the option as an incentive stock option or
nonstatutory option and which identifies the Grant Date, the
number of shares of Stock covered by the option, the option
price and the terms and conditions for exercise of the
option.
(c) Terms and Conditions of Options. Options granted
under this Plan shall be subject to the following additional
terms and conditions and such other terms and conditions not
inconsistent with this Plan as the Administrator may impose:
(i) Exercise of Option. In order to exercise all
or any portion of an incentive stock option granted under
this Plan (or any other option which, by its terms, so
requires), an optionee must remain in the employ of the
Company or a subsidiary of the Company until the date on
which the option (or portion thereof) becomes exercisable
(the "Vesting Date"). An option shall be partially
exercisable on or after each Vesting Date with respect to
the percentage of total shares of Stock covered by the
option set out in the Option Agreement.
If an option (or portion thereof) is not exercised on
the earliest Vesting Date on which it becomes exercisable,
it may be exercised thereafter at any time prior to its
expiration date; provided, however, that in no event may an
incentive stock option granted under this Plan be exercised
more than ten (10) years from the Grant Date. If the
Company grants an incentive stock option to an optionee who
owns, on the Grant Date, directly or by attribution, stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the company or any
subsidiary, the option shall not be exercisable more than
five (5) years after the Grant Date.
Notwithstanding any other provision of this Plan, to
the extent required by Section 422(d) of the Code, the
aggregate value of all shares first becoming exercisable by
an optionee during any year, under all incentive stock
options granted to such optionee covering stock of the
Company (or any company which, at the time of grant, was a
parent or subsidiary of the Company), shall not exceed
$100,000 or such other amount as may be in effect from time
to time. If by their terms such incentive stock options,
when taken together, would first become exercisable at a
faster rate then, except as otherwise specifically provided
by the Administrator in its discretion, the portion thereof
which exceeds such amount shall be nonstatutory options.
For this purpose, value shall be the fair market value of
the option stock when the options were granted and options
shall be taken into account in the order in which they were
granted. In no event may the operation of this Section
6(c)(i) cause an option to vest before its terms or, having
vested, cease to be vested.
Nonstatutory options granted to employees under this
Plan shall be exercisable until ten (10) years after the
Grant Date, unless the Administrator shall determine
otherwise.
(ii) Option Price. The option price of incentive
stock options shall be at least one-hundred percent (100%)
of the fair market value of the shares covered by the option
on the Grant Date, as determined in good faith by the
Administrator and, in the case of nonstatutory options,
shall be at least one- hundred percent (100%) of the fair
market value of the shares covered by the option on the
Grant Date unless the Administrator specifically determines
otherwise, in which event the option price of such
nonstatutory options shall not be less than eighty- five
percent (85%) of the fair market value of the shares covered
thereby on the Grant Date, determined in the same manner.
If the Company grants an incentive stock option
to an optionee owning on the Grant Date,
directly or by attribution, shares possessing
more than ten percent (10%) of the total
combined voting power of all classes of stock
of the Company or any subsidiary, the option
price shall be at least one-hundred ten percent
(110%) of the fair market value of the shares
covered by the option on the Grant Date
determined in the same manner.
(iii) Method of Exercise. To the
extent the right to purchase shares has
accrued, an option (or portion thereof) may be
exercised from time to time in accordance with
its terms by written notice from the optionee
to the Company stating the number of shares
with respect to which the option is being exercised and accompanied by
payment in full of the exercise price of the
shares. Payment may be made in cash, by check,
or by delivery of shares of Stock (duly endorsed
in favor of the Company or accompanied by a duly
endorsed stock power), by a combination of the
above, or any other form of consideration
approved by the Administrator (including payment
in accordance with a cashless exercise program
as permitted under Regulation T promulgated by
the Federal Reserve Board, as amended from time
to time). Any shares delivered to the Company
as payment upon exercise of an option shall be
valued at their fair market value as of the date
of exercise of the option determined in good
faith by the Administrator. Options may not be
exercised by any optionee by the delivery of
shares of stock more frequently than once every
six months.
(iv) Restrictions on Option Shares.
At the time it grants options under this Plan,
the Company may retain for itself (or others)
rights to purchase the shares acquired under the
option or impose other restrictions on the
shares. The terms and conditions of any such
rights or other restrictions shall be set forth
in the Option Agreement evidencing the option.
(v) Nonassignability of Option
Rights. Except as otherwise determined by the
Administrator, no option shall be transferable
other than by will or by the laws of descent and
distribution or a qualified domestic relations
order and, otherwise during the lifetime of an
optionee, only the optionee may exercise an
option.
(vi) Exercise after Termination of
Service or Death. If for any reason other than
permanent and total disability or death, an
optionee ceases to be employed by, or a
consultant or director to (if such relationship
forms the sole basis for the grant), the Company
or a subsidiary, options held at the date of
such termination (to the extent then
exercisable) may be exercised at any time within
three months after the date of such termination
(but in no event after the expiration date of
the option as set forth in the Option
Agreement). If an optionee becomes permanently
and totally disabled (within the meaning of
Section 22(e)(3) of the Code) or dies while
employed by, or a consultant or director to, the
Company or a subsidiary, (or, if the optionee
dies within the period that the option remains
exercisable after termination of employment,
consultancy or directorship), options then held
(to the extent then exercisable) may be
exercised by the optionee, the optionee's
personal representative, or by the person to
whom the option is transferred by will or the
laws of descent and distribution, at any time
within one year after the disability or death or
any lesser period specified in the Option
Agreement (but in no event after the expiration
date of the option as set forth in the Option
Agreement).
7. Restricted Stock.
(a) Grant. The Administrator may grant
restricted
stock under this Plan at any time and from time
to time before the expiration of this Plan.
(b) Restricted Stock Agreement. As soon
as practicable after the grant of restricted
stock, which in no event shall be later than
thirty (30) days after the grant date of the
restricted stock, the Company will provide the
participant with a written restricted stock
agreement setting forth the terms and conditions of the
grant (the "Restricted Stock Agreement").
(c) Price. Participants awarded
restricted stock, within fifteen (15) days of
receipt of the Restricted Stock Agreement, shall
pay to the Company the purchase price of the
restricted stock set forth in the Restricted
Stock Agreement, which shall not be less than
the par value of the Stock subject to the grant.
If such payment is not made and received by the
Company by such date, the grant of restricted
stock shall lapse.
(d) Restrictions. Subject to the
provisions of the Plan and the Restricted Stock
Agreement, during a period set by the
Administrator, commencing with, and not
exceeding ten (10) years from, the grant date of
the restricted stock (the "Restriction Period"),
the participant shall not be permitted to sell,
assign, transfer, pledge or otherwise encumber
shares of restricted stock. Within these
limits, the Administrator may provide for the
lapse of such restrictions in installments and
may accelerate or waive such restrictions, in
whole or in part, based on service, performance
or such other factors or criteria as the
Administrator may determine.
(e) Dividends. Unless otherwise determined by the
Administrator, cash dividends with respect to
shares of restricted stock shall be
automatically reinvested in additional
restricted stock, and dividends payable in Stock
shall be paid in the form of restricted stock.
(f) Termination. Except to the extent
otherwise provided in the Restricted Stock
Agreement and pursuant to Section 7(d), upon
termination of a participant's employment for
any reason during the Restriction Period, all
shares still subject to restriction shall be
forfeited by the participant.
8. Payment of Taxes.
(a) The exercise of an option (regardless
of the form of payment for exercise of the
option) or the transfer or other disposition of
restricted stock shall be conditioned upon
payment in cash, or provision satisfactory to
the Administrator for payment to the Company, of
any federal and state withholding taxes which,
in the Administrator's judgement, are payable in
connection therewith.
(b) If and to the extent consented to by
the Administrator in its sole discretion, a
person may (i) tender to the Company previously-
owned shares of Stock, or (iii) have shares of
Stock to be obtained upon exercise of the option
withheld by the Company on behalf of the
optionee, to pay the amount of tax that the
Administrator, in its discretion, determines to
be required to be withheld by the Company.
9. Adjustment for Changes in Capitalization.
The existence of outstanding options shall not
affect the Company's right to effect
adjustments, recapitalization, reorganizations,
or other changes in its or any other
corporation's capital structure or business, any
merger or consolidation, any issuance of bonds,
debentures, preferred or prior preference stock
ahead of or affecting the Stock, the dissolution
or liquidation of the Company's, or any other
corporation's, assets or business, or any other
corporate act whether similar to the events
described above or otherwise. Subject to
Section 10, if the number of outstanding shares
of Stock is increased or decreased in number or
changed into or exchanged for a different number
or kind of securities of the Company or any
other corporation by reason of a recapitalization,
reclassification, stock split, combination of shares, stock
dividend or other event, the number and kind of securities with
respect to which options or restricted stock may
be granted under this Plan, the individual
limitations under Section 3(b) above, the number
and kind of securities as to which outstanding
options may be exercised, the option price at
which outstanding options may be exercised
hereunder shall be proportionately adjusted.
10. Dissolution, Liquidation, Merger. In the
event of a dissolution or liquidation of the
Company, a merger or consolidation in which the
Company is not the surviving corporation, a
reverse merger in which the Company is the
surviving corporation but in which more than
fifty percent (50%) of the shares of its Stock
outstanding before the merger are held, after
the merger, by holders different from those
immediately prior to the merger, or a sale of
more than eighty percent (80%) of the assets of
the Company, (a) except as otherwise provided in
the Option Agreement, the time at which each
outstanding option may be exercised (subject, in
the case of incentive stock options, to the
limitations on exercisability set forth in
Section 6(c)(i) of this Plan) shall be
accelerated at a time such that the optionee
(upon exercise of the option) would
be eligible to receive the consideration payable
to holders of Stock in connection with such
liquidation, dissolution, merger, consolidation,
reverse merger or sale, and (b) except as
otherwise provided in the Restricted Stock
Agreement, the restrictions applicable to any
restricted stock shall lapse.
11. Rights as Stockholder. Unless the Plan or
the Administrator expressly specify otherwise, a
participant shall have no rights as a
stockholder with respect to any shares of Stock
covered by a grant hereunder until the date of
issuance (as evidenced by the appropriate entry
on the books of the Company or a duly authorized
transfer agent) of a certificate representing
the shares of Stock. Subject to Sections 9 and
10, no adjustment shall be made for dividends or
other rights for which the record date is prior
to the date the certificate is issued.
12. Disqualifying Dispositions. If shares of
Stock acquired upon exercise of an incentive
stock option are disposed of in a "disqualifying
disposition" (within the meaning of Section 422
of the Code), the holder of the shares shall
notify the Company in writing, within five days
after the disposition, of the date and the terms
of such disposition. In the event of any such
disposition, the holder will comply with any
other requirements imposed by the Company in
order to enable the Company to secure the
related income tax deduction to which it is
entitled.
13. Termination or Amendment.
(a) The Board may amend, alter or
discontinue this Plan, but no amendment,
alteration or discontinuance shall be made which
would impair the rights of a participant under
an outstanding grant without the participant's
consent. In addition, the Board may not amend
or alter the Plan without the approval of stockholders of the Company
entitled to vote at a duly held stockholders'
meeting or by an action by written consent and,
if at a meeting, a quorum of the voting power of
the Company is represented in person or by
proxy, where such amendment or alteration would,
except as expressly provided in the Plan,
increase the total number of shares reserved for
issuance pursuant to grants under the Plan or in
such other circumstances as the Board deems
appropriate to comply with Rule 16b-3 or with
Section 422 of the Code or otherwise.
14. Parent and Subsidiary. As used in this
Plan, "parent" and "subsidiary" mean any
corporation in an unbroken chain of corporations
which includes the Company if, at the relevant
time, each of the corporations other than the
last corporation in the chain owns stock
possessing more than fifty percent (50%) of the
total combined voting power of all classes of
stock of one of the other corporations in the
chain.
15. Governing Law. This Plan and the rights of
all persons under this Plan shall be construed
in accordance with and under applicable
provisions of the Code and the laws of the State
of California.
* * * * * * * * *
The Board adopted the ALZA Corporation
1992 Stock Option Plan on January 30, 1992 and
the stockholders approved it on May 4, 1992.
The Board amended the ALZA Corporation 1992
Stock Option Plan on February 16, 1995, renaming
it the ALZA Corporation Amended and Restated
Stock Plan and the stockholders approved the
amendments on May 11, 1995.
The Board amended the ALZA Corporation
Amended and Restated Stock Plan on February 12,
1997 to increase the number of shares from
6,000,000 to 9,000,000 and to provide for the
transferability of option rights. The
stockholders approved the amendment to increase
the number of shares on May 8, 1997.
The Board further amended the ALZA
Corporation Amended and Restated Stock Plan on
August 13, 1997. These amendments did not
require stockholder approval.
EXHIBIT 11
Statement Regarding Computation of Per Share Earnings
(In millions, except per share amounts)
Primary
_________________________________________________________________
Quarter Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
_________________________________________________________________
Common stock 85.2 84.4 85.0 84.1
Common stock options - 0.6 - 0.8
$25 Warrants - - - -
5 1/4% Debentures - 12.3 - 8.2
___________________________________________________________________
Weighted average common and
common equivalent shares 85.2 97.3 85.0 93.1
===================================================================
Net income (loss) available
to common stockholders $(326.5) $ 23.1 $(273.8) $ 66.6
Add after-tax interest
on 5 1/4% Debentures - 3.1 - 6.1
___________________________________________________________________
Adjusted net income (loss) $(326.5) $ 26.2 $(273.8) $ 72.7
===================================================================
Earnings (loss) per share $ (3.83) $ 0.27 $ (3.22) $ 0.78
=================================================================
Fully Diluted
_________________________________________________________________
Quarter Ended Nine months Ended
September 30 September 30
1997 1996 1997 1996
_________________________________________________________________
Common stock 85.2 84.4 85.0 84.1
Common stock options - 0.6 - 0.8
$25 Warrants - - - -
5 1/4% Debentures - 12.3 - 8.2
_________________________________________________________________
Weighted average common and
common equivalent shares 85.2 97.3 85.0 93.1
=================================================================
Net income (loss) available to
common stockholders $(326.5) $ 23.1 $(273.8) $ 66.6
Add after-tax interest on
5 1/4% Debentures - 3.1 - 6.1
_________________________________________________________________
Adjusted net income $(326.5) $ 26.2 $(273.8) $ 72.7
=================================================================
Earnings (loss) per share $ (3.83) $ 0.27 $ (3.22) $ 0.78
=================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS INCLUDED IN ITEM 1 OF FORM 10-Q DATED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 117
<SECURITIES> 75
<RECEIVABLES> 108
<ALLOWANCES> 0
<INVENTORY> 39
<CURRENT-ASSETS> 362
<PP&E> 374
<DEPRECIATION> 72
<TOTAL-ASSETS> 1357
<CURRENT-LIABILITIES> 86
<BONDS> 897
0
0
<COMMON> 1
<OTHER-SE> 288
<TOTAL-LIABILITY-AND-EQUITY> 1357
<SALES> 100
<TOTAL-REVENUES> 338
<CGS> 65
<TOTAL-COSTS> 181
<OTHER-EXPENSES> 346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> (225)
<INCOME-TAX> 49
<INCOME-CONTINUING> (274)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (274)
<EPS-PRIMARY> (3.22)
<EPS-DILUTED> (3.22)
</TABLE>
